Compass Minerals International (CMP) Q3 2026 earnings call transcript

Thank you, Operator. Good morning and welcome to the COMPASS MINERALS Fiscal Third 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. Before we get started, I will remind everyone that the remarks we make today reflect financial and operational outlooks as of today's date, August 6, 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'll now turn the call over to Ed.

Thank you, Tripp. Good morning, everyone. I'll start with the plant nutrition business because As it's earned the lead. At Ogden, we've produced segment adjusted EBITDA of $15 million in the quarter on improved pricing and lower per unit costs. We've again raised our full year guidance for this business. Operational improvements we put in place two years ago are compounding. The team has determined to restore the business to the $40 to $50 million adjusted EBITDA range per year and have now exceeded that level. We continue to invest in Ogden with the dryer project underway that we expect to complete by the end of next fiscal year. That investment will allow us to improve product yield, further improve production volume and cost profile of this operation, as well as finish good product quality.

We're excited about the continued momentum at our Ogden site and solidifying our position as the leading North American producer of sulfate of potash. In our salt business, the commercial story is strong. We realize meaningful price gains in the highway de-icing during the quarter and beginning to see a constructive pricing environment in our C&I product line as well. These are encouraging, and I want to put them into context. When comparing the salt costs in our P&L between periods, there are a number of factors that must be considered, including production costs, logistic costs, regional and product mix. As the winter unfolds, where we sell our products, where they are produced, how it is shipped to the customer, and our production costs all have various levels of impact, particularly in a season like this past one where inventory levels became very tight.

Production tons on our mine are up year over year. That's a positive. But costs, while lower than last year, as the original guidance had anticipated, have not come down the way we expected, and I want to address that directly. There are three factors driving higher than anticipated production costs.

First, despite the above, we're not hoisting enough tons out of Godrich at the cost we had planned. Second, we have increased our maintenance spending at both U. S. mines to improve operational uptime and stability, which has been guided by the implementation of a preventative maintenance system.

Lastly, we've increased the headcount to maximize every opportunity to produce more tons out of the mines. In terms of logistics, our total cost metric was burdened by global fuel costs and increased rates due to tightening of truck capacity. We have three accelerator teams working at Godrich focused on specific operational improvements. We're working on improving our cut times and rates and investing in training required to sustain those improvements, as well as overall mine design and sequencing.

Our maintenance program is delivering results focused on quicker turnarounds and improved equipment availability. Let me be direct about the tradeoff that we're making. We are spending incremental dollars on labor and maintenance in the current period costs for longer-term operational stability, production volumes, and profitability. This is the right decision for the business, but also means that our cost metrics have not yet reflected the efficiency gains we're targeting.

In addition, we have other accelerator teams working on logistics and enterprise-wide improvements, including network optimization, procurement efficiency, contract management. All of these are focused on sustainable cost improvement and risk mitigation. As we think about the future of the company and the sustainable improvement, we have made an operational leadership change. Patrick Marin is no longer with the company, and I'd like to thank Pat for his service and wish him the best. Brandon Reisner has been promoted as Chief Operating Officer. He's led impressive operational improvements in our plant nutrition segment and in the operational leadership of our CNI product line. A combination of prior mining experience and a track record of leading positive outcomes make them a natural fit to lead our operations.

Turning to the bid season, the 26-27 highway de-icing bid season has been very constructive. In our core U. S. markets, we're seeing substantial price improvement year over year, in some cases well into the double digits. With consistent growth and demand tenders, North American highway de-icing markets remain structurally tight. Inventories across the industry are low following the past winter, and it is supporting both pricing and tender sizes. As we look forward into fiscal 2027, let me give a sense of what we are thinking about volume. The 2025-26 winter season trended ahead of seasonal averages with snowfall events in our key markets higher than the recent past. That strong demand, coupled with our dissonant approach to working capital and the current production constraints at Godridge, has left us and the industry with historically low inventories across the system.

Given those realities, along with an assumption of more normalized winter weather, We expect to commit to a reduced man profile for fiscal 2027 relative to the past seasons. We will provide tighter guidance when we report fourth quarter results. The pricing gains we have secured for the business, combined with continued focus on production increases and cost per ton improvement, should position us to improve our per unit margins headed into next year. Let me address tariffs briefly. As you are aware, tariffs on Canadian goods shipped in the United States are set to take effect on August 19th. A large majority of the gross annualized exposure relates to the highway de-icing salt shipped from our Godrich mine into the United States.

Through proactive measures within our commercial agreements, including pass-through provisions that are now standard in several of our key contracts, we believe we meaningfully reduce our exposure to those risks. The situation remains fluid, and we are closely monitoring it. We believe that we are in a stronger position to manage this than a year ago given our proactive measures, constructing pricing environment, and our improved balance sheet. In addition to potential impact of tariffs, we're closely monitoring the variability within the fuel market, which is incorporated into our 2026 guidance. We expect to provide clear understanding of the anticipated fuel impact and sensitivity within our detailed 2027 guidance when we report Q4. But we wanted to note our current focus on mitigation efforts moving into next year.

On capital projects, as part of our ongoing investment in the future of Goderidge, we have been planning to construct the new mill. Given the complexity of executing a project of the scale within an operating underground mine, we're taking additional time to evaluate the engineering, sequencing, and timing as well as establishing appropriate project governance. We cannot afford disruption to the production during a period where we're focused on improving output and rebuilding inventory. We expect to provide more detailed update on the project timeline early next year I like to take a quick moment to clarify some news that was issued earlier in the quarter about a potential Utah lithium project To be clear we have no plans to get back into the lithium market This announcement that EnergyX was a nonbinding MOU where we're evaluating leasing them land and brine used in our Utah operations.

We would have no capital commitment or operational expenses. Nothing in these negotiations has been finalized. Turning to the balance sheet, net leverage has declined to 2.8 times from 4.3 times a year ago. Total net debt is down 13% year over year. A recent credit upgrade from S&P is a direct reflection of the work we've done to reduce debt and strengthen the business. I know there are questions about how we plan to allocate capital going forward, and I want to signal how we're thinking about it. Our near-term priorities are clear. Investment in our assets, continued debt reduction where it makes sense, as our balance sheet strengthens and our operations stabilize, the opportunity to consider other uses of capital become more real.

The Board is engaged in this discussion, and we expect to share more on this topic when we report full-year results. Before I hand it over to Peter, let me step back for a moment. Two years ago, we laid out a back-to-basis framework on what we're going to improve this company. At Ogden, the process is delivering the results and speak for themselves. In SALT, commercial execution is strong. The market is constructive. The balance sheet is in a very different position than it was even a year ago. The work in our mining operations is taking longer than planned, and we are being direct about that. But the process is the same. The team is engaged. The work will continue.

We are really excited about the future, this business, and organic opportunities this work has created. Peter?

Thanks, Ed. Good morning, everyone. I'll walk through our third quarter results and the updated outlook. All comparisons are to the prior year quarter unless otherwise noted. For the third quarter, total company adjusted EBITDA was $39.9 million compared with $41 million in the prior year. We reported a net loss of $5.7 million compared to a net loss of $17 million in the prior year. In SALT, third quarter revenue increased 5% year-over-year to $173.9 million. Segment pricing was up 9% overall, and highway pricing was up 8%, and C&I pricing was up 6%. Highway sales volumes declined 6%, while C&I volumes increased 3%. SALT-adjusted EBITDA was $38.9 million for the quarter, down 15%, and operating earnings decreased 25% to $21.2 million.

The decline reflects lower highway sales volumes and higher per-year production and distribution costs within the segment, partially offset by the pricing gains. In plant nutrition, revenue was $37.6 million for the quarter, down 16% compared to the prior year period. The decrease is primarily driven by a 19% decrease in sales volumes attributable to the Windward SOP asset sale in March 2026, partially offset by a 4% increase in average sales prices, excluding the impacts of the Windward sales volumes increased approximately 4% year-over-year. Despite the sale, operating earnings were $7.8 million, up 50% from $5.2 million a year ago. Adjusted EBITDA improved 32% to $15 million from $11.4 million. Both product costs and distribution costs declined on a per-unit basis year-over-year, driving the margin expansion at Ogden that Ed described earlier.

Turning to cash flow in the balance sheet, operating cash flow for the first nine months was $162.8 million, compared to $204.6 million in the prior year period. Capital expenditures for nine months totaled $62.1 million, compared to the $53.8 million in the prior year, reflecting planned investments across our operations. Total debt as of June 30th was $716.6 million, down from $825.3 million a year ago. Net debt was $660.3 million, a reduction of $85.6 million year-over-year. Total liquidity was $328.1 million, consisting of $56.3 million in cash and $271.8 million of availability under our revolving credit facility. As Ed noted, our net leverage ratio improved to 2.8 times from 4.3 times a year ago.

Now let me walk you through our updated fiscal 2026 outlay. We are raising our full-year consolidated adjusted EBITDA guidance midpoint to $230 million, with a range of $218 million to $242 million. In Plant Nutrition, we're raising segment-adjusted EBITDA guidance to a range of $49 million to $57 million, up from $43 to $47 million previously, primarily reflecting the continuous strength in our pricing and cost performance at Ogden. In SALT, our current adjusted EBITDA guidance range is $225 million to $236 million, narrowed from $225 to $240 million previously to reflect the mixed dynamics, inflationary pressures, and the pace of operational improvements that Ed previously discussed.

Our expectations for corporate and other costs remain unchanged in the range of $51 million to $56 million for the full year, along with full-year capital expenditures in the range of $90 million to $110 million.

In closing, I'd like to note that we are in a stronger financial position and plant nutrition is outperforming our expectations. So pricing and demand remain very constructive, and we are laser focused on converting operational work at Godrich in sustainable cost improvement across the platform. We are also continuing to deploy capital with discipline, including reducing leverage where it makes sense. That concludes our prepared remarks. Operator, we're ready to take some questions.

Good morning, Joel. Nice to hear your voice when you're unmuted. I appreciate the question. The bid season has been really great, really based on the previous winter and really the inventory management discipline has been established in the market.

Most of the bids, of course, are transparent, and we see a wide range of outcomes, depending on where you are. Our focus has really been to really dive in and really try to serve those markets who we maximize our margin with, and not trying to serve everything everywhere, albeit we do try to spread it out just because you never know exactly where winter is going to be. You know, it would be safe to say overall, you know, we're kind of around double digits in price increase. Okay with regard to looking at costs etc going forward this is an important point We working really hard on our mine costs You know we got this fantastic mine Godrich mine the world largest underground salt mine The cost of production is up Costs are down Unit costs are down On the logistics side we are battling fuel and truck carrier a bit But we are laser focused on this.

We will provide guidance in the fourth quarter. Okay.

Yeah, look, I appreciate the question. And the, you know, we're, first of all, let me just say we're very grateful for Pat and the service and wish him the best in the future. This is Pat Maron.

You know, but we're really pushing hard and we need to have an organization that's really fit for purpose. And, you know, we're really focused on our costs. Brandon Reisner, Joel, I don't know whether you've had a chance to meet him yet, but we'll make sure you do. But Brandon has been leading the efforts with plant nutrition, which is a fantastic story for the company. In addition, he's been our operational leader in our CNI product line and also done a really good job in increasing the earnings from that part of our business. Just even before he brings a history of success, whether it was in COMPASS, he's the guy that started really the way we look at capital allocation for capital investment, project capital investment.

And, you know, even before that with Peabody, great track record of operational improvements. And, you know, just that's what we need right now. And so, you know, as much as I like Pat, you know, the needs of the company are more important than any individual. So that's what we're doing. With regard to the project, you know, it'd be one thing if we're building this mill in a parking lot, and it'd be pretty easy. But given the fact that we're doing this in an operating underground mine, and with all materials, everything coming down the same shaft as our operating people and our operating materials, it's very complex. And so we need to make sure that we have a very high degree of front end loading in terms of our engineering, our project execution plan, all of the logistics that go around that.

We have a rock solid owners team, and we really need to put this all in place before I'm ready to take it to the board of directors. I think I hit your points, Joel.

David, thanks. Great question. Look, it's been a fantastic story for the company in terms of the restoration of that business to where it really should be. And recognize that before when we reported plant nutrition also included our our vineyard vine up in Canada. These results are without. And so it's really a great story for our Utah partners and our colleagues out there in terms of restoring this business. And there's more to go because, as you know, we're executing the dryer compaction plant where we have a lot of yield loss there. We're executing a project there, which will be done about this time next year, to really make a better product. So we'll see additional yield come from that.

Well, that'll happen at a lower cost. Basically, it's an incremental cost. We either put the product in today, we put the product into what we sell or blows away as dust. And that's not quite the right way to say it, but we lose it. But we'll capture that going forward and we'll produce a much higher quality product for our customer base. So, the improvement, we expect that to continue to improve, at least through, and we should start seeing that about this time next year. Let's see, in terms of the last part of your question, you know, I wasn't here 10 years ago, but we restored the outcomes to that. But they're all, it's really, the answer to that is, if you've got that back to where it was, the answer to that is yes.

But are you doing anything different? The answer to that is yes, too. And it's a way that we manage our harvest the tons. And Brandon, for example, led that. It's a way that we manage that from a stockpile into the plant, really reducing variability in the plant. It's some things that we've done within the plant itself to improve recovery beyond sort of historical levels. So it's really a number of things that we've done to make this improvement over and above the success the company had in the past.

Yeah, thanks, Dave. Thanks for reminding me that we are supplementing this year with KCL, and we've never really guided on this, but I think from your thinking, you know, our plan is to do about the same amount next year, okay?

Yeah, David, this is Ben, and just to add to what I said, the utilization of MOP in our process is always going to be a part of what we do. I think to add to the point, what we're doing differently is we better understand the leading indicators on the chemistry of the pond. And so our ability to flex that utilization and that cost profile is much tighter than it has been historically. And so that's, you know, hence the confidence in where we're headed.

Okay, let me try to field that and I'll have Ben help me out as well. You know, we do have a deep understanding of our markets and really the distribution network, really looking at our focus in terms of our every year we come up with a bid strategy. Part of our strategy this year was to really maximize the margins, focus, recognize that the market was really tight. Where do we really want to serve that we can maximize our margins? And that's really what we've been doing. So that's sort of delivered costs subtracted from the price. And so that's worked out well. And, you know, we'll see what winter does and how we're able to bring that home.

As you know, we have the variability due to mix and regional sales. But our focus at this point, we're largely through our big state contracts, albeit there's still some states that are coming back and rebidding areas that they weren't able to fill. There shouldn't be any surprise about that. And largely our focus right now are really our commercial customers, which we should be wrapping up in the next couple of weeks. Ben, you want to add something to that?

No, yeah, thanks, Ed, and David. Thanks for the question. I think, you know, going into this bid season, our overwhelming focus was the value of our product in the market, and coming off of a big winter like the last season, we were excited to see the market, you know, had a renewed understanding of how important our product is relative to public safety. And so, you know, focus number one was value of every ton that we sell. In addition to that, you know, we've spent a lot of time working with our key customers on our terms and ensuring that the way we operate our business fits the terms that we need, specifically around minimum takes and having a higher level of confidence in what we commit and what's going to move through the pipeline.

So, we're really excited about the results we've seen. The market has a lot of momentum, and we're looking forward to the next season.

Yeah, the real difference from a year ago to today from the tariff standpoint is the USMCA, the United States-Mexico-Canada Trade Agreement, where certain cross-border materials, etc. , were exempted from tariffs and things like that. And so once that, you know, so once that was clarified a year ago, or like more than a year ago, a year and a quarter ago, you know, we really just started up the ramp up at Godrich Mine.

What's also different is recognize that potential exposure, our commercial team, and the company here has been working on how do we minimize the impact on the company if something like that happens again. And so, you know, Ben and his team have been really looking at contract terms. He just mentioned in terms of the market how, you know, we're trying to tighten up min-maxes and those sort of things and having success on that. But really being able to pass through costs like this to customers has really been the focus. And so we understand exposure.

We look at – we've looked at ways to mitigate that, and, you know, a big part of that has been mitigated. We continue to work to try to really underscore the message to the government about we have this great, amazing asset in Ontario, which is critical to interstate commerce, public safety in the United States. And, you know, the market in the United States cannot be served without Godrich Mines, fully served without Godrich Mines. And that it is a truly essential and critical mineral for our economies. And, you know, we're highly engaged in that effort right now.

You know, we don't really talk about that sort of stuff generally, but, you know, what we're doing is remember our warehousing, many of them were scraped clean last year. You know, it's been a long time since that's happening. And so we're really part of a normal course of business here. We're working very hard to reestablish inventories where they need to be to serve the contracts that we've committed to. And so there's really nothing unusual about that in our plan here.

You too, David.

Okay, thank you all for joining us, and we're excited about the future here at COMPASS MINERALS. And we look forward to speaking to you again when we have a chance to catch up. And we have a number of investor calls coming up. I'm sure we'll be chatting with many of you here over the next couple of days. Thanks very much.