Compass Minerals Reports Solid Fourth-Quarter and Full-Year Results

Compass Minerals (NYSE: CMP), a leading producer of essential minerals, reported a year-over-year increase in fourth-quarter revenue and operating earnings driven by improved Plant Nutrition South America results, which more than offset weather-driven weakness in the company's Salt business. The company also announced that its Board of Directors has approved a dividend for the first quarter of 2018 of $0.72 per share.

“While this has been a challenging year for Compass Minerals, our results are demonstrating the value of our strategy to balance our winter weather exposure by growing our plant nutrition business with a strong focus on innovative specialty products,” said Fran Malecha, Compass Minerals’ president and CEO. “Further, we have completed key capital investments critical to increasing our production capabilities and efficiency, while still returning almost $100 million directly to shareholders through our dividend. I believe our actions have positioned the company for significant top and bottom line growth and improved free cash flow over the next several years.”

Fourth-quarter 2017 net loss was $4.4 million, or $0.13 per diluted share, which compares to net earnings of $97.6 million, or $2.87 per diluted share in the prior year. Excluding the impact of special items in both years, fourth quarter 2017 net earnings increased 22 percent year over year to $56.2 million from $46.1 million. The special items in the 2017 fourth quarter include the estimated impact of U.S. tax law changes, in addition to a one-time tax expense stemming from a settlement reached with U.S. and Canadian tax authorities. Specific details regarding all special items, along with reconciliations of any non-GAAP measures used in this press release, can be found in the tables at the end of this press release.

Full-year net earnings declined to $42.7 million, or $1.25 per diluted share, from $162.7 million, or $4.79 per diluted share in 2016. Excluding special items for each year, 2017 full-year net earnings were $93.3 million, or $2.75 per diluted share, compared to $111.2 million, or $3.27 per diluted share in 2016.

Total revenue in the fourth quarter increased 3 percent to $457.9 million from the prior-year fourth quarter. For the full year, the company reported total revenue of $1.36 billion compared to $1.14 billion in 2016. This 20 percent increase was primarily attributed to the full-year inclusion of Plant Nutrition South America results, partially offset by a year-over-year reduction in Salt segment revenue. The Plant Nutrition South America segment was formed in October 2016 following the completion of the Produquímica acquisition.

Consolidated operating earnings in the fourth quarter of 2017 increased 23 percent from prior-year results of $65.3 million. The 2016 fourth quarter results included a one-time asset impairment charge of $3.1 million in the Plant Nutrition North America segment and additional acquisition-related expenses of $8.4 million in the Plant Nutrition South America segment. Excluding these special items, consolidated operating earnings improved 5 percent as increased earnings in the Plant Nutrition South America segment offset a year-over-year decline in Salt segment earnings.

Full-year 2017 consolidated operating earnings of $159.2 million were negatively impacted by a 31 percent year-over-year decline in Salt operating earnings, which was partially offset by the addition of the Plant Nutrition South America segment and increased Plant Nutrition North America operating earnings.

SALT SEGMENT

Salt segment fourth-quarter revenue declined 2 percent from prior year as a modest increase in highway deicing revenue partially offset lower consumer and industrial results. The increase in highway deicing revenue was primarily driven by improved deicing sales in the U.K. compared to last year. The late start to winter weather in North America, however, limited sales of consumer and commercial deicing products and drove a 10 percent decline in consumer and industrial sales volumes.

For the full year, Salt segment revenue decreased $42.7 million as mild winter weather reduced Salt sales volumes by 5 percent and total average selling prices by 1 percent.

Salt segment operating earnings declined 8 percent in the fourth quarter of 2017 from 2016 results. This decrease was driven by increased shipping and handling costs resulting from an unfavorable geographic sales mix, combined with increased freight rates and fuel costs.

For the full year, the Salt segment generated $138.0 million in operating earnings compared to $200.6 million in 2016. Salt segment operating margin for 2017 declined to 17.9 percent from 24.7 percent in 2016 due to increased product and logistics costs, as well as lower average selling prices.

Winter Weather Effect

The company recorded 57 fourth-quarter 2017 winter weather events in the 11 cities the company tracks, which was above the 10-year average of 45.2. Much of the increased winter weather activity occurred in eastern U.S. geographies where the company typically has fewer highway deicing sales contracts. In addition many of the snow events occurred in the last two weeks of December, thus having a limited impact on fourth-quarter 2017 sales. As a result, the company estimates that variations from average winter weather had a negative impact on fourth-quarter 2017 Salt segment sales and earnings.

PLANT NUTRITION NORTH AMERICA

Revenue generated by the Plant Nutrition North America segment grew 12 percent from fourth quarter 2016 results primarily due to an 11 percent increase in sales volumes. A modest year-over-year increase in the average selling price for Plant Nutrition North America products was driven by an increase in sales of higher value micronutrients.

For the full year, the segment generated $210 million in revenue, which was 3 percent above prior-year results driven by increased sales volumes.

Fourth-quarter 2017 operating earnings for the segment were $10.2 million compared to $8.0 million in the prior-year quarter. The 2016 results included a $3.1 million charge related to an asset impairment. As a percent of sales, Plant Nutrition North America generated an operating margin of 14.6 percent compared to an adjusted operating margin of 17.7 percent in the fourth quarter of 2016. The year-over-year margin decline was primarily attributable to increased shipping and handling cost related to freight rate pressures. In addition, increased depreciation expense due to the final commissioning of new equipment at the company's Ogden, Utah, manufacturing facility further pressures operating margin.

Revenue growth and lower production costs lifted full-year 2017 operating earnings 31 percent above 2016 GAAP operating results and 19 percent when adjusting for special items. Operating and EBITDA margins for full-year 2017 also expanded from prior-year results.

PLANT NUTRITION SOUTH AMERICA

Fourth-quarter 2017 revenue in the Plant Nutrition South America segment grew 10 percent from prior-year results as sales volumes rose 6 percent and average selling prices increased 3 percent. Strong demand for the company's innovative specialty plant nutrients drove both the increased sales volumes and improved average selling price.

The segment generated operating earnings of $25.1 million, compared to $8.0 million in the fourth quarter of 2016. The prior-year results included acquisition-related costs of approximately $8.4 million. When compared to 2016 adjusted operating earnings, 2017 fourth-quarter operating earnings rose 53 percent driven by increased sales of higher value agriculture products. This improved sales mix also produced a significant improvement in the segment's operating margin which expanded to 20.2 percent.

For the full year, while sales volumes of our high-value, innovative specialty plant nutrients sold directly to growers were stronger than 2016, agriculture sales volumes to distributors declined as did the segment’s chemical solutions sales volumes. As a result, Plant Nutrition South America sales volumes were below company expectations and approximately 9 percent below 2016 results, which included periods during which Compass Minerals did not have complete ownership.

The table below represents results only for the periods during which Compass Minerals had full control of Produquímica.

OTHER FINANCIAL HIGHLIGHTS

Two significant tax developments materially impacted 2017 net earnings and increased tax expense for the 2017 fourth-quarter to $67.7 million compared to $10.5 million in fourth-quarter 2016. The largest impact resulted from the U.S. Tax Cuts and Jobs Act, which requires a one-time tax on un-remitted foreign earnings. Based on current company estimates, this one-time tax totals approximately $55.2 million. The total reported tax was partially offset by a remeasurement of the company's deferred tax liabilities, which resulted in a tax benefit of approximately $8.4 million. Going forward, the company expects to have low-cost access to all foreign earnings, which should provide greater financial flexibility.

In addition, the company recorded a net tax expense of $13.8 million in the 2017 fourth quarter related to the company’s Canadian tax positions for the years 2007 through 2016 as a result of a settlement with Canadian and U.S. tax authorities. This agreement, in addition to the previously disclosed favorable ruling regarding Canadian federal tax reassessments for 2004 through 2006, significantly reduces the company’s remaining potential tax liabilities from disputed reassessments.

Selling, general and administrative (SG&A) expenses for full-year 2017 rose $42.5 million from 2016 results primarily due to the full-year inclusion of Produquímica which was acquired in October 2016. The increase was partially offset by cost savings initiatives that were introduced in July 2017.

OUTLOOK

The company expects that increased winter weather activity in late December and January will benefit 2018 Salt segment results and currently anticipates full-year 2018 Salt segment sales volumes to exceed 2017 results and the company's 10-year average of 11.7 million tons. Assuming average winter weather continues, revenue for the first half of 2018 is expected to increase when compared to prior-year results, which were negatively impacted by lower winter weather demand for deicing products. A combination of high cost carry-over inventory and increased shipping and handling costs are expected to pressure Salt segment operating margins for the first half of 2018.

Steady growth in demand for the company's sulfate of potash and innovative micronutrient products is expected to lift full-year Plant Nutrition North America 2018 volumes above 2017 results. Given our view of spring fertilizer demand, the company anticipates a modest year-over-year increase in first-half 2018 revenue. The segment's operating margin is expected to decline for the first half of the year as a result of increased logistics costs and depreciation expense.

In our Plant Nutrition South America segment, we expect the positive momentum we have experienced with our innovative, high-value specialty plant nutrients to push full-year sales volumes and first-half revenue ahead of 2017 results.

Given this outlook and current expectations regarding the company's full-year effective tax rate and interest expense, the company has established a full-year EPS guidance range of $2.75 to $3.25 per diluted share.

DIVIDEND DECLARED

The Board of Directors of Compass Minerals has approved a dividend for the first quarter of 2018 of $0.72 per share. This dividend is payable March 15, 2018, to shareholders of record as of the close of business on March 1, 2018.

“This dividend is a compelling indicator of the Board of Directors' confidence in our strategy for growth and value creation, particularly given the headwinds we've faced,” said Mr. Malecha. “By keeping the dividend at its current rate, which represents an attractive yield of more than 4 percent, we expect to have greater financial flexibility to continue executing our strategic plan, while still demonstrating our commitment to return value directly to shareholders.”

Conference Call

Compass Minerals will discuss its results on a conference call tomorrow morning, Wednesday, February 14, at 9:00 a.m. ET. To access the conference call, please visit the company’s website at www.CompassMinerals.com or dial 877-614-0009. Callers must provide the conference ID number 6916779. Outside of the U.S. and Canada, callers may dial 913-643-4075. Replays of the call will be available on the company’s website.

An updated summary of the company’s performance is included in a presentation available on the company’s website at www.compassminerals.com/presentation.

About Compass Minerals

Compass Minerals is a leading provider of essential minerals that provide solutions to nature’s challenges, including salt for winter roadway safety and other consumer, industrial and agricultural uses, and specialty plant nutrition minerals that improve the quality and yield of crops. The company produces its minerals at locations throughout the U.S., Canada, Brazil and the U.K. For more information about Compass Minerals and its products, please visit www.compassminerals.com.

Non-GAAP Measures

Management uses a variety of measures to evaluate the company’s and its operating segments’ performance. While the consolidated financial statements provide an understanding of the company’s overall results of operations, financial condition and cash flows, management analyzes components of the consolidated financial statements to identify certain trends and evaluate specific performance areas. In addition to using U.S. generally accepted accounting principles (“GAAP”) financial measures, management uses EBITDA and EBITDA adjusted for items which management believes are not indicative of the company’s ongoing operating performance (“Adjusted EBITDA”), both non-GAAP financial measures, to evaluate the operating performance of the company’s core business operations because its resource allocation, financing methods and cost of capital, and income tax positions are managed at a corporate level, apart from the activities of the operating segments, and the operating facilities are located in different taxing jurisdictions, which can cause considerable variation in net income. The company also uses EBITDA and Adjusted EBITDA to assess its overall and operating segment operating performance and return on capital against other companies, and to evaluate potential acquisitions or other capital projects. EBITDA and Adjusted EBITDA are not calculated under GAAP and should not be considered in isolation or as a substitute for net income, operating earnings, cash flows or other financial data prepared in accordance with GAAP or as a measure of overall profitability or liquidity. EBITDA and Adjusted EBITDA exclude interest expense, income taxes and depreciation and amortization, each of which are an essential element of the company’s cost structure and cannot be eliminated. Consequently, any measure that excludes these elements has material limitations. While EBITDA and Adjusted EBITDA are frequently used as measures of operating performance, these terms are not necessarily comparable to similarly titled measures of other companies due to the potential inconsistencies in the method of calculation. The calculation of EBITDA and Adjusted EBITDA as used by management is set forth in the following tables.

This press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including without limitation statements about the company’s ability to position itself for growth and improved free cash flow; low-cost access to foreign earnings, financial flexibility; demand growth; growth and value creation strategy; commitments to return value to shareholders; and the company’s outlook for the first half of 2018 and the full year of 2018, including its expectations regarding earnings per share (“EPS”), revenue, volumes, operating earnings margin, corporate and other expense, interest expense, depreciation, depletion and amortization, capital expenditures and tax rates. We use words such as “may,” “would,” “could,” “should,” “will,” “likely,” “expect,”“anticipate,” “believe,” “intend,” “plan,” “forecast,” “outlook,” “project,” “estimate” and similar expressions suggesting future outcomes or events to identify forward-looking statements or forward-looking information. These statements are based on the company’s current expectations 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 without limitation (i) weather conditions, (ii) pressure on prices and impact from competitive products, (iii) any inability by the company to fund necessary capital expenditures or successfully implement any capital projects, (iv) foreign exchange rates and the cost and availability of transportation for the distribution of the company’s products, (v) the ability to successfully integrate acquired businesses, and (vi) any inability by the company to successfully implement its restructuring plans or cost-saving initiatives. For further information on these and other risks and uncertainties that may affect the company’s business, see the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of the company’s Annual Report on Form 10-K for the year ended December 31, 2017 to be filed with the SEC and its Quarterly Reports on Form 10-Q for the quarters ended March 31, June 30 and September 30, 2017 filed with the SEC. The company undertakes no obligation to update any forward-looking statements made in this press release to reflect future events or developments. Because it is not possible to predict or identify all such factors, this list cannot be considered a complete set of all potential risks or uncertainties.

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