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Kevin Stanley
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Independent equity research analyst and sector strategist in the basic materials universe. Areas of coverage include commodity and specialty chemicals, paper and packaging, lumber and wood products, agriculture and fertilizers. Providing a combination of breadth and depth, I develop timely and... More
  • CMP: Buy On Weakness; Outlook Is Highly Conservative 2 comments
    Feb 11, 2014 10:06 AM | about stocks: CMP

    CMP stock is down in early trading, likely the result of what should be viewed as highly conservative guidance for 1Q14 Salt. Fertilizer results and the outlook appear positive. As such, the current pricing weakness appears to be a nice buying opportunity, as the company has set itself up for a 1Q14 earning beat. Call is at 10am. ET.

    Specifically, the company estimates 1Q highway salt volumes of 4.4 million tons, implying just 1% yoy growth. For Consumer and Industrial, the company is targeting just 5% yoy volume growth for 1Q14. While 4Q volumes in this business are typically weaker than 1Q volumes, this too looks to be a conservative estimate. ASP for highway deicing product is expected to be down 5% sequentially on lower contract prices. Although this has to be viewed negatively, it should also represent the last quarter of price weakness, as the supply/demand balance for salt going forward is likely to favor pricing strength.

    4Q13 results were mostly in-line. In Salt, we already knew the highway deicing volumes would be strong. However, the Consumer and Industrial volumes of 740 k tons in 4Q13, although up 39.6% yoy, were shy of my estimate, as it represented only 15.5% of total salt volumes. Typically, this higher margin product represents 18%-20% of 4Q salt volumes. On pricing, Highway salt averaged $52.20, down just slightly from $52.56 in the year ago period. This was more likely on favorable mix, as the company sold my highway product in the quarter versus lower priced salt to the chemical end market. Consumer and Industrial average price of $151.86, up from $150.95 in the year ago period was in-line with expectations.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: CMP
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Comments (2)
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  • Merrill McHenry, CFA
    , contributor
    Comments (38) | Send Message
    Not making excuses - I/we all would like to know some color on next yr's pricing and volume and mg't won't give it - but I bet it's a situation where they THINK it will be good, but like walking up to get an offer on say a 2-yr old car - you can't tell + or - maybe $2k (or such) what the counter-party will say. You also have to see where your competition comes in, if they're thinking similarly (which you can't know without collusion). You just have to let it play out more.
    Me thinks mg't just wants more visibility before they stick their necks out on likely what they're already thinking. Also note, if they start tipping their hand on price that's info a competitor would like to just undercut. So I think they want to get the players closer to the plate before deciding and telegraphing things - to EVERYONE. (Keep in mind #1 Cargil is private and doesn't have to say anything to anyone.)


    I think we all know it's highly likely they'll see much better pricing and volume. I'd expect all parties to have their sights on that - we just have to let it play out. Once we know the shares will largely be pricing it in anyway.
    12 Feb 2014, 01:25 AM Reply Like
  • Kevin Stanley
    , contributor
    Comments (9) | Send Message
    Author’s reply » Hubba,
    All great points, thanks. I think you're spot on when it comes to the pricing strategy. History says pricing almost has to go up from current levels. I think the real question is will it be 2-3% or 8%+? Also, remember the highway salt business is done via RFPs, with the volumes awarded to the lowest priced bidder. I think that goes to your point about not wanting to tip their hand to the competition.
    12 Feb 2014, 09:08 AM Reply Like
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