Salt Shortages Add Spice to Compass Minerals International

Mar. 5.08 | About: Compass Minerals (CMP)

I guess in my 'World of Shortages' scenario just about every commodity will have its time in the sun, but salt? I've been reading about a lot of cities and states panicking this winter because salt prices are jumping, and it's been a more snowy than average winter in many places, so budgets were set for the 'norm'; now that we've exceeded the norm and winter is still not over we seem to have some short term shortages. But it appears bigger than that.

Compass Minerals International (NYSE:CMP) is a stock a blog reader pointed me to a few weeks ago... the chart is astounding, and the profit growth (estimated for the next year at least) is also. And it even is (in a tangent way) associated with fertilizer. Below is a general description from Investor Business Daily

  • The company (NYSE:CMP News) is the second-largest salt producer in North America and the biggest in the U.K. Compass also is the largest producer in the U.S. and Canada of sulfate of potash, a specialty fertilizer. To make use of shut mines, it has a records management business, DeepStore, which uses former mines for storage.
  • In the fourth quarter, robust demand for de-icing products helped lift sales 55% to $326.1 million. Earnings heated up, rising 64% to $1.31 a share ex items, beating views by 26 cents.
  • Frequent snowstorms at the end of the quarter throughout its de-icing markets in North America created above-average demand for highway, consumer and professional de-icing products, says CFO Rodney Underdown. The higher-than-normal demand boosted salt volumes by 47% to 4.84 million tons during the quarter.
  • Highway de-icing salt accounted for just over 4 million tons. The price per ton for highway salt rose 13%, to $42.60. It produced 805,000 tons for consumer and industrial de-icing. The average selling price jumped 17%, to $139.12 a ton.
  • It maintains flexible labor contracts that allow it to scale back its work force when it's not a productive season. This means that in slower times, Compass doesn't suffer penalties from big severances or layoff packages. Workers are covered by labor contracts that encourage the company to rehire them when business picks up.
  • The U.S. accounts for about 60% of Compass's de-icing business. But salt is in short supply in many areas hit by severe weather.
  • Compass has addressed the supply constraints by announcing two different expansions at its Goderich, Ontario, salt mine, the largest in the world. It produces 6.5 million tons annually. The first phase will add 750,000 tons of annual capacity at a cost of about $10 million. It will be finished by the end of this year but won't be fully available for the upcoming winter season, Underdown says.
  • Compass is also expanding its potash facility at Utah's Great Salt Lake. Its specialty potash has a sulfur element and is primarily used for high-value crops, including tobacco, wine grapes, citrus fruits, vegetables and nuts.
  • The company is spending roughly $25 million over a three-year period to raise its output by 100,000 tons. It would add 25,000 tons this year, 25,000 in 2009 and the rest by 2010. Last year, Compass produced 423,000 tons of sulfate of potash, or SOP, up 12% from a year ago.
  • Demand for specialty potash is rising, and that's contributing to segment sales. SOP sales last quarter rose 35% to $39.4 million in volume of 115,000 tons, up 20%. The average selling price per ton rose 12% to $341.29.
  • One competitive advantage is the naturally occurring mineral brine in the company's 43,000 solar-evaporated ponds at the Great Salt Lake, Underdown says. Rivals, except for one, must produce SOP through a synthetic process. "Our process is a natural one where we solar-evaporate minerals out of the lake, which provides us with a different production technique," he said. "We believe our process is the lowest SOP production cost in the world."
  • Also, Compass SOP qualifies as an organic fertilizer because it's produced naturally, which is important to some sub-sectors in the farming community, Underdown says.
  • Of the 50 million tons of potash sold annually, about 90% is the standard fertilizer used on row crops such as corn, wheat, cotton and soybean. There has been no price increase for SOP over the last 30 years, but today's market for the commodity is very strong, Silver says.
  • Said Silver: "We believe its business possesses little or no sensitivity to volatility in either the broader economy, raw materials or energy costs, import competition or financial markets." (ahhh.... I like that)

I am not that familiar with this company, so still looking into it. I am trying to figure out what they do with said salt the other 6 months of the year when it's warm. And I'll have to look where the 40% of non domestic salt sales are going. But anything within a whiff of fertilizer has some positives going for it....

Disclosure: No position