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Edited Transcript of CMP earnings conference call or presentation 1-May-19 2:00pm GMT

Q1 2019 Compass Minerals International Inc Earnings Call

OVERLAND PARK May 7, 2019 (Thomson StreetEvents) -- Edited Transcript of Compass Minerals International Inc earnings conference call or presentation Wednesday, May 1, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* James D. Standen

Compass Minerals International, Inc. - CFO

* Richard S. Grant

Compass Minerals International, Inc. - Chairman, Interim President & CEO

* Theresa L. Womble

Compass Minerals International, Inc. - Director of IR & Assistant Treasurer

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Conference Call Participants

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* Christine Louise Besselman

Deutsche Bank AG, Research Division - Research Associate

* Christopher Lawrence Shaw

Monness, Crespi, Hardt & Co., Inc., Research Division - Research Analyst

* Graeme Marc Welds

Crédit Suisse AG, Research Division - Research Associate

* Joel Jackson

BMO Capital Markets Equity Research - Director of Fertilizer Research & Analyst

* K. Tong

Stephens Inc., Research Division - Research Associate

* Vincent Alwardt Anderson

Stifel, Nicolaus & Company, Incorporated, Research Division - Associate

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Presentation

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Operator [1]

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Good day, and welcome to the Compass Minerals First Quarter Earnings Conference Call. Today's conference is being recorded. And now at this time, I would like to turn the call over to Theresa Womble. Please go ahead, ma'am.

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Theresa L. Womble, Compass Minerals International, Inc. - Director of IR & Assistant Treasurer [2]

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Thank you, and good morning. Today, our interim CEO Dick Grant; and our CFO, Jamie Standen will review Compass Minerals' first quarter 2019 results and our outlook for the rest of the year.

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, May 1, 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 Forms 10-K and 10-Q 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 may include non-GAAP financial measures, 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 on the Investor Relations section of our website.

Now I turn the call over to Dick.

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Richard S. Grant, Compass Minerals International, Inc. - Chairman, Interim President & CEO [3]

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Good morning, everyone. I have 2 positive topics to cover today: firstly, some color on our strong first quarter results; and secondly, some comments on our new permanent CEO, Kevin Crutchfield, who will be joining the company on May 7.

First our results this quarter. Our operating earnings and EBITDA both posted strong year-over-year growth of 25% and 12%, respectively and led to net earnings of $0.22 per share. These results were driven by our Salt business, which delivered well above expected results in the first quarter due to a combination of factors, including the way winter unfolded this year and the improved execution by our salt business in terms of production and commercial operations, which allowed us to capitalize on the winter weather.

Back in February, I talked about how this winter season started with a lot of snow in November, and very little snow in December and most of January in our served markets. We were just seeing a pickup in snow from late January into the first week in February. As we now know, February and early March turned into a strong snow period, as storm after storm swept through the U.S. and Canada before stopping in the second week in March. Both our North American mines, Goderich in Ontario and Cote Blanche in Louisiana, exceeded their production targets in January and February, which gave us additional salt to restock our depos.

Further, our cost advantage shipping routes stayed open throughout February, which gave us a longer window to cost effectively ship salt. Remember, we ship from our Louisiana mine up the Mississippi and Ohio river systems via barges and from our Goderich mine by vessel around the Great Lakes. This allowed us to capitalize on the extra salt produced and was of particular benefit to Goderich, as the ice levels in the lakes were well below normal levels despite the wintry weather.

During March, we had our annual planned shutdown at the Goderich mine, which came back on line on time and is producing on target in April. In fact, during the first week after the shutdown, Goderich produced more than double the tonnage produced in the same week in 2018. As part of this shutdown, we commissioned a new underground surge power facility, which will aid consistency in milling and hoisting. And I can confirm that we now expect delivery of the larger continuous miner in November this year. We were also pleased to reach agreement with our Cote Blanche employees on a new 3-year collective bargaining agreement, which improves our flexibility in operating the mine.

So in summary, for Salt in North America, we reduced our anticipated production costs at our mines, we achieved lower-than-expected shipping costs per ton and were able to replenish our depos late in February to supply our customers with additional volumes until the end of the snows. We also had strong soil to deicing salt in our consumer and industrial business during the quarter and even won some new customers in season, as we were better able to meet demand in a tight market versus some of our competitors. The U.K. experienced warm weather throughout the quarter, which significantly reduced demand compared with the same quarter last year. However, we were able to offset the mild weather impact by actively managing costs. All of this enabled us to deliver the very positive Salt business results for the quarter of almost $68 million of EBITDA, a 39% improvement from last year's results on a 3% reduction in sales for the same period.

The same weather patterns in North America that benefited our salt business worked against us in Plant Nutrition, as heavy rains in California and the northwest and then high river levels and flooding in the Midwest delayed the planting season. As usual, we have built up stocks of SOP in our distribution channels to meet normal demand, which then did not materialize. As a result, the volumes we sold in the first quarter were well below expectations, and inventory levels were maxed out at our Utah plant. We therefore took the opportunity to bring forward some planned maintenance, which will avoid taking the plant offline later in the year when we should be seeing better demand. Right now, we are seeing some improvement in SOP demand in April, but it is not yet clear whether all of our first half shortfall will be made up in the current quarter or later in the year. Despite these headwinds, our North America Plant Nutrition business delivered $10 million of EBITDA this quarter, although EBITDA as a percentage of sales declined to roughly 27% versus about 31% in the first quarter of 2018. Demand for agricultural products in Brazil was also less than expected in the quarter, but this is the quiet season for our Plant Nutrition South America business. The management team took action to dial back on overhead costs and hence delivered on target EBITDA. So overall, the strong Salt performance more than compensated for lower Plant Nutrition demand, and we exceeded our first quarter expectations even allowing for a winter weather adjustment.

Turning to my second positive topic. The Board and I are delighted that Kevin Crutchfield will soon be on the team. As outlined in the recent announcement, Kevin is an experienced CEO with strong long-term mining experience, and in particular, with continuous mining and a deep background in logistics, including rail, river, lake and seaborne vessels. So we see him having both an impact on the operational side of our business and the experience to evaluate and execute our strategy.

I finally want to take this opportunity to recognize the efforts of all our employees in delivering this quarter's results and supporting me during my time as interim CEO. For me, this was a valuable chance to get closer to our people, our customers, our businesses and our investors.

I believe this will allow me to add more value on behalf of all our stakeholders, as I revert to my role as nonexecutive Board Chair.

With that, we will now have Jamie cover the quarter in more detail. Jamie?

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James D. Standen, Compass Minerals International, Inc. - CFO [4]

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Thanks, Dick. Today, I'll start by reviewing our segment results before discussing our outlook and some corporate items.

Beginning with our Salt segment results, which are discussed on Slide 7 of the earnings presentation. While first quarter 2019 revenue in sales volumes declined compared to first quarter 2018. We reported strong gains in both operating earnings and EBITDA due to the factors outlined by Dick. Looking a little closer, highway deicing sales volumes were 17% lower year-over-year with slightly more than half of the decline driven by lower U.K. sales, due to mild winter weather compared to the strong winter they experienced last year. The remainder of the decline resulted from lower highway deicing commitments in North America. Fortunately, above-average winter weather in North America helped offset some of the year-over-year impact of lower commitment levels as did the improved pricing we achieved during the 2018/2019 highway deicing bid season.

Turning to price. We reported a 13% increase in salt average selling prices this quarter compared to the first quarter of 2018, with highway deicing prices up 12% and consumer and industrial prices down slightly due to product sales mix changes versus the prior year. Together, these high prices and lower volumes generated a 3% year-over-year reduction in Salt segment revenue. This decline was smaller than we anticipated due to the above-average winter weather in North America, which contributed between $20 million and $25 million of revenue this quarter.

Salt segment operating earnings grew 53% from prior year and our operating margin increased 6 percentage points to 17%, while EBITDA increased 39% and EBITDA margin expanded to 22% from 15% in the first quarter of 2018. In addition to price, the other key driver of these improvements was higher production rates at our North American salt mines, which allowed us to serve more highway and consumer deicing demand and also decreased our per-unit production costs. In fact, excluding mix impacts, our per-unit cash costs declined in the quarter for both the highway deicing business and consumer and industrial business. Salt per unit distribution costs on the other hand are about 10% higher year-over-year. Excluding the $6 million of illogical freight incurred last year, distribution costs are up over 16%. About 6 points of that increase is related to higher freight rates across all modes of transportation. The other 10 points relates to geographic sales mix, which was captured in our price increases.

We begin our quarterly discussion of Plant Nutrition results on Slide 8. Our results in North America were negatively impacted by the same weather challenges that have impacted much of agriculture sector in North America. As Dick discussed, the wet and cold weather has limited growers' ability to work in the fields, and thus, reduce demand so far this year. Our North American volumes dropped 34% in the first quarter versus prior year, while pricing increased about 8% as we sold a higher proportion of micronutrients this quarter compared to last year. Operating earnings and EBITDA also declined. And our profit margins narrowed primarily as a result of the lower sales volumes. We also had higher per unit logistics costs versus last year as wet weather in the west drove a stronger sales mix of SOP in our eastern markets, which are more expensive to serve. The good news is that imports are down significantly versus prior year, and our warehouses are fully stocked and ready to serve customer demand when it materializes. That being said, we have reduced our full year North American sales volume outlook because we don't believe that all of the lost sales in the first quarter can be recuperated over this shortened spring season.

Our Plant Nutrition South America segment has also faced some delays in grower demand for crop inputs. Weather has been less of an issue here, instead the focus has been on trade dynamics between China and the U.S. and what that means for soybean exports in Brazil. In fact, through mid-April, Brazilian growers have forward sold less than 5% of their expected soybean harvest this year versus the historical average of about 30% at this point in the year. It's always important to remember that the first and second quarters are lower earnings periods for our agriculture business in South America. However, we did achieve some price improvements in local currency this quarter for our agriculture products, due to both selling higher value products and passing through most of our input cost inflation.

In the chemical solutions business, our sales volumes increased. However, our sales mix shifted toward lower price products. We also took our largest chemical plant down for scheduled maintenance in the first quarter this year versus the third quarter last year. These items accounted for most of the year-over-year decline in our Plant Nutrition South America segment earnings.

Before moving on to our outlook, I'd like to quickly touch on the nonoperating items that pushed our first quarter 2019 net income results below prior year despite our operating earnings growth for the quarter. The $5 million decline is more than explained by a swing from $4.2 million of other income last year to a loss of $4.4 million this year. The primary driver this quarter was an FX loss related to the strengthening Canadian dollar versus the U.S. dollar.

Turning to our second quarter outlook, which can be found on Slide 10, our current expectation is that the Salt segment will generate significant second quarter EBITDA growth versus the 2018 results. While second quarter Salt revenue is expected to decline compared to prior year results, improved pricing and modestly lower production costs are expected to be the key drivers of this earnings growth. In Plant Nutrition North America, we've started to see a pickup in sales activity during April and expect second quarter 2019 revenue and EBITDA to exceed 2018 levels.

However, as previously mentioned, we do not expect to recover all of the lost sales from the quarter and have adjusted our full year Plant Nutrition North America sales volumes lower.

In our Plant Nutrition South America business, we expect revenue to rebound in the second quarter and outpace prior year results as we sell more through our B2B channel in the second quarter this year. We are keenly focused on having our products fully deployed, so they are readily available for the South American spring application in August and September. With increased sales volumes, we expect to generate sequentially lower per unit costs, which should improve our second quarter profitability versus the first quarter this year. Our full year outlook for this business remains unchanged. For the full year, we are maintaining our original view on EBITDA. We're optimistic that the Salt business will continue to make operating improvements throughout the year and expect to see favorable supply and demand dynamics translate into improved EBITDA margins. We expect these improvements to more than offset the slow start to the planting season in North America and the global trade uncertainty impacting South American growers.

Before I discuss our view on leverage and cash flow, I'd first like to discuss where we stand with regard to our payments and refunds from our tax settlements with the IRS and Canada Revenue. We expect to make a $30 million payment to Canada Revenue during the second quarter as part of our settlement agreement. We also expect to receive a $30 million refund from the IRS during the third quarter. We will continue to work with the IRS in order to collect the additional $55 million settlement refund as soon as possible. The good news is that our expectations for free cash flow related to our Salt business outperformance has improved our overall free cash flow expectation. Excluding the $55 million tax refund, we are currently expecting our 2019 full year free cash flow to come in between $90 million and $100 million. Given our current outlook, we also remain on track to end 2019 with our adjusted net debt leverage ratio to be around 3.7x. So with these developments positively impacting our financial position, we continue to view our dividend as manageable and remain confident that we will continue expanding our free cash flow generation through strong execution in our Salt business and improved agriculture market conditions.

In conclusion, we would like to thank Dick Grant for serving as our interim CEO and for the strong engagement he has demonstrated throughout this period. We look forward to having him continue serving on our Board as nonexecutive Chairman, where he can leverage the valuable insights he gathered during this time as interim CEO. I believe we are well positioned to begin delivering more value from our investments, and I look forward to the next chapter in Compass Minerals' history as we welcome Kevin as our new CEO next week.

Now I will ask the operator to begin the Q&A session.

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Operator [5]

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(Operator Instructions)

We will begin our question-and-answer session with Chris Parkinson with Crédit Suisse.

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Graeme Marc Welds, Crédit Suisse AG, Research Division - Research Associate [6]

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This is Graeme Welds on for Chris. So a couple of questions for me. Firstly, on the Salt segment, the performance is obviously very impressive, and you guys highlighted the fact that price played a major role in driving margins higher. I was wondering if you could help us to parse out, kind of, the relative impacts of higher pricing and lower costs on the performance in 1Q? And how you expect those 2 factors to drive the margin improvement that we're likely to see throughout the balance of this year?

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James D. Standen, Compass Minerals International, Inc. - CFO [7]

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Sure. Sure, Graeme, I'll take that. I would say we highlighted price because it is fundamentally the main driver there. On the cost side, however, what happened is because of how the weather unfolded and our ending inventories at the end of 2018, we basically went through those higher cost inventories by about the middle of the quarter. So what happened was, we started selling the tons we were producing in 2019, the tons we started producing in January and February, which are lower cost tons. So that factor is a little bit short term because you shouldn't think of that cost just translating throughout the entire year. What we would expect now is to continue to import some tons full year, so we're going to have some import costs over the longer term. But as we think about the full year salt cost, it should be similar to 2018 on a total salt basis, and that's really driven by the mix impact of lower deicing tons versus C&I. So as it relates to margin, I would say that, that the improvement we saw was 75% related to price and about 25% related to lower cost.

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Graeme Marc Welds, Crédit Suisse AG, Research Division - Research Associate [8]

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Got it. Understood. That's very helpful, Jamie. And then just on the Plant Nutrition segment in North America, specifically, weather was obviously very disruptive, but pricing was still quite good. And if I heard correctly, you guys mentioned the fact that imports were less of a factor. I'm just curious on what you're seeing that's driving kind of that reduction in imports? So whether it was just overseas competitors recognizing that North American demand was going to be kind of weak and holding back? Or if there's anything kind of more structural going on there in the SOP market?

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Richard S. Grant, Compass Minerals International, Inc. - Chairman, Interim President & CEO [9]

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So there were -- there really a couple of factors, I think. First and foremost, obviously, the weather is impacting it certainly. Also, last year, some competitors, global competitors, had lower production rates. There were some issues with some Chinese production. So what we believe may be happened is some of the tons that, that would have traditionally been coming into the U.S. may have gravitated over toward Europe and kind of limited the imports coming into the U.S. But the other factor though is that, I think the market participants globally understand that we have our distribution channel full and ready to serve. So there just quite frankly isn't much bin space in North America.

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Operator [10]

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Now we'll hear from Mark Connelly with Stephens Inc.

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K. Tong, Stephens Inc., Research Division - Research Associate [11]

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This is Joan Tong for Mark Connelly. On the Salt side, just want to get an idea like what's your expectation for the coming season in terms of commitment and also potential to have another meaningful pricing increase, given the inventory level that you have after very strong winter season?

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Richard S. Grant, Compass Minerals International, Inc. - Chairman, Interim President & CEO [12]

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Yes. This is Dick. Essentially, what we're seeing is that we believe that the overall inventory levels throughout and the markets we serve are at a relatively low level, and of course, there was quite a bit of snow late in the season. So I think that sets us up for, what I'd describe as, more typical thing we found is that after an above-average winter, we tend to get better pricing in that -- in the following bid season. So -- and I think it's not just us but I think it's the whole market is relatively tight at the moment. And so as we go through the restocking process, I think we'll start to see as this evolves that we should see some positive pricing impact this year.

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K. Tong, Stephens Inc., Research Division - Research Associate [13]

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Okay. And then questions on the South America Plant Nutrition. What -- were there a material difference in direct sales versus dealer co-op sales in Brazil this quarter in terms of the slowdown? Or is it pretty much everybody just carrying last inventory, given the market condition?

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Richard S. Grant, Compass Minerals International, Inc. - Chairman, Interim President & CEO [14]

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I think the overall picture is that all of -- we see all of the farmers in Brazil being more cautious this year about committing to extra fertilizers and other inputs to the business. It, of course, is the very quiet season down there. I mean we -- this is a very low volume time anyway, but what we are seeing is that caution across the board. So we're still seeing growth coming from our direct-to-grower part of the business, but we are seeing caution there as well. So I think we'll probably have a better view of this as we get through into the summer period and see whether the farmers start to commit to putting the extra resources into the farms.

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James D. Standen, Compass Minerals International, Inc. - CFO [15]

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Yes, I would just add on. I mean, it's early in the season. It's hard to make a call on the full year. We still feel confident. We left our full year volumes as originally guided. And as Dick mentioned, we continue to see the expected growth in the B2C channel. We mentioned the B2B in the second quarter and kind of how we're seeing some strength there just in terms of that's where we're selling product to other fertilizer manufacturers and getting it out on the field that way. But I would say that if you look at barter rates, NPK barter rates versus soy, they're up -- up around $22 per ton -- so 22 bags per ton. So, it's just making those growers hesitant. And as I mentioned in my remarks, they forward sold less because they are just kind of holding out and waiting to see how this unfolds. But again, it's early, and we're still very optimistic and confident about the full year.

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Operator [16]

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And now we will hear from Vincent Anderson with Stifel.

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Vincent Alwardt Anderson, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [17]

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And nice job on the Salt costs in the quarter. I want to go back to that topic briefly though. So if we look at costs and we strip out DNA, we strip out shipping and handling, and then you think about the $20 million of overhang from last year's high-cost inventory. If you take that out as well, we actually -- it looks like we saw unit costs come down about 15% year-over-year. So I'm trying to understand exactly how you get to full year salt costs being similar to 2018, especially when you think about the back half of 2018 really being a tough period in terms of working through that mine strike?

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James D. Standen, Compass Minerals International, Inc. - CFO [18]

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Sure. So full year, total salt costs being similar is fully loaded with depreciation. So on a cash basis, we would expect full year salt costs to be lower year-over-year, but the main driver there is mix. Remember, we had the lower commitments last year, lower bid commitments, and we'll -- as Dick mentioned in one of his answers, I mean I think we'll look to recover a good portion of that, certainly this year. And that's going to help us. But we don't expect to end the year at a traditional mix between C&I and highway deicing tons. So that is the driver of what's keeping our costs a bit elevated.

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Vincent Alwardt Anderson, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [19]

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Okay. So it sounds like you're just kind of baking in potentially lower-than-expected volumes relative to how strong the winter was if you have to rebuild that order book from last year?

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James D. Standen, Compass Minerals International, Inc. - CFO [20]

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Yes, we just can't -- it just takes time when you lower your bid commitments, you've kind of already got the first quarter done, right? So now what we have is the fourth quarter in terms of building up -- building back up that book of business. So you don't have a full year's work. The remainder of that comes in the first quarter of 2020. So it just doesn't move as quickly as you would like because of the timing of the seasons. So we wouldn't -- for full year and 2019, we don't expect to be doing the more traditional mix. We would expect to get there in 2020.

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Theresa L. Womble, Compass Minerals International, Inc. - Director of IR & Assistant Treasurer [21]

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And this is Theresa. I'll just add on to that, that we also expect some growth in C&I volumes versus prior year, which further shifts that mix more towards C&I volumes.

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James D. Standen, Compass Minerals International, Inc. - CFO [22]

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And therefore cost higher.

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Vincent Alwardt Anderson, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [23]

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Okay. That's helpful. And then just on the ag side, briefly. I was wondering if you had any early feedback with regards to your new go-to-market partnership in Canada? And how that's playing out?

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James D. Standen, Compass Minerals International, Inc. - CFO [24]

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I think it started well. We're excited about that, that new product abundance. We are -- we also launch Rocket Seeds in the first quarter, which we're extremely excited about. The seed nutritionals is a new area for us, and we think there's a lot of growth there. So we continue to look for collaborations and marketing alliances and agreements on products. And that's not something that's moving the needle yet, but we are certainly excited about the relationship and the start.

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Operator [25]

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And next, we'll hear from Joel Jackson with BMO Capital Markets.

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Joel Jackson, BMO Capital Markets Equity Research - Director of Fertilizer Research & Analyst [26]

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So what do you think, like, when you look at the amount of bid volumes you'll be able to do this summer -- let's just -- let's pretend that demand was normal year-over-year, will Compass have more volume available to place in this year's bid season, less or the same?

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James D. Standen, Compass Minerals International, Inc. - CFO [27]

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More.

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Richard S. Grant, Compass Minerals International, Inc. - Chairman, Interim President & CEO [28]

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Yes, Joel. This is Dick. The sort of production rates we're getting now from both of these North American mines allow us really to think about going back to more traditional volumes that we had in the past. I mean we had to take a conservative view last year, but this -- given the way we're seeing production levels, this allows us to think about reversing that shortfall that we had last year. So I think, on balance, we would see more volume being able this year's and previously.

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Joel Jackson, BMO Capital Markets Equity Research - Director of Fertilizer Research & Analyst [29]

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So a share gain as well this year should [resolve] for Compass?

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James D. Standen, Compass Minerals International, Inc. - CFO [30]

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No. I probably call it share recovery. But yes, I think we will take some share back this year.

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Joel Jackson, BMO Capital Markets Equity Research - Director of Fertilizer Research & Analyst [31]

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Okay. That's very helpful. Now switching gears in Brazil. So some of the data points are little bit interesting. So on the chemical side of Plant Nutrition South America, you've seen the average selling price for chems decline 6 quarters in a row sequentially and the year-over-year decline that price is accelerating now every quarter for about a year. So what is going on in that business? When can we see chemical prices flatten and maybe even start to recover?

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James D. Standen, Compass Minerals International, Inc. - CFO [32]

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So what we're seeing there is there's a particular large chunk of business that we have gotten into -- gotten back into that we had had historically with SABESP, which is the São Paulo waterworks, and they are a heavy user of poly aluminum chloride. So that is not a high technology product, obviously, for water treatment. And we've gone in and taken some of those -- taken a larger share of that business in São Paulo state, and that's really been the primary driver on the price side because PAC is much less expensive than some of our coagulants and flocculants. So it's a product mix shift there. We still make money. We still make nice money on that business, but it's just not as the prices are lower. Costs are lower as well.

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Joel Jackson, BMO Capital Markets Equity Research - Director of Fertilizer Research & Analyst [33]

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Okay. Now sticking in Brazil, to hit your volume guidance, you want -- you'll need to see on the ag side, I think, about a 20% growth in ag products, following from the last 3 quarters of 2019. What are the major drivers there? How do you get there?

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James D. Standen, Compass Minerals International, Inc. - CFO [34]

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So it's fundamentally the continued -- the increased average sales per customer. So we add new customers in -- a lot of which are in the Cerrados region, where we kind of have access to the 4,000-plus growers there, and the customers that we currently have continue to use more of our products on more of their fields. So it's just a fundamental increase that we see year-after-year, adding new growers...

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Joel Jackson, BMO Capital Markets Equity Research - Director of Fertilizer Research & Analyst [35]

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But we haven't seen those increases like that, like we haven't seen anything like that. So why is this year the year you're going to see that trend finally happen?

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James D. Standen, Compass Minerals International, Inc. - CFO [36]

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Well, I would say that if you look back at 2017, there was some uniqueness there. But we grew ag volumes '18 from '17, and we expect to have a more meaningful growth trajectory in 2019.

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Operator [37]

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(Operator Instructions)

We're now moving to a question from Chris Shaw with Monness, Crespi.

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Christopher Lawrence Shaw, Monness, Crespi, Hardt & Co., Inc., Research Division - Research Analyst [38]

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Heading into the bid season, do you any indication of what sort of industry supply will look like? And I guess you'll have a bit more, obviously, but do you know about some of the other players what their buy levels will look like heading into that season?

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Richard S. Grant, Compass Minerals International, Inc. - Chairman, Interim President & CEO [39]

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Chris, I think our overall view is that the whole market, it has relatively low inventories in the field. And we think the market is probably going to be stronger following the winter. And so we did not see certainly any oversupply situation. So we think that supply, in general, will still be tight. So you'd have to ask others about production issues that they may have, but I don't -- we don't see anything that suggests that there's going to be an abundance of product available this year.

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James D. Standen, Compass Minerals International, Inc. - CFO [40]

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And we also believe that there was certain commercial business that just quite frankly went unserved last year. So those are good opportunities in the marketplace. As we continue to ramp up our production, improve our production rates that will give us an opportunity to capture some of that -- recapture some of that business.

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Christopher Lawrence Shaw, Monness, Crespi, Hardt & Co., Inc., Research Division - Research Analyst [41]

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And then just curiously the -- I mean, the parts of the upper Midwest got some snows here in April. Do you see that is being meaningful. I'm not sure how much typically happens in April, but does that -- do you think that's going to be a meaningful impact? If not, 2Q, I mean just -- how depleted their levels might be as well to customer side?

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James D. Standen, Compass Minerals International, Inc. - CFO [42]

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I don't think the recent activity is. It was more impactful last year. Remember, winter started a little bit late in the quarter and dragged. It was nice in March and even went into heavy cold and moisture in April, and that was impactful to the second quarter last year. This year, the recent snow activity you've seen in Chicago last week is just not that impactful because of the lateness and the overall temperature rising. You don't get a lot of sales activity because of the melting factor, the natural melting factor.

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Richard S. Grant, Compass Minerals International, Inc. - Chairman, Interim President & CEO [43]

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What we have seen, Chris, is some activity of the municipalities in states that have cash left, buying some product in the last month or so and trying to possibly get ahead of price increases for the year. So I mean, we have seen some fresh orders from the places that have cash left in the bank.

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James D. Standen, Compass Minerals International, Inc. - CFO [44]

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And that's baked into our expectation.

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Operator [45]

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We'll now move to our next question, and that will come from David Begleiter with Deutsche Bank.

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Christine Louise Besselman, Deutsche Bank AG, Research Division - Research Associate [46]

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This is Christine Besselman on for David. Just first, I guess, on the longer-term Salt outlook. When do you think you'll be able to achieve the targeted mid-30s-type EBITDA margin that you guys have talked about in the past? And kind of what's the trajectory to get to that point?

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James D. Standen, Compass Minerals International, Inc. - CFO [47]

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Yes, so I think we get there through the continued improvements that we're seeing at the Goderich mine through this year, increased production rates. What's going to happen there? A good part of that improvement is going to come from no longer needing imported salt. So if those imported salt tons fall away over time as this production ramps up to targeted rates, we're going to get improvement there. So from a timing perspective, I think of '20, late '20, depending on weather and pricing and all of those things, we should be well positioned in the latter half of '20 to be able to start making some meaningful progress toward the mid-30s operating margins.

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Christine Louise Besselman, Deutsche Bank AG, Research Division - Research Associate [48]

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Okay. Great. That's super helpful. And then...

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James D. Standen, Compass Minerals International, Inc. - CFO [49]

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I'm sorry, EBITDA margin is that -- I meant mid-30s EBITDA margins. Sorry.

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Christine Louise Besselman, Deutsche Bank AG, Research Division - Research Associate [50]

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Right, right. Yes. And then just switching over to Plant Nutrition. Do you think a trade resolution needs to be made in order to see some of that demand in the segment in South America be recovered?

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James D. Standen, Compass Minerals International, Inc. - CFO [51]

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I don't think so. I think that -- like I said, they're just being patient and waiting and watching. At some point, they just go. So trade resolution would certainly break it free, if it happened tomorrow, but it's just difficult to predict. They're going to wait as long as they can. And hopefully, they don't wait too long to where we get a really tight window of delivery. But we're prepared where we've evolved a bit since last year. Remember, we endured a trucker strike. We've -- we keep continue to adjust our distribution and make it so that we're capable to deliver into smaller windows in South America.

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Operator [52]

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And with no additional questions in the queue, I will turn the call back over to your host for any additional or closing remarks.

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Theresa L. Womble, Compass Minerals International, Inc. - Director of IR & Assistant Treasurer [53]

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Thank you, Jake. Appreciate everybody joining us today. If you have any additional follow-up questions, please feel free to call Investor Relations. You can find the contact information on our website. Have a great day.

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Operator [54]

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And with that, ladies and gentlemen, this does conclude your conference for today. We do thank you for your participation, and you may now disconnect.