Compass Minerals International, Inc. (CMP) CEO Fran Malecha on Q2 2018 Results - Earnings Call Transcript

Compass Minerals International, Inc. (NYSE:CMP) Q2 2018 Earnings Conference Call August 7, 2018 10:00 AM ET

Executives

Theresa Womble - Director of Investor Relations

Fran Malecha - President and Chief Executive Officer

Jamie Standen - Chief Financial Officer

Analysts

Jeffrey Zekauskas - JP Morgan

Vincent Anderson - Stifel Nicholaus

Mark Connelly - Stephens Inc

Christopher Shaw - Monness, Crespi, Hardt & Co.

Graeme Welds - Credit Suisse

Joel Jackson - BMO Capital Markets

Dylan Campbell - Goldman Sachs & Co.

David Begleiter - Deutsche Bank North America

Christopher Perrella - Bloomberg Intelligence

Operator

Ladies and gentlemen, thank you for standing by. Good day and welcome to the Compass Minerals Second Quarter Earnings Conference Call. Today’s conference is being recorded.

At this time, I would like to turn the conference over to Theresa Womble. Please go ahead Ma’am.

Theresa Womble

Thank you, Paula. This morning, our CEO, Fran Malecha; and our CFO, Jamie Standen, will review our Compass Minerals second quarter 2018 results and our outlook for the rest of the year.

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, August 7, 2018, and involve risks and uncertainties that could cause the company’s actual results to differ materially. Please refer to the company’s most recent Forms 10-K and 10-Q for a full disclosure of these risks. And we – the company undertakes no obligation to update any forward-looking statements made today to reflect future events or developments.

Also, our remarks today will include non-GAAP financial disclosures which we feel are important to provide a full understanding of our business and our operating condition. You can find reconciliations of these measures in our earnings release or in our earnings presentation, both of which are average at the Investor Relations section of our website at compassminerals.com.

Now, I turn the call over to Fran.

Fran Malecha

Thank you, Theresa, and good morning. We reported another strong quarter in terms of our year-over-year top line growth. We accomplished this while enduring an 11-week strike at our Goderich Salt Mine, as well as week long national trucker strike in Brazil. Cost pressures, however, reduced our operating earnings and net results, while adjusted EBITDA increased 13%.

Despite these challenges, there are several positives, I think, are important for our stakeholders to take away from our second quarter performance in this call today. These developments reinforce my commitment to our strategy for sustainable long-term growth and that we should begin to experience some tailwinds, as we progress through the rest of 2018 and into 2019.

The first takeaway I’d like to discuss is the positive market developments in our salt business. In North American Highway, deicing market is improving from the supplier perspective due to stronger winter demand last season following two mild winters. The results of the North American Highway deicing bid season are clearly demonstrating this to be true.

We estimate that average bid volumes market-wide are returning to more typical levels and pricing has been very strong in several regions. With approximately 75% of our bid season completed, we’re currently estimating that our average contracted price for North American Highway deicing customers will be up approximately 15% for the upcoming winter. This average price not only includes contracts that were bidded this year, but also rollover and multi-year contracts.

Our awarded sales volumes are lower than last year’s levels due to the production constraints we faced at our Goderich mine. However, the margins that we expect to earn and the volumes that we have been awarded have largely compensated for the limits on our bidding activity in terms of full-year earnings expectations for the salt business, which Jamie will discuss further in his remarks.

Our UK Highway deicing business has also experienced strength after a severe winter. Our UK sales volumes for the quarter increased more than threefold from last year, as customers restock their salt inventories and we are operating our mine there at near full capacity, which provided a nice benefit to our total salt operating earnings and margins this quarter.

The second important takeaway is that, we believe we have all the pieces in place to drive more efficiency through our salt operations and particularly at our Goderich mine. Our continuous mining and continuous haulage systems at the mine are ramping up and served us well during the work stoppage. As we have previously reported, we estimate that this investment has already delivered approximately $5 million in ongoing annualized cost savings.

Our new Goderich mine labor contract aligns with our continuous mining operations and provides increased efficiency with our shift schedules and flexibility in how we work. Our salt – our other salt operations have been demonstrating strong performance throughout the year as well. This together with the progress at Goderich and an improving pricing environment is why we expect to deliver increased salt operating margins for the rest of 2018 and into 2019.

The third takeaway is that, our plant nutrition business will focus on semi-specialty SOP and specialty micronutrients solutions in the Americas is achieving solid growth. I’m very pleased with the developments in North America and Brazil. In North America, we continue to enjoy steady demand for our plant nutrition products, with sales increases in both SOP and micronutrients.

This is a strong achievement, given some of the trade uncertainty that is currently the backdrop for agricultural markets in North America. It also speaks to the underlying value our products can provide to growers of both specialty and row crops. I’m further encouraged by our ongoing crop trials in North America. In fact, this year, we have 90 trials either completed or underway in North America. We expect these efforts will help expand our market penetration, as the data on the efficacy increases, particularly for newer micronutrient formulations.

In Brazil, broad long-term and short-term macro factors are supportive of a strong ag market there, and are expected to drive demand for specific product portfolio. This increase in hectors puts our agricultural is expected to continue well into the next decade.

This year, specifically, the soybean harvest is expected to exceed all historical records, given the increase in the soybean planning area for the upcoming season. And now with the uncertainties around the U.S. trade policies and their consequences for global agricultural markets, expectations are increasing that Brazil will become the global leader in soybean exports.

The strength of the U.S. dollar has also been economically beneficial to the Brazilian farmer. Historically, a strong dollar has been supportive of increased purchases of crop inputs, which help maximize farmers’ profitability. Adding to this is the increase in the price premium that Brazil soybeans are achieving due to the changing tariff policies in China.

Given our strong and growing position in nutritional solutions for this particular crop, we believe we’re well-positioned to benefit from these market developments. Delivering on our commitments for the plant nutrition South America segment in 2018 does face some risk around logistics issues that have been created following the national truckers strike in Brazil. But we have been proactive in addressing our own warehousing and transportation needs to help mitigate these impacts.

Last, I would like to touch on the fact that we have delivered 25% year-over-year growth in cash flow from operations for the first six months of 2018. Coupled with lower capital expenditures, we are very optimistic that we will generate attractive levels of free cash flow in the 2019 as well.

In fact, I believe that we are at an important inflection point for Compass Minerals, not only have we largely completed the reinvestment program aimed at increasing our key assets, longevity, efficiency and productive capacity, we have also more than doubled the size of our plant nutrition business by investing in a strong company located in one of the world’s agricultural power houses. Given the improved market fundamentals we’re experiencing, we are poised to deliver increased earnings, free cash flow and shareholder value.

Before turning to questions, Jamie will review details of our financial results and our rest of 2018 outlook.

Jamie Standen

Thanks, Fran. Before diving into our segment discussions, I’d like to touch on our consolidated results. Our net loss this quarter totaled $7.6 million, compared to $6.4 million in the prior year. The increase in depreciation expense reported this quarter was the primary driver for the decline.

On an adjusted EBITDA basis, our earnings grew 13% as a result of EBITDA improvements in each of our business segments. Furthermore, during the first-half of the year, we generated cash flow from operations of $182 million, which was a 25% increase from prior your results and reduced our total debt by about $77 million.

Now let’s turn to Slide 9 to discuss our Salt segment results. Salt segment revenue increased 11% on a 17% increase in sales volume, offset by a 5% decline in average selling prices. This year, we benefited from April snow events, as well as strong demand in the UK following a severe winter there. It is typical for our customers in the UK to begin restocking early – earlier than in North America.

So this was a nice boost to our sales volumes in revenue in the second quarter. The decline in average selling prices was driven completely by product sales mix, as we sold more highway deicing salt versus higher price consumer and industrial salt this quarter when compared to the 2017 period.

Salt operating earnings for the quarter increased 17% from second quarter 2017 results and operating margin expanded slightly. This growth was primarily due to better operating rates in the UK, partially offset by the pull forward of costs associated with the Goderich ceiling fall last year.

Recall that we had expected about $3 million of carryover logistics costs in the second-half of 2018. This expense is related to the shipment of Cote Blanche salt to some of our northern markets. With the increase in Highway deicing demand in the second quarter, we ended up selling almost all of this higher-cost salt, which pulled those additional costs into the second quarter.

Now turning to Sldie 10, where we discuss our plant nutrition North America results. We generated 3% revenue growth on 3% higher sales volumes and flat average selling prices. Net price was 2% higher, however, as we sold more SOP on an FOB basis from our Ogden facility than last year.

As we’ve been discussing for several quarters, a step-up in depreciation related to the commissioning of our new plant assets at Ogden has pressured our operating earnings and margin performance, because much of the commissioning wasn’t completed until the end of 2017. We will continue to have higher year-over-year depreciation costs through the end of the year.

The plant nutrition South America segment reported an 8% increase in revenue, driven by a 5% increase in sales volumes and a 2% increase in average selling price. It’s important to note that sales volumes increased despite the 10-day national trucker strike that began in Brazil in late May. While our sales did grow year-over-year, the lower than expected sales volumes due to the trucker strike negatively impacted our profitability and is the primary driver for why our earnings margin was below our guidance range.

Please note that foreign exchange volatility impacting Brazil in the second quarter reduced our translated results by approximately 11%. We have provided local currency results in our presentation for reference purposes, where you can see that year-over-year growth was quite strong.

Turning to our outlook on Slide 12. We are maintaining our full-year EPS guidance range. That being said, there are a few factors that we anticipate will push us to the lower-half of that range.

First, I’ll discuss the financial implications of the Goderich strike, including the costs we incurred and its impact on our production volumes, which has also impacted how we approached the North American Highway deicing bid season. The direct costs associated with the strike were offset by the payroll savings from our striking workforce.

Therefore, the primary cost impact relates to reduced production levels at the beginning of the strike during the unplanned work stoppage at the end of the strike and now as we make another transition back to our unionized employees. This transition has included safety, value and operational training prior to resuming mining. The operational training was critical, given the fact that we commissioned and began fully utilizing our new optical sorting and screening equipment during the strike.

Ultimately, we believe these efforts will improve our operations as we largely address the quality issues in our salt production. These starts and stops have reduced full-year production expectations at Goderich, which puts pressure on producing salt in advance of the upcoming winter season and on our second-half operating margins because of unfavorable fixed cost absorption.

It’s important to note that we plan to make up some of the production shortfall with purchase salt, as well as serving some northern customers with salt for our Cote Blanche mine. We expect that most of the volume-related cost impacts from the strike will be felt throughout the second-half of 2018, as we deplete this higher cost inventory.

All in all, I and the rest of the senior leadership team are pleased with how the company and specifically, our local management team in Goderich led the company and our employees through the challenges posed by the strike. We are also pleased with the ultimate outcome.

Additionally, we are expecting some increased pressure on second-half salt logistics due to a combination of factors such as freight rates, higher fuel costs, and the announced lot closures along the Mississippi, which is leading to work around shipping arrangements.

That being said, we expect this bid season’s highway deicing pricing in North America to more than offset the impact of the strike and increased logistics costs. As a result, we expect to achieve expanded operating margins in the second-half of the year compared to prior year. So even with our supply constraints, we expect full-year salt volumes to be in the range of 11.8 million to 12.3 million tons.

Looking at our plant nutrition business, we are expecting year-over-year improvements in North and South America. The strengthening of the U.S. dollar, however, has changed our original assumptions around our translated results for Plant Nutrition South America and is another factor pushing us to the lower-end of our EPS range.

Earlier this year, we assume the U.S. dollar to Brazilian reais rate of $1 to $3.35. Now we are assuming $1 to $3.75 for the remainder of 2018, while recognizing there may be additional volatility due to the upcoming elections in Brazil.

We do expect to offset some of the FX impact with increased sales volumes and pricing, as Brazilian farmers are historically more profitable in a strong dollar environment and are therefore, more willing to invest in our specialty plant nutrients.

When we look at our expectations for South America in local currency, we anticipate as much as 20% year-over-year growth in revenue and earnings from last year’s somewhat depressed results.

The corporate outlook items listed on Slide 13 are largely unchanged with the exception of the tax rate. We anticipate a full-year rate around 21%, given the discrete items in the second quarter and our current view of pre-tax income by jurisdiction.

Before turning to our Q&A session, I’d like to share some final thoughts on the quarter and 2018 overall. Improving market fundamentals in both North and South America are expected to positively impact our businesses as we enter the back-half of 2018. In salt, given the positive resolution with Goderich unionized employees, our ramping up of continuous mining and other strategic and efficiency actions taken across our salt operations, we believe this business is well-positioned to improve profitability, not just this year, but in 2019 and 2020 as well.

Our plant nutrition business is also poised to deliver growth through our focus on specialty products as an innovative solution to crop nutrition. In South America, we can benefit from the strong grower economics that are developing this year, particularly for soybeans, where our products have a good foothold and attractive opportunities for additional market penetration.

And in North America, our position in SOP remains solid with steady demand growth continuing, while our role as a leading supplier of innovative micronutrients continues to build momentum.

Last to echo Fran, we believe we’re positioned to deliver strong free cash flow next year and beyond. We expect to use that cash flow to reduce our debt, continue our dividend and make strategic investments with attractive returns.

Now let’s open the call for questions. Paula.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And our first question will come from Jeff Zekauskas with JP Morgan.

Jeffrey Zekauskas

Thanks very much. How much was your salt production in theory curtailed by all of the different issues that afflicted the company this year?

Jamie Standen

Yes. So I think, we’re not going to be specific. We don’t disclose our production levels, but it was a material decline for the full-year. Remember, in the first quarter, we were coming up to the end of a collective bargaining agreement and had a workforce that was looking forward to that. And then having gone through the strike and now having to go through a transition back, having finalization of the new CBA and going back to those employees, it’s a fairly significant impact to our full-year production.

Jeffrey Zekauskas

So let’s try it a different way. How much do you – how much more do you think you could produce in 2019 in salt than you produced and you will produce in 2018 under more normal conditions?

Fran Malecha

Jeff, it’s Fran. I think, we expect to ramp up coming out of this work stoppage the kind of monthly rate that would drive our production up to – we’ve always kind of talked about the 7 million ton range at Goderich. And we expect to be able to operate at that level with the equipment, with the employees there going forward, as we ramp up and come out of the strike.

So I think, I would think about our production capability to kind of be at a level in 2019 that would meet the demand of a solid winter, which we hope to have this coming year and producing at very cost effective production levels for both Goderich and our Cote Blanche mine.

Jeffrey Zekauskas

Great. Thank you very much.

Operator

And next we’ll go to Vincent Anderson with Stifel.

Vincent Anderson

Good morning. Thanks. So I just – I’ll stay on salt then. I just want to parse out your expectations for salt sales more into 2019. Why is it too early to give some more detail on the year-over-year award shortfall? And when you look at which markets those shortfalls are coming from, have you committed to fewer tons on certain awards, or is the delta entirely from RFPs thtas you’ve passed on? And all that kind of just builds to what kind of opportunities do you see to make up any volumes on the spot market if weather cooperates?

Fran Malecha

Yes. It’s Fran, Vincent. I think, as we went through the bidding season obviously knowing that our production at Goderich was going to be impacted and impacted by the – by a work stoppage. So that certainly went into our bidding strategy and we ended up with commitments that, that we’ve described.

And I think as we ramp up our production coming out of this – out of the strike and get towards full production for the balance of 2018 and then in 2019, our hope is that, we’ll have some additional salt to sell assuming the winters – the weather doesn’t impact us negatively in the season and we’ll just have to see how that plays out. So we obviously were aware of the risks to our production, and we took that into account as we went through our bidding cycle.

Vincent Anderson

Thanks. I’ll go to SOP next. A lot of positive read through is coming out of KCL prices, but maybe some pressure on some of your customers from the tariff disputes. With all of that, we haven’t really seen significant movement in the published SOP prices, and you’ve raised volume guidance for the year. So should we interpret this as a conscious effort to prioritize volume over price as your current go-to-market strategy?

Fran Malecha

I mean, I don’t think our go-to-market strategy has changed at all. We’re always, because it’s a competitive environment going to try to optimize price and volume and we expect to continue to do that going forward. So I think, we’ve seen the price of SOP inch up over the last season and probably not keep pace with some of the price increases you’ve seen in MOP to date. But really no difference in our approach to how we impact the market area commercially.

Vincent Anderson

All right. Thank you.

Operator

Moving on, we’ll go to Mark Connelly with Stephens Inc.

Mark Connelly

Thanks. Fran, just two questions. Beyond the higher depreciation, are there any other meaningful changes in the cost position which to expect at Ogden after the investment you made?

Fran Malecha

No, I think, that’s the main one. Obviously, we need to make that asset work. And that really, I think, as we look to the future of SOP in North America really is about building demand and growing the volumes from Ogden consistent with my comments just recently just on how we’re approaching the market trying to optimize price and volume, we expect to maintain our share as the market grows. And from a commercial standpoint, we just need to build that demand in the right places on the right crops.

Jamie Standen

And I would just add that, as we do grow, remember, we use KCL on our incremental production ton. So to the extent we’re using KCL, that would drive, Mark, that would drive a higher cost.

Mark Connelly

Right. Right, okay. And then just one follow-up. Did you experience anything very different in Southern Brazil versus the North, given the huge difference in logistics and distribution? Was one materially better or worse for you?

Fran Malecha

No, as I think, we’re – our busy season is kind of coming up now, all right? So that I think the volumes in the first – the last quarter when the strike was going on weren’t as significant as they will be going forward. That environment is still uncertain in terms of how the freight costs will be passed on and who absorb them.

I think, what we’ve done is, we’ve been proactive in booking freight with larger carriers, so forward booking that to get us through the season. Our team down there was very proactive on that front. And we’ve also put some warehouses or we’ll be putting warehouses kind of as we speak further out into the North and into places like – states like Montegrosso to help us manage those logistics more effectively ultimate to the grower.

So I think, we’re – we think we’re as well positioned as we can be in this environment to make sure that our products get to the farmers when they need them, and also kind of managing costs, I think, pretty effectively given the changes down there and some of the uncertainty.

Mark Connelly

Thank you.

Operator

Next we’ll go to Chris Shaw with Monness, Crespi.

Christopher Shaw

Hey, good morning, everyone. How are you doing?

Fran Malecha

Good morning.

Jamie Standen

Good morning.

Christopher Shaw

Can I ask a question about salt. Now looking forward to the 2019 just sort of the cost structure, I mean, what’s the sort of net delta from do you think from, I guess, the number of things, the higher cost from absorbing higher fixed cost in 2018 from lower production, but everything from the – also the sort of greater efficiency you’re getting from the continuous mining equipment. I mean, is there delta you can find for me to that the cost that won’t repeat, I guess, for the salt business in 2019 that occurred now in 2018?

Jamie Standen

Sure. I’ll take a shot at that. I think, the distribution costs are feeling more permanent. So we will see higher logistics costs, I referred to higher freight rates, we’ve talked about 5% plus increase this year. I’m not necessarily saying the increase another 5% next year, but that, that new level of freight is – has been established and wouldn’t go away in 2019. Also remember, fuel is up about $20 year-over-year.

So depending on what fuel does, that will obviously have an impact in 2019. And then as far as the cost side, you could – we would expect to be – costs that are going to run at $1 a ton higher probably in the second-half of the year versus prior year, so on total salt cost.

And then depending on how effective we are in ramping up through the second-half of the year here, our continuous mining like Fran mentioned before, if we continue to make the improvements, we think we can well into next year, then we will really start to see the benefits of continuous mining as we get those volumes back up. And then you could see some significant benefit in the P&L in the second-half of 2019.

Christopher Shaw

There are no like specific discrete costs from the strike at all that won’t repeat, or those were offset by the, I guess, the savings of not having to pay workers. Is that right?

Jamie Standen

Yes. So there’s a couple of factors. It depends on how many tons we end the year with, right? So this year’s production has a cost, I talked about it in my prepared remarks, the fixed cost absorption, and we’ve estimated that to be about $1 a ton for the second-half of the year.

And then depending on our inventory levels, we end with, which is a function of winter weather in the fourth quarter, then some will carry over into 2019. It’s difficult to say exactly right now. And I’m not going to tell you how much would carry over, it just depends on our production during the second-half of the year and the actual sales that occur based on whether.

Christopher Shaw

All right. That helps. Thank a lot.

Operator

And next we’ll hear from Christopher Parkinson with Credit Suisse.

Graeme Welds

Hi, this is Graeme Welds on for Chris. Good morning, everyone.

Fran Malecha

Good morning.

Graeme Welds

Just had a quick question again on SOP. Just wondering about in the market what you’re seeing is driving higher volumes with respect to the absolute kind of market demand in North America versus what you’re seeing on the import front?

Fran Malecha

Yes. I think, as I mentioned earlier, we’re maintaining our share of the market. And our market share in SOP has been pretty consistent going back a number of years. So we’re not looking to capture volumes at the expense and share at the expense of price. But if you go back to the 2014 timeframe, the demand in the market was higher than it is today.

So I look at it as we’re getting back to demand that has been in the market previously and then look to continue to grow – this market should grow at 5% or so a year, at least, that’s our expectation going forward. And so we – I think we started a little bit of demand to pickup from prior years and then grow from there.

Graeme Welds

Got it. Thanks so much. If I can just have one quick question on salt. I’m just going to following up on some questions before in terms of the back-half margin outlook. I was just curious what in that is embedded from what you expect to achieve in terms of savings from continuous mining? And then how we should kind of maybe think about the margin standpoint in 2019, assuming that we kind of have a more normalized production here?

Fran Malecha

Yes. So you – are you referring to the back-half of 2018 in terms of…?

Graeme Welds

Of 2018, correct. Yes, in terms of continuous mining, yes?

Fran Malecha

Yes. So we are – we feel like the $5 million of savings is in, and that would be the only savings we would see this year, which is embedded in our forecast. So like I said before, I think, as we ramp up production in the late – in the second-half of the year here with our employees back in place. And if we hit our targets and continue to improve our targets into 2019, then you’re going to see the savings in the back-half of 2019. So I’m not ready to give 2019 margin guidance yet. But we certainly expect them to improve next year.

Graeme Welds

Got it. That’s helpful. Thank you.

Operator

And next we’ll go to Joel Jackson with BMO Capital Markets.

Joel Jackson

Okay. If you may know the margin guidance question, maybe just understanding a bit about the 15% higher rock salt pricing on new contracts, excluding, I guess, chemicals SOP in the UK to upper higher freight cost and other things going on.

Can you give us a sense of what kind of the net back expansion would be net-net at – factoring all of this, maybe the greater ask would be first-half of 2019, if it’s a normal winter or whatever that is. Is this mean, you should see an expansion in margin 300 basis points, 500 basis points. Can you give any kind of color that would help us understand what 15% means when sort of drag down for other factors?

Fran Malecha

So, again, are you talking about the second-half of this year, or are you talking about second-half next?

Joel Jackson

No, I’m talking about first-half of 2019, I mean, you’ve given second-half?

Fran Malecha

First-half of 2019?

Joel Jackson

Yes.

Fran Malecha

Yes.

Joel Jackson

Just generally, what it means for the winter, but first-half of 2019 would be helpful? Thanks.

Fran Malecha

Yes. So, I anticipate if we hit our plans and end the year with average weather and end the year with – we’ll end with some carryover inventory, which would be something that would be non-repeat in the future. So you could think of that as being, at least, several million dollars.

So when we see this price unfold in the first quarter, you could see a couple of percent of improvement. And again, so much of it, Joel, depends on our production rates through the rest of the year and into January and February, because those will be the tons we’re set – we’re going to be selling. So if you wanted to estimate a couple of hundred basis points, I think, that would be fine.

Joel Jackson

That’s actually quite really helpful. Second question is, you talked about your awarded volumes being down this year because of various factors Goderich, et cetera. How do the overall markets do in terms of order volume? I mean, you were, I guess, at lower volume, I guess, cargo’s at lower volume, I guess, the other players benefited from that?

Fran Malecha

I think it’s probably a fair way to look at it.

Joel Jackson

Okay. And how do the overall market grow in terms of the order volume so far?

Fran Malecha

I think, we’re, as I think mentioned in my remarks, I mean, the volumes are up – back up to kind of that historical level coming off the previous winter. So I’m not going to put an actual percentage on it on this call, but I think we’re optimistic to see those volumes there. As I mentioned, if and as we produce more of at Goderich coming out of the strike into the back-half of the year, we hope to have some maybe more in season demand than we historically probably would have looking at previous bidding seasons.

Joel Jackson

And I’ll sneak one more in. You have a lot of different types of products in PDQ, some niche products, seed treatment, flow of these nitrogen micronutrient, how does that – like is the shift to more beans in Brazil versus corn and other crops, would that be positive or negative for your business?

Fran Malecha

Well, it’s positive. We actually have a kind of a menu of products geared specifically to all crops, but specifically to soybeans. And if growers are on our program, we’ve proven that they get better yields. And so we see that those additional soybean acres in Brazil, as you know, very positive for our business down there.

Joel Jackson

Thank you.

Fran Malecha

You’re welcome.

Operator

And moving on we’ll go to Bob Koort with Goldman Sachs.

Dylan Campbell

Good morning. This is Dylan Campbell on for Bob. A quick question on free cash. I think, the track in there around $130 million for the first six months. Do you have any updated kind of guidance for how we should expect that to track in the second-half of the year?

Jamie Standen

We’re going to in the year around flat and it’s really a function of some – the net tax payments that we need to make related to our Canadian tax settlement. So we’re planning on making those settlements. We think we can get that done, which would drive the $70 million in net payments. If they don’t get done this year and they slide into next year, that would have a meaningful impact, not saying that’s going to happen, we still plan to execute and get that done this year. But that would put us down around flat to up $20 million, so $20 million of free cash flow before dividend.

Dylan Campbell

Got it. Thank you. And I was encouraged to see, I mean, North America shipping and handling costs decreased year-over-year. It seems a little bit different than what we’ve seen across the Americas with increased logistic pressures. Do you have any additional color on that decrease?

Theresa Womble

Plant nutrition.

Fran Malecha

Yes. So specifically in plant nutrition, yes.

Dylan Campbell

Yes.

Fran Malecha

That was up a bit. But I think that, remember, fuel is less impactful to us there. We use rail as shipment. Now there are – the railroads do have a running at capacity and are having trouble even hiring trainmen. So they’ve had pricing power. But we’ve offset some of that with some warehousing things we’ve done and some direct rail shipments out of the plant versus out of our warehouses, so we manage our – we managed our costs lower that way, shipping direct from the plant.

Dylan Campbell

Got it. Thank you.

Operator

Moving on, we’ll go to David Begleiter with Deutsche Bank.

David Begleiter

Thank you. Good morning. Fran, on the 15% the Highway deicing pricing for next year, or this upcoming winter season. How much would you have required just to offset the rise in logistics and fuel costs that you’re realizing this year and expect to realize next year, would be roughly half perhaps of that 15%?

Fran Malecha

I mean, that’s – that wouldn’t be a bad estimate, I think, that would be fair to say.

David Begleiter

Very good. And Fran, just on the – I’m sorry. Just on the water volumes this year, if you’ve lost "some market share" and want to get back next year once Goderich ramps up. Would that imply some potential pricing pressure as you regain this loss share that you give up this year?

Fran Malecha

I mean, I guess, that’s speculative, it’s hard to say. I think, as our production ramps up, I would expect that, we would increase our volumes closer to the mine and and just be more competitive in the market. So lots going to dependent on winter and it’s just hard to speculate on that.

I think, we’ve seen in the past though that we’ve been able to increase our share, get share back, if we go back a number of years in a – if we have a reasonably good market to do that and I would say, average volumes are above. So we’ll just have to wait and see what winter brings and then go from there.

David Begleiter

Thank you.

Fran Malecha

Thanks.

Operator

And next, we’ll go to Christopher Perrella with Bloomberg Intelligence.

Christopher Perrella

Good morning. A question on the South American Plant Nutrition business. How has the currency move impacted raw material costs down there? And how does that play in – I know the translation headwind, but maybe some translational headwind as well on operating margins in the second-half?

Jamie Standen

Sure. So it has been significant. Many of the – many of our input costs are denominated in U.S. dollars when you just think of general commodities such as copper, I always refer to. So we have seen significant increases in those prices in those costs – input costs. However, the business itself and the innovative nature of our products and the importance of our products to growers and their yields, we do have pricing power.

So we’ve been able to pass those along to our customers. We use dynamic pricing in the field. So we’re constantly watching our replacement costs and adjusting our pricing in the marketplace. One risk, however, to that is the volatility. So we think of a weaker reais or a strong dollar as benefiting the grower ultimately, but we do prefer stability over volatility. Dynamic pricing in the field with the currency moving quickly can cause significant lag issues.

Christopher Perrella

All right. And then that would be – you would see that more in the season with the plant – in the planting season down there, or how – did that impact 2Q to some degree?

Fran Malecha

Yes. So it did impact 2Q, but we’re building our inventories in 2Q. We do have some sales as well. So we’re passing along that pricing, and now we’ve built much of our inventory and we’re going into the seizing and we’ll be selling that product that we’ve already made plus we’ll be taking new orders and we’ll be producing new material and constantly adjusting that, that pricing to match and maintain our – maintain or improve our margins.

Christopher Perrella

All right. Thank you. And one quick follow-up on the salt business. With the purchased material and the shipping from South to North, will most of that cost flow through inventory in shipments in 3Q, or is that spread evenly between the two quarters in the back-half of the year?

Fran Malecha

It’ll be allocated based on the sales volumes, so heavier to Q4.

Christopher Perrella

Okay. Thank you very much.

Fran Malecha

It’s the cost come through when the sale occurs.

Christopher Perrella

Okay. Thank you.

Operator

[Operator Instructions] We’ll return to Vincent Anderson with Stifel.

Vincent Anderson

Thanks. Just a really quick housekeeping question. Sorry, if I missed it. Did we get an SOP only price? And if not, are you willing to give us one for the quarter?

Fran Malecha

Yes. We didn’t put it in the business deck this quarter, but SOP only in Q2 was $596 a ton.

Vincent Anderson

Thank you.

Operator

And we’ll move on to Mark Connelly with Stephens Inc.

Mark Connelly

Thanks. Just two things. The weakness that you saw in the Brazil chemical business, is that extending into Q3? And if you could help us understand what’s driving that?

And second, if we think broadly about the specialty fertilizer product pipeline, should we expect that to be lumpy, or is that going to help keep the growth fairly steady?

Fran Malecha

So let me take the first one there regarding the chemical business. The main impact to the chemical business was related to the 10 days trucker strike. Remember, that business is more consistent through the year. So, losing the 10 days in the quarter was very impactful. So regarding the product pipeline, can you as that again?

Mark Connelly

Sure. I’m just wondering if you think about your specialty fertilizer introductions. Is that going to add lumpiness to your revenue, or is it going to actually keep things relatively steady? It sort of depends on how you’re planning to roll those things out?

Fran Malecha

Yes. So it’s – I don’t think it would cause any particular lumpiness. So we’re – we’re really focused on innovation. We expect to deliver new formulations and new products over the next several years, and we’re very excited about some of the things we have in that pipeline.

Some of them are replacement products. So we think we can stop, move or move away from certain older formulations and replace them with new ones to really drive growth. Will there be a little bit of lumpiness? Absolutely, if we have something particularly innovative in a particular year. But all in all, we would expect steady growth profile going forward.

Mark Connelly

Super. Thank you.

Operator

And next we’ll go to Joel Jackson with BMO Capital Markets.

Joel Jackson

Sorry, Jamie. I have a follow-up for you. You had given some good guidance about maybe, how all things play out a certain way, maybe 200 basis points of salt margin expansion. Can you just clarify, I think, you’re talking about Q1 as opposed to the first-half?

Fran Malecha

Yes.

Joel Jackson

But I think, your comp was what – Q4? Was it versus Q4 of 2018, or was it year-over-year?

Fran Malecha

Yes.

Joel Jackson

Okay.

Fran Malecha

I was thinking sequentially.

Joel Jackson

Thank you very much.

Operator

And that does conclude our question-and-answer session. I’d like to turn things back to Theresa Womble for any additional or closing comments.

Theresa Womble

Thank you, Paula, and thank you all for joining us today. Once again, we appreciate your interest in Compass Minerals. Please feel free to contact the Investor Relations department with any additional questions you may have. Have a great day.

Operator

And that will conclude today’s conference. We’d like to thank, everyone, for their participation. You may now disconnect.