Compass Minerals' CEO Discusses Q4 2011 Results - Earnings Call Transcript

Compass Minerals International, Inc. ( CMP)

Q4 2011 Earnings Call

February 08, 2012 9:00 AM ET

Executives

Angelo Brisimitzakis – President and CEO

Peggy Landon – Director of IR and Corporate Communications

Rodney Underdown – CFO, Secretary & Vice President, Compass Minerals U.K.

Analysts

Joel Jackson – BMO Capital Markets

Ivan Marcusa – KeyBanc Capital Markets

David Begleiter – Deutsche Bank

Edward Yang – Oppenheimer & Co.

Bob Koort – Goldman Sachs

Elizabeth Collins – Morningstar

Presentation

Operator

Good day, and welcome to the Compass Minerals Fourth Quarter Earnings Conference. Today's call is being recorded. At this time, I would like to turn the conference over to Ms. Peggy Landon. Please go ahead.

Peggy Landon

Thank you, Brandy. Hello, everyone. Thanks for joining us this morning. With me here are Angelo Brisimitzakis, our President and CEO; and Rodney Underdown, our CFO.

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, February 8, 2012, and involve risks and uncertainties that could cause the company's actual results to differ materially. The differences could be caused by a number of factors, including those identified in Compass Minerals' most recent Form 10-K and 10-Q.

The company undertakes no obligation to update any forward-looking statements made today to reflect future events or development. You can find reconciliations of any non-GAAP financial information that we discuss today in our earnings release, which is available in the Investor Relations section of our website at compassminerals.com.

Now I'll turn the call over to Angelo.

Angelo C. Brisimitzakis

Thanks Peggy. Hello everyone. First, let me say that I hope it’s snowing where you are this morning. It’s no secret that winter got off to a very late and weak start this season and you probably weren’t surprised by how much the mild weather depressed our fourth quarter results. But despite a very low snow fall in the fourth quarter, a devastating tornado that temporarily shut down our Goderich operations, and much too cool rainy weather at the Great Salt Lake this past summer, which prevented us from reaching normal SOP solar evaporation production levels. Our 2011results were still the second best in our company’s history when the weather and the other external factors are considered.

Our 2011 sales were up 3% to $1.1 billion, just 5% below our banner 2008 year.

Our pro forma net earnings were up 10% to $160 million, just 4% below our record set in 2009. And we generated more than $250 million in cash flow from operations, up 5% which was just 1% below our record set in 2008.

These are commendable results considering the obstacles we had to overcome during 2011. So how did we do it? Well the strength of Compass Minerals comes from our foundation of the exceptional business fundamentals. We serve very attractive end markets. Our products are essential in their applications. Our primary asset has structural advantages, our production, logistics and business units are well integrated and we have creative and dedicated employees who found safe ways to overcome many of the challenges we faced.These are the strength that give Compass Minerals its exceptional resilience.

Our Salt segment faced some particularly difficult challenges in 2011. In the first quarter, our Salt operating margins were compressed by the higher cost inventory we carried over from to 2010. We had sold through that inventory and production costs were returning to the normal levels when a tornado struck Goderich, Ontario, causing, firstly, significant damage to our largest mine, then striking our mechanical evaporation plant located a couple of miles away.

Tornado related losses depressed our second half sold operating earnings by more than $16 million. Then late in the year, our primary North American sales region experienced the mildest fourth quarter weather in more than a decade further constraining fourth quarter salt earnings.

Even though it was a very unusual and difficult year, the salt segment still posted a 21% operating margin which is very similar to our pre-2009 operating margins. Excluding the impact of the tornado, the salt operating margin was about 23% for the year and 27% for the fourth quarter. Adding back the mild winter weather impact would make these attractive margins even higher.

While the effects of the tornado have certainly been expensive and challenging, I want to take a minute to recognize the creativity and dedication of employees throughout our organization who developed safe ways to overcome some pretty tough huddles.

Immediately following the tornado, our primary concerns were employee’s safety and customer service. I won’t spend much here to elaborate on the safety measures we took, but I do want to applaud our team’s focus on securing our work sites and addressing safety issues before any work resumed at either Goderich location.

On the customer service side, we immediately went to work, finding unconventional ways to provide products to our customers. The solutions included purchasing highway deicing salt from third parties and ramping up operations at our other salt manufacturing facilities to compensate for lost production at Goderich. Then, once our Goderich mine and evaporation plant could operate again, our employees found ways to produce products to our high quality standards even though we were missing some key equipment.

So while our reported costs have been higher than normal, we successfully met our external obligations, maintaining relationships with our customers while keeping our Goderich workforce safe and returning them quickly to work. Am very happy to say that we expect most of the damaged production assets to be repaired, replaced or worked around by the end of the second quarter. Our salt production capabilities and product costs should return to normal at that point.

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