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Compass Minerals International Inc (CMP) Q2 2019 Earnings Call Transcript

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Compass Minerals International Inc (NYSE: CMP)
Q2 2019 Earnings Call
Aug 7, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Compass Minerals Second Quarter Earnings Conference. [Operator Instructions]

At this time, I would like to turn the conference over to Teresa Womble. Please go ahead.

Theresa Womble -- Director of Investor Relations

Thank you. This morning, our CEO, Kevin Crutchfield; and our CFO, Jamie Standen, will review Compass Minerals' second quarter 2019 results, as well as our outlook for the rest of 2019. Before I turn the call over to them, let me remind you that today's discussion may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the Company's expectations as of today's date, August 7, 2019, and involve risks and uncertainties that could cause the company's actual results to differ materially.

Please refer to the company's most recent 10-K for a full disclosure of these risks. The company undertakes no obligation to update any forward-looking statements made today to reflect future events or developments. Our remarks also today include non-GAAP financial disclosures which we feel are important to provide a full understanding of our businesses and operating conditions. You can find reconciliations of any of these measures in our earnings release or in our earnings presentation, both of which are available at the Investor Relations section of our website at compassminerals.com.

Now I'll turn the call over to Kevin.

Kevin S. Crutchfield -- President And Chief Executive Officer

Good morning, everyone. First, let me say how glad I am to be here at Compass Minerals and participating on my first earnings call. After a brief review of some of our financial and operational results, I'll share some of the early thoughts I have about our path forward. First, a quick review of our second quarter results. While total company revenue declined slightly, we generated operating earnings growth of 46% and adjusted EBITDA growth of 6% compared to the prior quarter. The EBITDA results exclude the impact from unusual logistics costs we incurred in our Salt business due to severe flooding along the Mississippi river.

Despite the impact of those additional costs, most of the earnings growth came from improvements in our Salt business driven by increased sales prices on highway deicing Salt as well as an uptick in sales within the Consumer & Industrial business. We also increased earnings in the Plant Nutrition South America segment due to the increase prices and sales volumes of our agriculture products. Looking more specifically at the Salt business, I'm happy to report that we have continued to make progress toward improving production at our Goderich mine.

Year-to-date, the mine has produced approximately 36% more Salt than last year at a 20% lower per unit cost. The outcome is a direct result of ongoing improvements in the performance of our continuous mining system. From my multiple visits tot he mine, I'm seeing strong improvements in the skill levels of our employees with operating and maintaining the new equipment, which is leading to increased equipment availability and higher utilization rate. The increase in internally produced tons important for improving our market position and allowing us to take greater advantage of a strong highway deicing bid season in the North America.

Our highway deicing bidding for the 2019-2020 winter season is approximately 85% completed. Given the results thus far, we expect to increase our committed bid volume by more than 15% at an average bid price that is approximately 8% above prior year's results. This is a strong result given last year, our average bid price increased 18%. These strong bid season results in addition to better operational performance are expected to help drive meaningful margin expansion and EBITDA growth for this business over the second half of the year. Our Plant Nutrition business remained somewhat slow during the second quarter, particularly in North America.

The rainy weather throughout the spring resulted in lost sales in many of our key SOP and micronutrient markets. In South America, our volumes have grown versus last year but not quite at the level that we expected, given that last year's results were negatively impacted by the Brazilian trucker strike. We also sense some uncertainty among Brazil growers in terms of the timing of their nutrient purchases. That uncertainty is related to multiple factors, including the evolving U.S.-China trade dispute as well as crop conditions in North America, both of which have had an important role to play in soybean farmer economics in Brazil. In both North and South America, however, we're operationally strong and are well-stocked throughout our warehouse networks to serve our customers' demand.

In Brazil, the window to serve our customers looks to be more narrow than we would like, which is another reason we're a bit cautious about the rest of the year in that market. As most of you know, I joined Compass Minerals in May, and I've spent most of the last three months getting to know our people, operations and businesses. I've been impressed with the quality; competitive position; and in some cases, the uniqueness of our asset portfolio. I also appreciate the strong attributes of our core markets and businesses which have the capacity for attractive cash flow generation regardless of what's transpiring in the broader economic cycle.

And I'm very impressed with our people, who go to work every day with a strong sense of purpose and dedication to their jobs. Given these positive attributes and the significant investments that have already been made to improve these assets, coupled with a laser focus on execution, over time, I'm optimistic about the ability of the business to significantly increase its margin. While these are still early days for me, we've already begun to make some important changes in our structure and undergoing a thorough review of every aspect of how we operate.

Our decision to move to a functional organization structure and this review are all part of effort to achieve enterprisewide optimization, coupled with a renewed focus on operations and technical excellence. I believe that these efforts will allow us to deliver stronger returns on the investments we've made and help us determine what strategy shifts might be needed to achieve greater shareholder value. In the meantime, executing and delivering results from our existing operations is critical. I've discussed the improvements made by our team at the Goderich mine, but we have other important examples as well. Our Cote Blanche salt mine was directly impacted by the recent tropical storm that made landfall in Louisiana in July.

On that score, I would first like to commend the Cote Blanche team for having such a robust and comprehensive emergency preparedness plan in place and executed it flawlessly as the storm approached, keeping our folks out of harm's way and securing our assets. Secondly, I would also like to commend them for their efforts to restart the operations after basically taking a direct hit and enduring a fair amount of damage. All told, however, we don't expect any impact from the storm on our full year production at this side due to the swift recovery efforts by our Cote Blanche team.

Our team at Ogden has also been driving better results in production in quality at our SOP plant this year, where we've driven cash cost on current year production to the $225 per ton range. In the Plant Nutrition North America business, we've also introduced new products like rocket seeds and entered into new partnerships for the development of more innovative products. These achievements mean we should be well positioned to deliver growth as the agriculture market improves over the next year. With stronger execution capabilities, attractive fundamental in our Salt business and better market conditions developing in the agriculture market, we expect these factors to culminate with a strong finish for 2019 and a solid start to 2020.

Now Jamie will walk through the details of our segment results and outlook for the rest of the year. Jamie?

Jamie Standen -- Chief Financial Officer

Thank you, Kevin. First, looking at our Salt results found on slide seven. We delivered a 17% increase in operating earnings in the second quarter as 14% higher average selling prices and lower highway deicing salt costs more than offset a 19% decline in sales volumes compared to the prior year. As mentioned by Kevin and in our earnings release, these results included $2.8 million in unusual logistics costs related to the extreme flooding experienced this spring along the Mississippi river. This flooding resulted in increased transit times and unexpected demurrage fees. The shipment delays also had a negative impact on our sales volumes, although we're already starting to make up those sales in the third quarter.

Salt sales volumes were also negatively impacted by lower deicing commitment volumes from last year's bid season as well as the mild winter in the U.K., which has reduced restocking demand, however, some of this decline was offset by stronger Consumer & Industrial sales. Average selling price was very positive this quarter as a result of the 7% improvement in highway deicing prices and a 7% benefit from a relatively higher mix of Consumer & Industrial sales in the 2019 quarter compared to prior year. Remember, these products have a much higher average selling price compared to highway deicing products, although the cost to produce them is also higher.

In addition to the unusual logistics costs we discussed, base loads and fuel prices also increased shipping and handling cost from second quarter 2018 results. Per unit cash costs for Salt products were about 2% above prior year. Excluding the product mix impact, per-unit cash costs would've been 10% lower, which is a reflection of the improved production at Goderich mine versus last year's results and higher year-over-year operating rates at our Cote Blanche minor. Second quarter Plant Nutrition North America results, which are discussed on slide eight, continued to feel the impact at the wet spring weather. Sales were declined 8% while average selling prices were slightly higher than prior year results.

With rain continuing into May throughout California and the Pacific Northwest, our commercial team did a great job in mitigating the impact by shifting SOP tons to our Eastern and Southeastern markets where wet weather was less impactful. We also believe weaker grower economics for grow crops impacted our micronutrient sales in the second quarter. Operating earnings for the quarter increased modestly while EBITDA declined about 10%. Because this is a low earnings quarter, small changes have had large impacts on year-over-year percentage results. Our earnings were negatively impacted by lower-than-expected sales for the weather reasons previously discussed. We've also increase our SG&A to fully staff our commercial and R&D teams to support future growth.

And our shipping and handling costs increased year-over-year due to shipping products to more distant markets compared to last year. On the positive side, we have continued this year to produce at lower cost at our SOP facility in Utah, where we are really beginning to see the benefits of the investments made there. SOP only costs were down 9% for the quarter compared to prior year, which was mainly driven by better pond-based production from the Utah plant. Turning to our Plant Nutrition South America segment results online -- on slide nine, we reported a 15% increase in revenue for the second quarter on 19% higher volumes and 3% lower average selling prices. These results were stronger in local currency as you can see on the slide.

The key drivers of local revenue growth were improved sales volumes and better agricultural products selling prices. Some of the volume lift versus prior year was due to the fact that truckers in Brazil were on strike last May, as mentioned by Kevin. Operating earnings and EBITDA also improved, primarily driven by higher sales volumes and prices in the agricultural business. This was partially offset by higher raw material input cost. Before moving on to our outlook, a few corporate items of note. Net earnings were again impacted by an increase in other expense, which was $2.6 million larger than prior year results.

Similar to the first quarter, the primary driver was an FX loss related to the strengthening Canadian dollar versus the U.S. dollar. We also incurred higher interest expense due to increased borrowings on our revolving credit facility. Turning to our second half outlook, which can be found on slide 10. We expect Salt segment results to deliver additional growth due to increased highway deicing bid prices and commitment volumes as well as improved Consumer & Industrial sales particularly within the packaged deicing category. In Plant Nutrition North America, we expect second half of 2019 sales to benefit from increased SOP demand following the reduced applications in the spring while prices are expected to remain stable.

Micronutrients, however, are facing additional headwinds from increased inventories at the customer level. In our Plant Nutrition South America business, we continue to expect full year growth in sales volumes along with revenue and earnings growth in the second half of the year. We are a bit cautious on the degree of growth in South America. Growers appear to be taking their time to make planting decisions for this season based on several factors: They're waiting to see where the U.S. soy yields land, you have reduced soybean demand from China due to Asian swine flu in addition to domestic policy concerns and uncertainty regarding the Brazilian currency.

So while soybean economics are still attractive, they are not as robust as last year, which may reduce demand for some of our higher-value products during the balance of the year. There may also be acreage shifts between soy and corn. These changes can impact on margins as our corn-applied products are somewhat lower on the value spectrum in general. For the full year, we are maintaining our original view on EBITDA based on the growth expectations I've just outlined. We continue to expect to generate about $100 million of free cash flow for the full year 2019.

We also expect to end the year with our leverage ratio below 4x debt to EBITDA. As Kevin mentioned, we are very pleased with our bid results thus far, which sets us up nicely for the upcoming winter. In Plant Nutrition North America, we have fully deployed our SOP inventories and stand ready to serve fall demand. And in South America, we are patiently waiting for traders to start taking positions in corn and soy, which should push growers to make the expected investments in fertilizer inputs. These factors, plus an amplified focus on disciplined internal capital allocation and enterprisewide strategic sourcing, will further enhance both margins and cash flow generation.

Now I'll ask the operator to start the Q&A session.

Questions and Answers:

Operator

[Operator Instructions] We'll take our first question from Vincent Anderson with Stifel.

Vincent Anderson -- Stifel -- Analyst

Good morning and welcome aboard, Kevin. I wanted to go back to Goderich for a little bit more detail. Has the timeline changed at all since you last updated us with regards to when you think you'll be at least in a place where you can stop importing Salt if not at targeted capacity utilization rates?

Kevin S. Crutchfield -- President And Chief Executive Officer

Good morning Vince and thank you. Maybe the best way to hit Goderich is just to talk about it in the context of a continuum. And maybe this might even answer other questions folks have on their mind. But we've got the 4 CM, CH units in place there. And as you can see year-over-year here, we're seeing better results. And I would expect that trend to continue as we get more comfortable with the equipment and we're doing some things the maintenance side, lots of cooperation, collaboration between production and maintenance on the preventative side to keep these things in -- running in the salt face at more appropriate levels of availability and system utilization.

So that's kind of number one. We've got a new unit showing up, I think we've talked about that in the past, it will show up late this year we're not -- we don't have anything built into the plan this year for that. But we'll see the full benefit of that unit next year, and that will allow us to pull one of the other units off toward development on this new mine plan that we've referenced a or 2 in the past. So with that, I would expect, as we continue to improve things that Goderich, it will lessen the burden of purchasing import salt.

And for ever ton you do that, you're going to experience margin expansion because the margin we experience across imported tons is less, obviously, than we can achieve through internally produced tons. In addition, as we grow our volumes at Goderich, which I have every intent that -- and believe that we will, the fixed cost absorption levels will also improve, driving down Goderich costs, which will further increase margin expansion. So without any reference to specific targets, that is the -- at least the near-term game plan.

And then the longer-term game plan is I think we discussed in creating mining districts and migrating ourselves from this old mines setup that's been in place 50, 60 years toward a new mine setup so that we can reduce the care and maintenance cost associated with maintaining the old mine works and get ourselves set up for the next 30, 40, 50 years. But that's going to take two, three years to get under way, but that's what we're working toward. So that's a really long answer to your question, and I hope that was responsive to it.

Vincent Anderson -- Stifel -- Analyst

No. Certainly helpful, I appreciate it. Sticking with Salt, 85% completed at this point. I think that's about 10% to 20% above the usual pace through the balance of the year. Would you characterize that 85% as in line with the broader bid season? Or is it higher than normal because you chose to fill your book faster than maybe some of your competitors?

Kevin S. Crutchfield -- President And Chief Executive Officer

Well, I think it's a function of people been depleted in terms of inventories. The RFPs came out pretty aggressively. We had a couple of really big wins. I think it was probably what makes up most of that delta because we normally come in this time of the year, as I'm learning anyway, somewhere in the 70% ZIP Code. And that we're in at 85%, I think it's really a function of a couple of big wins that we took up in the Upper Midwest. And I think that's essentially the difference. Jamie, did you have any more?

Jamie Standen -- Chief Financial Officer

No, that's exactly right.

Vincent Anderson -- Stifel -- Analyst

Thanks. I'm going to try to sneak one more in here. Have there been any early indications that your fourth quarter micronutrient demand could have a pretty healthy comeback, given higher crop pricings than where we started the year and pressures on yields?

Jamie Standen -- Chief Financial Officer

I think we mentioned some headwinds here in the second half expected to continue. Certainly, higher crop prices and depletion of this customer inventories will help. But we're just not quite sure yet. We're going to have to wait and see how that unfolds. It's hard to say at this point exactly.

Operator

Thank you. And next question comes up from Mark Connelly with Stephens.

Mark Connelly -- Stephens -- Analyst

Just two questions. Kevin. When we spoke last, you hadn't spent a lot of time yet with the people on the ag side of the year and I assume that you're spending most of your time on Salt. But since that time, you have made some important management and organizational changes. We hear a lot from investors that the ag business doesn't fit. So can you share your still-early thoughts on how the ag business does fit?

Kevin S. Crutchfield -- President And Chief Executive Officer

Yes, and good question. Yes, we did some make important changes and will continue to make changes as we evolve toward more of a functional organization structure with the bifurcation between operations and the commercial aspects and treating that from an enterprisewide standpoint. As then as Jamie mentioned in his prepared remarks, centralizing strategic sourcing and how we allocate capital internally, we think there's some value there. But not to get in to strategy here this morning, I think our first order of business is we're conducting our business MRI or diagnostics, whatever you want to call it, top to bottom. We see a lot of internal potential here. And I think staying focused on that in the near term and improving the results and our performance is jobs 1, 2 and 3 for the next handful of quarters.

So that's what we're really going to focused on. And as we start putting runs on the board through some of these improvements that we've -- we're in the very early stages of, And as the business gets healthier and healthier, I think that's when we'll evolve into more of a strategics discussion with the management team as well as the Board on where we go from here. So I don't want to touch on somebody's view that ag doesn't for or does fit. I think what we're -- job 1 for us is improving the performance of the business. Because it goes without saying that we've had some misses in the past, and I think getting focused on that is really job 1.

Mark Connelly -- Stephens -- Analyst

Helpful. And second question is just on working capital. You had a bigger build this quarter with higher inventories, which I'm pretty sure is a good thing. So how should we think about the second half? Should we assume that working capital is going to be a bigger build year-over-year again as Goderich continues to show progress?

Jamie Standen -- Chief Financial Officer

Yes. I'll take that one. I -- we will. You will see a bit more cash consumed for the working capital build. Last year in our Salt business, we ended the year with significantly lower inventories than we would have typically wanted to end with. And then as you can recall, we had consumed all of our 2018 Salt kind of midway through first quarter this year. So we would prefer to finish the year with higher levels. And so you can expect to see a bit bigger, not a huge difference, but it could be $10 million to $15 million bigger year-over-year in terms of working capital in the second half.

Mark Connelly -- Stephens -- Analyst

Helpful thank you Jimmy

Operator

We'll take our next question from Christopher Parkinson with Credit Suisse.

Christopher Parkinson -- Credit Suisse -- Analyst

Great. Thank you. You hit on this a little, but when you take a step back and just look at the current segment-level outlooks over the intermediate to long term, how should investors be thinking about the annualized cash conversion in a normalize environment? Meaning, say, growth capex and just key variables. So just any additional insights on slide 12 and just how you're thinking about that would be very helpful. Thank you.

Jamie Standen -- Chief Financial Officer

Sure. So in the prepared remarks, we mentioned the focus on internal capital allocation. We've been running high capex for several years. Last year above $100 million, trying to get that down below $100 million this year. So I think we're going to look to drive our maintenance of business capital a bit lower with more rigor and attention to that specifically. So kind of that $90 million range of capex is what we're focused on right now.

Cash taxes are going to be similar to what they've been. Using that 28% tax rate is as a good number as any. And we do expect to get to that $150 million to $200 million of free cash flow based on our expected increased production levels, reduction of imported Salt like we talked about before. And it's -- we're not in a position to say we're going to hit that level in 2020. But as you look out a little bit further and think about 2021, that is a very real possibility.

Christopher Parkinson

Great. And when you think about the competitive landscape in the U.S. Salt market, can you just update us on your intermediate to long-term strategy just to maximize net-backs in your key markets? And just how that looks like it's shaping up in the current QSR season. Is there stuff you can do even better in next year and the year after that? Or are you kind of where you think you need to be, roughly? And that comment's excluding the third-party Salt.

Kevin S. Crutchfield -- President And Chief Executive Officer

Yes. Good question. I mean, I think job one for us is, I think everybody knows Goderich hasn't been performed all that well over the last few years. And getting it performing well and basically growing into the level of import Salt that we have now is kind of job 1. And then when you look at our depots and our logistics and our networks, we're taking a very close look at how we move Salt around to make sure that we're doing it in the most efficient way possible.

The last mile's the toughest part and we want to trial optimize around that, so there's a -- not that there wasn't a focus here before, but there will be a renewed focus on that to try to minimize the cost from the Salt face to the ultimate depot or even the ultimate customer. So we think there are some additional improvements that can be made there on the logistics side, and we're honed in on that as well. But again, just kind of going back to Goderich for a moment, there's a ton of pent-up potential there that I'm super excited about, having been up there now a handful of times already. And feel really good about our prospects there.

It's going to take a while to kind of get things in place, but I think over the next few quarters, you'll continue to see improvement there. And then over the next few years, I'm super excited about what the prospects look like in terms of getting into this new mine plan and correct geometries, bigger equipment. These new units that we're getting later this year and next year are much more substantial units than we have up there now. And I think their productive capacities will be -- will exceed what's in place now. So I'm really excited about how we're getting things teed up and how I think we'll be able to execute over the next few quarters.

Operator

Our next question comes from Joel Jackson with BMO capital.

Joel Jackson -- BMO capital -- Analyst

Good morning everyone. Wanted to go back to bid season, talk about where -- the volume's trending up about 15% year-over-year. Can you maybe break that down little more between how much of that came from Goderich being able to produce more, maybe -- to maybe some competitors having issues on production, to maybe just sort of market growth or inventory adjustments year-over-year for -- in the channel. Thanks

Jamie Standen -- Chief Financial Officer

Yes. I'll start that and then maybe you can chime in, Kevin. So we wouldn't really -- we'll never talk about competitor behavior. We picked like -- like Kevin mentioned,, we picked up some tons, quite a nice slug of tons back in June, July time period, which was a bit surprising to us. But I'm not sure if some competitors are shifting tons to different geographies or some may have some supply constraints themselves. But we are running very well down in Cote Blanche, so that's giving us the opportunity to adjust our, we call it the North-South line, where we can serve tons out of either mine. So with that plant, that facility running like it is, we're able to take advantage of that.

A significant part of it is certainly the higher levels of production out of Goderich. So that is a big piece of our ability to increase. And then -- gosh, what would be the other piece? I think it's -- I think a lot of business last year went kind of unserved. So that enabled us to take significant amount of tons back, big market share back, so to speak, at really nice prices in the grand scheme of things. So there's a lot of pieces there, but I think unserved market that we're taking back, so to speak, or picking up, and Cote Blanche. And it's hard to say what's happening with our competitors.

Kevin S. Crutchfield -- President And Chief Executive Officer

Thank you for that. I was just going to say, I mean, I think Jamie hit on the right points there. I mean, we did run into some surprising, I guess, no-bid situations. And we don't have a lot of entail as to what's going on with that. Worked out really went for us and we're happy about it. And as Jamie mentioned, and I would like to give kudos to the Cote Blanche team.

I mean, through -- they've been a very steady producer through the year and they handled that storm very well. Took a loss on tons, but they will make that up between now and end of the year. And of course, with the Mississippi kind of being backed up, we're a little behind on moving our salt, but we think we will be fine throughout the course of the year. So I think we're teed up for a really strong back half of 2019 and have some nice tailwinds going into 2020 as well.

Joel Jackson -- BMO capital -- Analyst

Thank you for that. Maybe back on Brazil. So you've given some good commentary about some of the put and takes in your forecast, like half of the year grower caution and some of the sensitivity between corn and beans. Appreciate that. Could you maybe give some commentary on, a lot of the products that you sell in Brazil are not the same commodity fertilizer and crop import products. And we see you sell a lot of niche products or specialty products. Can you maybe comment on the sensitivity of the broader Brazilian ag macro to your specific product set as opposed to more of the commodity products?

Jamie Standen -- Chief Financial Officer

Sure. Thanks, Joel. That's a good question, but remember, we do have high-technology products, leading-edge products. But a lot of our products go on to soy in South America and corn as well. So the biggest shift is, like we mentioned in the prepared remarks, is that risk around soy to corn. The real issue down there right now is as we -- as farmers weigh on -- to place their -- to sell their grains with the commodity traders is -- I think it's -- so they're about 20% behind.

Typically, they would have committed 20% more of their grains than they have year to date. So they are -- the big trading companies aren't taking positions as quickly as they were last year, so they're waiting for that. So what that can do is shift sales from third quarter to fourth quarter. So that's why we're being a little cautious there. If we see more corn tons planted and safrinha-related products, that can give as a little bit of margin squeeze because we just don't make as much money on the corn side as we do to the soy.

The other piece is, if they wait too long, they can miss the soil-applied nutrient season, which is coming up quickly. In which case, if that is a little bit lighter, in order to deliver the nutrients to the plants, we'd expect a little bit of boost on the full year side, which would transition tons a little bit to the -- and profitability for that matter to the fourth quarter. So yes, we do have some citrus and coffee and other products down in South America, but the lion's share of what we sell into is soy.

That's the main driver down there. So that's what we're -- that's what we try to focus on. As it relates to the second quarter itself, we did see some good activity on the B2B front in our ingredients business. We had significant volumes sold into distribution. But I think -- even the distributors are down there, even though they're taking product on, their customers, particularly in the South, are also waiting to see how things flush out with global trade, swine flu, China demand and soy prices.

Operator

[Operator Instructions]. We'll take our next question from Jeffrey Zekauskas with JPMorgan.

Jeffrey Zekauskas -- JP Morgan -- Analyst

Thanks very much. I think in the course of the call, Jamie, you made a remark about how $150 million to $200 million in free cash flow looked less possible for 2020 but maybe in 2021. Why did you say that? Why is 2021 a better opportunity to capture that level of free cash flow? And why do you rule it out for 2020?

Jamie Standen -- Chief Financial Officer

Thanks, Jeff. I'd say we'll be on a path to that. So I would expect $100 million to $150 million out in 2020. Bottom in to that $150 million to $200 million is kind of how we see it. We -- as we ramp up production, we can't take tons back in the marketplace as quickly as we would like because of the timing of the bid season. So you have to bid those incremental tons, keep increasing our production capacity so we can bid these incremental tons, replace purchased tons, which generates more cash flow.

And it just pushes it out a bit. So just to be clear, I would say this year, we're talking about $100 million. Next year, we should be able to move that up toward kind of halfway up to that $150 million to $200 million. And then in the 2021 timeframe, we'd be fully normalized.

Jeffrey Zekauskas -- JP Morgan -- Analyst

How many purchased tons of salt roughly do you sell?

Jamie Standen -- Chief Financial Officer

So we think of it -- we don't talk about that specifically, but we're spending approximately $15 million on purchased salt.

Jeffrey Zekauskas -- JP Morgan -- Analyst

Okay. Are there any capacity constraints that you still have that are left over from the strike? Or any other factors in trying to serve the -- I guess, the 2020 calendar year?

Jamie Standen -- Chief Financial Officer

No. I mean -- I think, just like in the 2018, '19 bid season, how we took our commitments down, we -- that was because of our own internal supply constraints. Now that we have -- continue to see production recover, we've taken those tons back. We're very confident that we can serve the 2019-2020 bid season, given our current production rates at all of our facilities. So I don't see any issue around being able to serve what we bid.

Kevin S. Crutchfield -- President And Chief Executive Officer

No. No, not at all.

Jamie Standen -- Chief Financial Officer

Is that your question, Jeff?

Jeffrey Zekauskas -- JP Morgan -- Analyst

Yes, yes. Just two very quick things. You treated the extra logistics costs because of the flooding as a nonrecurring item. Why did you do that? I would think that there are all sorts of small, natural things that occur when you run a salt or an agricultural business. And shouldn't these be part of normal operations?

Jamie Standen -- Chief Financial Officer

Well, it was particularly unique, Jeff. That was something that we haven't ever, since I've been at the company, seen before in terms of the upper Mississippi lock was closed until June 27th. I don't think that, that's ever happened. So that is an item that we truly view as nonrecurring and extremely unusual. You're talking about more rain in the Midwest than they've seen in 125 years. So that is, to us by definition, unusual.

Jeffrey Zekauskas -- JP Morgan -- Analyst

Then lastly, in the press release, Kevin, you said that you made important strides this quarter to drive operational performance which is beginning to be reflected in your results. Can you be specific about what it is that you accomplished this quarter?

Kevin S. Crutchfield -- President And Chief Executive Officer

Well, I mean, I think you can see it in particular in Goderich on a year-over-year basis being up 36%. And I would expect that 36% number to be larger by the time we get to the back half of the year. So as I mentioned, it's -- think of it as a continuum. But I think at the mine level, what we're seeing is, like I mentioned earlier, a very close collaboration between the production and maintenance folks to understand that these -- it's complicated machinery and it needs to be taken care of. And we're occurring last sort of unplanned failures and doing things more on the preventative side.

And over time, we'll move more toward the predictive side to anticipate what we think might be coming. So bottom line is the units are just running better. And I think that's a function of people getting more and more comfortable with the equipment and how to take care of it and that sort of thing. So I think that in and of itself is a big one. And I think we'll continue to see that through the balance of the year. And then additionally, I would point to SOP costs being down in that $225 n ton ZIP Code. That's a pretty important milestone compared to where we've been in the past. So I point those two things as examples.

Jeffrey Zekauskas -- JP Morgan -- Analyst

Okay great. Thank you so much.

Operator

Our next question comes from that Seth Goldstein with Morningstar.

Seth Goldstein -- Morningstar -- Analyst

Hi thank you for taking my question. Assuming the Salt production continues to ramp up as expected, when will we expect to see the large improvement in unit production costs show up in the financial results? Is that late 2020 or out in 2021?

Jamie Standen -- Chief Financial Officer

So you will start to see some of it in 2020 on a blended cost basis for all salt tons. We'll get down below $40 in 2020. And then the continued improvements we make throughout 2020 itself will really start show up in '21 for the most parts. So we view a couple dollar lower salt costs in 2020 and then another step change out in 2021.

Seth Goldstein -- Morningstar -- Analyst

Okay. Thank you. And looking at the North American ag business, if I remember right, SOP sales are only 10% of corn, soy and other row crops. But how has the inside of North American crop exposure change once you started selling the micronutrients North America? And then how will that evolve over time from a crop exposure basis?

Jamie Standen -- Chief Financial Officer

Well, I would say that we haven't seen -- so the 10% number is -- I'm not specifically sure about that piece. A lot of SOP -- most of our SOP goes into speciality crops. Don't think of it as going into row crops. It does grow into potatoes in the Pacific Northwest. But in terms of crop shift, I think our SOP will continue to be the best source of potassium for specialty crops in North America.

As we continue to grow our micronutrient business, you'll start to see that diversification, and that's, like we've mentioned earlier in our prepared remarks, we built out our sales force and our R&D team to continue driving new products, to continue to really grow that business. So those products, many of those micronutrients, are going on to row crops throughout the Midwest. So it's just going to take some time to build that up before you see a significant shift there.

Seth Goldstein -- Morningstar -- Analyst

Okay great. Thank you.

Operator

We have a follow-up question from Vincent Anderson with Stifel. Mr. Anderson, we are unable to hear you. Please check your mute function.

Vincent Anderson -- Stifel -- Analyst

Sorry about that. Yes. I just had two quick follow-ups. Roughly what portion of the percent increase in your salt bid price would you attribute to passing through raw logistics inflation?

Jamie Standen -- Chief Financial Officer

I would say -- so there's a mix impact, the tons we won versus last year, there's a lot of factors in there. But probably a small portion, I would say less than 1/4 of it.

Vincent Anderson -- Stifel -- Analyst

That's helpful. Thank you. And then just with the Braskem outage down in Brazil and the rise in Latin American caustic soda prices, have you seen any pickup in interest for potential buyers for your Brazilian chlor-alkali facility?

Jamie Standen -- Chief Financial Officer

So we won't really comment on that specifically. We continue really enjoy the margins and the profit of that business. But I don't think that we have any comment in terms of M&A.

Vincent Anderson -- Stifel -- Analyst

Thank you.

Operator

And it appears we are no further questions at this time. I'd like to turn the conference over to Theresa Womble for any additional closing remarks.

Theresa Womble -- Director of Investor Relations

Thank you, Lauren, and thank you all for joining our call today. If you have any follow-up questions, feel free to reach the Investor Relations department. You can find the information on our website. Have a great day.

Operator

[Operator Closing Remarks]

Duration: 46 minutes

Call participants:

Theresa Womble -- Director of Investor Relations

Kevin S. Crutchfield -- President And Chief Executive Officer

Jamie Standen -- Chief Financial Officer

Christopher Parkinson

Vincent Anderson -- Stifel -- Analyst

Mark Connelly -- Stephens -- Analyst

Christopher Parkinson -- Credit Suisse -- Analyst

Joel Jackson -- BMO capital -- Analyst

Jeffrey Zekauskas -- JP Morgan -- Analyst

Seth Goldstein -- Morningstar -- Analyst

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