Compass Minerals International Inc (CMP) Q2 2026 Earnings Call Transcript

Hello, everyone, and thank you for standing by. My name is Ian, and I will be your conference operator today. At this time, I would like to welcome everyone to the Compass Minerals second quarter fiscal 2026 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. Once again, that is star followed by the number one. If you would like to withdraw your question, plus star one again. Thank you. I would now like to turn a call over to Brent Collins, Vice President, Treasurer, and Investor Relations. Brent, please go ahead.

Thank you, Operator. Good morning and welcome to the Compass Minerals Fiscal Second quarter 2026 earnings conference call. Today we will discuss our most recent quarterly results. We will begin with prepared remarks from our President and CEO Edward Dowling and our CFO Peter Fellman. Joining in for the question and answer portion of the call will be Ben Nichols, our Chief Commercial Officer, and our Chief Operations Officer Pat Marin. Before we get started I will remind everyone that the remarks we make today reflect financial and operational Outlooks as of today's date, May 7, 2026. These outlooks entail assumptions and expectations that involve risks and uncertainties that could cause the company's actual results to differ materially. A discussion of these risks can be found in our SEC filings located online at investors.compassminerals.com. Our remarks today also include certain non-GAAP financial measures.

You can find reconciliations of these items in our earnings release or in our presentation, both of which are also available online and with that i will now turn the call over to ed thank you brent good morning everyone and thank you for joining us today i'll get right to it in the second quarter we retired our remaining 150 million dollar of the 2027 senior unsecured notes earlier than anticipated we continue to push on operational improvements at godrich and elsewhere. We had a strong winter across much of North America, and our salt business delivered on high level of sale commitments while continuing to build on the foundation we've put in place.

We are making progress, and we recognize that we have more work to do. In the plant nutrition, we are showing outstanding momentum of the objectives we outlined two years ago.

With the winter season behind us, it's worth looking at how much the first half of this year has improved from last year in both the salt and plant nutrition businesses revenues are up operating margins are up EBITDA is up company-wide debt is down and SG&A is down and we completed new collecting bargain agreements with two of our sites including the Godrich mine that's quite a great start for the year now let's talk about what we're doing in each of our businesses The improvement processes that we've successfully deployed within our SOP business is the same approach that we are using in the salt business, starting with our larger operations. a focus on restoring good long-term operating practice is critical to improving performance which requires that we focus on key metrics that will drive performance safety utilization equipment availability production and development rates and improved mining planning processes all of which are advancing this is a key part of our back to basics framework production costs per ton of the salt business moved up year over year and i want to explain why The reported number reflects several factors, regional weather activity, the product mix, the pace of our operational improvements. During the quarter, we began selling production from the current year's production, which flows through the P&L. While the production cost per ton within the mines are improving, we've not yet met the efficiency gains we've expected. Pete will walk you through this in more detail. As I noted earlier, we recently completed a new CBA, With a workforce at Godrich, it was a fair agreement for everyone. It reflects a genuine partnership between the company and our workforce. This mutually beneficial arrangement allows us to continue building on the safe, reliable operation while allowing us to the mine's efficiency and flexibility. We've also concluded CBA at another site in the process of completing negotiations at others. While the highway de-icing season is behind us, our focus turns to building inventory and preparing for next year's de-icing bid season. Our production and inventory planning will be informed, in part, by the commitments we win in the upcoming bid season. The North American highway de-icing market remains structurally tight. Inventories across the system are low following the past winter, which is constructed from both the pricing and tender size growth. We're moving into the bid season within this framework firmly in mind. We'll be focused on maximizing the value of every ton we commit for the next season. The market conditions are constructive, and we'll approach the upcoming bid season with the same discipline that we've brought to the market in recent years that has allowed us to see growth in pricing and margins. Based on our first half performance, the current operational plans, we've updated our full-year adjusted EBITDA guidance within the midpoint and sessionally unchanged. We have adjusted the segment outlook. Plant nutrition is running ahead. We have moderated salt to reflect the impact of regional product mix sales, as well as the pace of operational improvements I described earlier.

It will walk you through the updated ranges. Consistent with our Back to Basics framework, as announced earlier this year, we simplified our portfolio with the sale of our Wynyard SOP operation, which was completed during the quarter.

The sale strengthened our cash position and now allows plant nutrition business to focus on our world-class Ogden facility. Turning to the balance sheet, at the end of March, we redeemed the remaining $150 million of our 2027 senior unsecured notes. We funded the paydown from cash on hand and removed our nearest maturity. This represents a significant deleveraging milestone and drives us with more financial flexibility. Reducing debt remains one of our top priorities and shrinking our balance sheet as a result. This is what investors expect, and it's what we're doing. Before I hand it over to Peter, I want to briefly note the recent changes to our board. We've added four new directors over the past year. Each brings deep knowledge and relevant experience in the industrial manufacturing businesses, some of which have direct experience in salt and plant nutrition industries. The board is aligned with our strategy and brings operating and financial expertise we need for this phase of the company's development. With that, I'll turn the call over to Peter to walk you through the numbers and our outlook. Thanks, Ed. I'll walk through our financial results as well as our updated outlook.

For the second quarter of fiscal 2026, consolidated revenue was $453 million, down $41 million, or 8% versus prior year Q2. The decrease is primarily due to lower highway de-icing sales in the current quarter. Adjusted EBITDA was $86 million, compared to $84 million in the prior year Q2, or up 3.3% over prior year. adjusted even a margin was 19.1% compared to 17.0% in the prior year. The improvement reflects adjusted even a margin growth in both the salt and the plant nutrition business, as well as lower SG&A expense year over year. In the salt business, revenue was $383 million compared to $433 million in the prior year in the Q2. Tons sold were $4.1 million, down 19% versus prior year, which is a function of timing and velocity of the winter weather. On a per ton basis, operating earnings were $15.85 per ton, up 21% versus $13.10 per ton in the prior year Q2. The per ton progression reflects price realization offset partially by increased distribution and product costs. As I mentioned, the sales mix dynamic in Q2 warrants some additional commentary. Our salt business serves customers and end uses across several businesses from multiple production facilities across different geographies. In any given year, the volume each facility contributes depends significantly on where winter weather occurs. With different price and cost structures, volume shifts in a given season can impact comparatively. So the reported cost per ton reflects three things. The geographic mix driven by weather, product mix, and the production cost dynamics at the facility level. In the plant nutrition segment, revenue was $67 million compared to $58 million in the prior year Q2. Adjusted EBITDA was $17 million, up 202 percent year-over-year, with the adjusted EBITDA margin improving to 25.2 percent in the current quarter from only 9.6 percent a year ago. I want to note that we closed on the sale of our SOP operations at Wynyard during the quarter. Q2 26 only reflects the partial contribution from that asset prior to the sale, which makes the year-over-year comparison even more impressive. The argument story continues to be strong. We're achieving year-over-year cost favorability from better operational execution and strong asset utilization. On a year-to-date basis, first half adjusted EBITDA was $152 million compared to $116 million in the first half of last year, a 32% increase year-over-year. Adjusted EBITDA margin for the first half of the year was 17.9% compared to 14.5% for the first half a year ago. These combined results show that the plan we put in place is working. We are working hard to maximize value, control costs, and manage working capital and inventory. And the result is that we are enhancing profitability and delevering the balance sheet simultaneously. Switching to the balance sheet, as Ed noted, we redeemed the remaining $150 million of our 2027 senior unsecured notes. The redemption, which was funded from cash, extends our maturity profile and delevers the balance sheet. We also renewed our accounts receivable securitization facility during the quarter on improved terms. Combined with the retirement of the 2027 notes, our significant debt maturity is now in 2028, which gives us meaningful runway to continue executing on our operational priorities without near-term refinancing pressure. At quarter end, total net debt was $639 million, down $119 million versus Q2 prior year. Our leverage ratio was 2.7 times on a trailing 12-month basis compared to 4.6 times last year. We were focused on continuing to strengthen that balance sheet. Liquidity of the quarter end was $379 million, comprised of cash of $74 million, and revolver capacity of around $305 million. We are updating our full year adjusted EBITDA guidance range of $212 million to $236 million, with a midpoint of $224 million.

We have adjusted SALT segment outlook.

The midpoint is now $233 million, compared to the previous midpoint of $241 million. the adjustment reflects the factors I mentioned above. Plant nutrition adjusted EBITDA is now $43 million to $47 million compared with a midpoint of $45 million up from the prior midpoint. Volumes are up, pricing is favorable, and Ogden is delivering strong cost performance. This is a straightforward story and the reflection of the commitment we made two years ago to restore the business to historical levels of financial performance. The range of our corporate adjusted capital expenditures, depreciation, depletion, and amortization, and the effective income tax rate remain unchanged. Interest expense net is now lowered at $62 to $67 million to reflect the paydown of the 2027 senior unsecured notes. Operator, we're now ready for questions.

Thank you. As a reminder, to ask a question, please press star followed by the number one on your telephone keypad, and please limit your questions to one question and one follow-up. We will pause for just a moment to compile the Q&A roster. Our first question comes from the line of Joel Jackson with BMO Capital Markets. Your line is open.

Hi there, good morning. It's Evan on for Joel. Thank you for taking my question. Just a couple here.

If you could talk about what we can expect from salt costs over the next couple years before the potential mill project comes online at godrich good morning joel uh you know the um we don't generally guide on cost as we work our way through our operational improvements those unit costs at the mine should continue to decrease uh from where we uh where we are key kpis reaching a point uh here to four um not done at the mine we need to do that because we're so facing head great thanks and in

In the four-year guide for this year, in salt specifically, you raised volumes, but you lowered your margins. Can you talk about some of the puts and takes there? I understand some issues at Goderich, but you're also raising the volume, so just some color on that would be great.

Yeah, let me just pass that on.

Thanks for the question. Overall, it's really coming down to the reported cost per ton reflects those three things that we mentioned in our opening comments. It is geographic mix. It is production dynamics at a facility level and product mix. And this year, it's simply that the heavier winter proportion of winter sales hit into our served markets, including limited winter impact out west and volume and higher cost served markets, as well as kind of mix within our C&I business, always carrying different cost profiles. So our guidance is updated to reflect basically those factors.

I'll sneak one more in. I know it's early, but are you seeing any specific trends in the bid season coming up in terms of volumes and bids and prices for the rock salt bid season? And any color on channel inventories?

Yeah, so, you know, Joel, thanks for the question. You know, it's early days in the bid season here for us. Expect the market to be constructive. And we'll have much better business.

Next question comes from the line of David Silver with Freedom Capital Markets. Your line is open.

Yeah. Hi. Thank you. I guess I would like to follow up maybe on Ed's comments in the press release where, you know, I'm just going to quote you, but you said, quote, unquote, you know, we know we still have, we know what we have to do. We still have work to do um in terms of addressing salt mine uh production efficiency um could you just kind of uh highlight you know what you know what's included in quote unquote you know the work that unit the work that you have to do there yeah thanks uh david appreciate the question this is really core to what we're really focused on you know approvability of the equipment really good inputs

It's full of teams underway, working on this. I want more to come here. Other teams should really tackle some really great enterprise operations.

Hi, David. This is Pat. I think Ed's hit those points well. We're focused on the basic fundamentals of how mines operate, and that comes down to, you know, at Goderich, are the machines getting fixed and are they available? Are we using them? And are we using them the way we should be? And then, optimization of our mine planning process, all of which has been underway for a year or so. And so, we're seeing benefits of that. They're just not coming in as quickly as we would have liked, but the improvements are continuing.

Thanks for that, Pat. We are seeing some really great – I feel pretty good about that.

And then if I could just follow up on your comments about the new collective bargaining agreements, and in particular, I'm going to ask you, well, whatever is most important. but I was thinking Goddard first. And in particular, I know that over a longer period of time, you know, there has been some meaningful changes in how, you know, you go about things and allocate labor, you know, at the mine. Does the current collective bargaining agreement that you highlighted, does that include any greater flexibility on your part in terms of how you can deploy, you know, labor and equipment, you know, just in the normal day-to-day operation of Goderich. Thank you.

Yeah, the simple answer to that is yes. It's mutually beneficial. We want to keep this pretty high level.

Yeah, David, we can't get too far into the details, but what I will say is that we have spent a lot of time over the last 18 months or so working on the relationship with our union, which has improved dramatically. And I think the CBA reflects our desire and their desire to see the site succeed. And, you know, we're looking forward to continuing to work with, with, you know, our workforce in driving improvements from safety costs and tonnage. And we think the CBA is going to allow us to do that.

Okay. And I appreciate you keeping it high level one one last question for me um and it would be regarding you know ogden and the very strong you know improvement there on your sop business um when i look at the results i mean there's a number of highlights but i'm just kind of scratching my head and and wondering is the meaningful improvement there in let's say per ton margins really all the metrics but But how much of the improvement there is related to, let's say, you know, accessing more brine-based tons or, you know, more brine-based potassium as opposed to, you know, supplemental purchases of KCL? So how much of it is maybe just nuts and bolts of operating, you know, the evaporation ponds and everything versus maybe tapping into a richer source of brine with more, you know, potassium in the original brine? Thank you.

Yeah, David, that's a great question. And it depends where you really start the clock of looking at it. You know, we turned the clock back. Our earnings out of that tire business, including Wynyard, was something in the mid-teens. Right grade, remember we talked about the sort of details, getting that right, and then putting some – we'll continue to do that. And I'll just continue to supplement. Remind you that we have yield losses and other things.

Okay, thank you for all the color. I am going to get back in the queue, so thank you.

Once again, a reminder, if you'd like to ask a question, please press star followed by the number 1 on your telephone keypad. Once again, that is star, followed by the number one. We'll pause for just another moment here to compile the Q&A roster. And we have a question from David Silver of Freedom Capital Market. Your line is open.

Okay, great. Thanks very much. I did want to ask a question, I guess, about your particular tax situation here, you know, as you look at fiscal 2026. And in particular, you know, I would love to maybe get Peter's comments on what kind of cash tax liability, maybe in a reasonable range, you know, we should expect. I mean, it's a very complicated tax, you know, analysis to do with the different geographies And on top of that, the big, you know, settlement was the government of Ontario, I guess. So, you know, in thinking about kind of, you know, if we're trying to do our cash flow work here, free cash flow work, what could you point us to in terms of, you know, a cash tax liability for this year?

Okay. Well, look, it is a complicated question. You know, everything's built into that. nothing's really changed. In terms of the details, let me pass it off to Peter. Sure.

Thank you. David, thanks for the question. Look, as we spoke before, right, the tax at Compass here swings in our effective tax rate is what happens, right? It's based on relatively, you know, income in Canada, losses in the U.S., adding a relative small number for income tax purposes, right? So as we think through how that's compared and comparability, that number will tend to fluctuate quite a bit from an effective tax rate. From a cash standpoint, which is your question, remember that we did make some OMT related to the Ontario Mining Matter and a resolution of that in previous quarters and working through that, but obviously adjust our balance sheet and our cash payments in previous quarters, and we're working through that as well. So, at this point, there's not a lot to guide on cash tax, and we'll have a better update here in Q3 and Q4.

Yeah, thanks, Peter. You know, let me just close here with that thought. But, you know, put yourself back a year or two for business, a mining tax, a number of legal. The great news there, it's allowed us to really focus on more on what's up.

Okay, great. And just last one for me, but, you know, just at a very high level, I mean, I do have a question about your thinking heading into this current bid season. And I know it's very, very early days and whatnot. But, you know, when I think about how the past winter played out, I mean, when we spoke, I don't know, two and a half, two, two and a half months ago, you know, it was really kind of, you know, hand to mouth or, you know, very tight supply across, you know, your primary marketing region. And, you know, the way the winter worked out, I mean, the last month or so was pretty calm or pretty mild, I guess you'd say. And I'm just kind of wondering, do you think the industry is still kind of, you know, in a scarcity mode or has the mild March weather, I mean, given a chance for the situation to kind of normalize? just you know last year you you got uh single digits or low single digits on volume and price and i'm just kind of scratching my head i'm pretty sure you know you're trying to you're interested in you know improving upon that result but but you know maybe just some comments from the field what you think the um the winter ending uh inventories uh look like maybe at the key customers and yourselves. Thank you.

Let me just make a, you know, we had a really strong winter and winter in the UK. And let me pass it on.

Good morning, David. This is Ben. While it is early in the bid process, we're excited about the bid's driving value for every time. We'll have a lot more detail for you when we get together.

Very helpful. Thank you very much. Appreciate it.

With no additional questions in the queue, I'll turn it back to Ed Dowling, President and CEO, for closing remarks.

Well, thank you all for your questions, your interest in confidence minerals. I'm going to leave you with this. We had a strong quarter, but the journey isn't finished. Some of the hard work has continued to drive operational improvements, and we are. Some has continued to improve the plant nutrition business, and we are. Some of it's retiring debt to improve our balance sheet, and we are. And some is discipline execution on our commercial side. we're doing that too the direction is right strategy sound the team is committed look forward to updating you on our thank you this concludes today's conference call you may now disconnect