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Compass Navigating Year-Round Demand
April 04, 2008: 08:05 PM EST

Apr. 7, 2008 (Investor's Business Daily delivered by Newstex) --

Think of Compass Minerals International as an all-season performer.

Thanks to a harsh winter and the upcoming spring-planting season, the company is riding high in the chemicals business. Compass' (CMP) two main products -- salts for highway de-icing and sulfate of potash for making specialty fertilizers -- are in high demand.

The Overland Park, Kan., company has benefited from this year's brutal winter in the U.S., especially the Midwest. Demand for Compass' road and sidewalk de-icing salt reflects the cold, snowy, icy weather. There has been a lot of that this year.

The company's sulfate of potash, meanwhile, is used to improve the durability of turf grasses and boost the yield and quality of high-value crops such as tobacco, wine grapes, citrus fruits and nuts.

"This is a great little company," said Elizabeth Collins, an analyst at Morningstar. "They have a really strong set of competitive advantages both with their rock salt production and their sulfate of potash production. They have world-class resources, and they're low-cost resources."

A Better Bidder

Because salt and sulfate of potash are commodity chemicals, the lowest bidder wins. That's often Compass, because of its efficient mining operations and transportation network.

It owns top-tier rock salt mines in Goderich, Ontario; Cote Blanche, La.; and the U.K. It has access to water transportation systems that give it the ability to deliver highway de-icing salt cost-effectively, Collins says.

The company also maintains flexible labor contracts that allow it to scale back its work force when it's not a productive season. So Compass doesn't suffer penalties from big severances or layoff packages.

Compass does a lot of inventory management of salt for customers because it's such a voluminous product. Customers such as cities and counties don't keep a lot of inventory, so it's up to Compass to deliver the salt as needed. Compass has an extensive water transportation system and depot network around the lakes and rivers in the Great Lakes region, she says.

"Logistics is a big part of their game," Collins said.

While severe weather and the need for highway de-icing salt have been the big story for Compass lately, the sulfate of potash business has the opportunity to drive "even more impressive" returns ahead because of substantial price increases for the product last year and this year, Deutsche Bank analyst David Begleiter said in a Feb. 13 research note.

Compass announced March 31 that it would raise its prices for sulfate of potash by 12% to $658-$670 per short ton starting April 14. The company said the price increase would help support its announced expansion of production capacity at its Ogden, Utah, plant.

Expanding Salt

Compass also plans to expand its production of highway de-icing salt.

Supplies of road salt and sulfate of potash have been tight, allowing Compass to earn good profit margins, Collins says.

Compass also produces water softener minerals, magnesium chloride, animal feed supplements and industrial salts.

Compass is the second-largest salt producer in North America and the biggest in the U.K. It's also the largest producer of sulfate of potash in the U.S. and Canada.

It has a records management business, DeepStore, which uses former salt mines as cool, well-protected storage for documents.

In the fourth quarter of 2007, Compass Minerals' earnings per share, excluding special items, rose 64% from a year earlier to $1.31. It beat Wall Street's forecasts by 26 cents.

The company credits a a number of factors for fourth quarter sales that rose 54% to $326.1 million: robust demand for de-icing products, strong sulfate of potash specialty fertilizer sales, pricing gains across all product lines and the favorable impact of foreign exchange. Weak de-icing demand due to mild weather dampened results in the year-earlier period.

Rosy Outlook

"We're quite optimistic about our opportunities in 2008," Compass Chief Executive Angelo Brisimitzakis said in a Feb. 11 statement. "The outlook for sulfate of potash is strong as global demand for all crop nutrients remains robust."

Assuming normal weather, the company's salt business should benefit from stronger pricing, new products and increased rock salt capacity, he said. Brisimitzakis also expects to benefit from lower capital and tax expenses.

Analysts polled by Thomson Financial expect earnings for Compass Minerals' current first quarter to grow 49% from the year-ago period to $1.19 a share, as sales rise 21% to $319 million.

IBD's Brad Kelly contributed to this story.



Newstex ID: IBD-0001-24278342

Originally published in the April 7, 2008 version of Investor's Business Daily.