Company Reports

Compass Minerals' fiscal second-quarter results reflected the mild winter conditions. Salt revenue and adjusted EBITDA were down 14% and 7%, respectively, versus the prior year as a 21% volume decline and increased unit production costs were partially offset by higher average prices. In response to the mild winter weather and excess inventory, Compass temporarily shut down production at the Goderich mine. Management is also focused on cost reduction, both operating expenses and capital expenditures, as a way to improve free cash flow generation and reduce debt.

Compass Minerals is one of the largest salt producers in North America. Its Goderich rock salt mine in Ontario benefits from unique geology, and with access to a deep-water port, it can deliver deicing salt to customers at a lower cost than competitors. Additionally, the company controls one of only three naturally occurring brine sources that produces the specialty fertilizer sulfate of potash, or SOP. These operations at the Great Salt Lake in Utah can produce SOP at a lower cost than marginal-cost producers that convert standard potash.

After reviewing our outlook for Compass Minerals, we downgrade our economic moat rating to narrow from wide. Our $25 fair value estimate remains unchanged. We were already embedding our narrow moat rating impact when we updated our fair value estimate on March 25.

Compass Minerals has an enviable portfolio of cost-advantaged assets. Its Goderich rock salt mine in Ontario benefits from unique geology, and with access to a deep-water port, it can deliver deicing salt to customers at a lower cost than competitors. Additionally, the company controls one of only three naturally occurring brine sources that produces the specialty fertilizer sulfate of potash, or SOP. These operations at the Great Salt Lake in Utah can produce SOP at a lower cost than marginal-cost producers that convert standard potash.

Compass Minerals announced the company did not secure a wildfire retardants contract from the United States Forest Service in 2024. The USFS cited corrosion issues in the airtankers that had used Compass' magnesium chloride-based product during the 2023 wildfire season. As a result, Compass management said the wildfire retardants will not be used for the foreseeable future. We updated our model to assume no wildfire retardants revenue or profits going forward. Separately, we slightly reduced our salt outlook to assume Compass' salt business generates volumes, revenue, and profits in line with management's mild winter scenario, as we assume the 2023-24 winter will continue to see below-average snowfall throughout Compass' largely US Midwest footprint.

Compass Minerals has an enviable portfolio of cost-advantaged assets. Its Goderich rock salt mine in Ontario benefits from unique geology, and with access to a deep-water port, it can deliver deicing salt to customers at a lower cost than competitors. Additionally, the company controls one of only three naturally occurring brine sources that produces the specialty fertilizer sulfate of potash, or SOP. These operations at the Great Salt Lake in Utah can produce SOP at a lower cost than marginal-cost producers that convert standard potash.

Our key takeaway from Compass Minerals' fiscal first-quarter earnings is the strategic shift to focus on the maximization of free cash flow and returns on invested capital and away from earnings growth through new business ventures. As a part of this change, the company announced the cancellation of its plans to develop a lithium project as a byproduct of its plant nutrition business in the U.S. state of Utah.

Compass Minerals has an enviable portfolio of cost-advantaged assets. Its Goderich rock salt mine in Ontario benefits from unique geology, and with access to a deep-water port, it can deliver deicing salt to customers at a lower cost than competitors. Additionally, the company controls one of only three naturally occurring brine sources that produces the specialty fertilizer sulfate of potash, or SOP. These operations at the Great Salt Lake in Utah can produce SOP at a lower cost than marginal-cost producers that convert standard potash.

Compass Minerals announced a leadership change. Incoming CEO Edward Dowling will replace current CEO Kevin Crutchfield effective Jan. 18. In the news release, board chair Joe Reece's statement pointed to Compass entering its next chapter, where the company will renew focus on reducing costs and driving free cash flow generation. We interpret this to mean Compass is likely not going to pursue new business lines. Instead, we expect Compass to reduce unit production costs at its salt and specialty potash businesses. This is in line with our current forecast. Accordingly, we maintain our $45 fair value estimate for Compass Minerals. Our wide moat rating is also unchanged.

Compass Minerals has an enviable portfolio of cost-advantaged assets. Its Goderich rock salt mine in Ontario benefits from unique geology, and with access to a deep-water port, it can deliver deicing salt to customers at a lower cost than competitors. Additionally, the company controls one of only three naturally occurring brine sources that produces the specialty fertilizer sulfate of potash, or SOP. These operations at the Great Salt Lake in Utah can produce SOP at a lower cost than marginal-cost producers that convert standard potash.

We maintain our $45 fair value estimate for Compass Minerals after updating our model to incorporate the company's fiscal fourth-quarter results and management's 2024 volume outlook. Our wide moat rating is also unchanged.

Compass Minerals has an enviable portfolio of cost-advantaged assets. Its Goderich rock salt mine in Ontario benefits from unique geology, and with access to a deep-water port, it can deliver deicing salt to customers at a lower cost than competitors. Additionally, the company controls one of only three naturally occurring brine sources that produces the specialty fertilizer sulfate of potash, or SOP. These operations at the Great Salt Lake in Utah can produce SOP at a lower cost than marginal-cost producers that convert standard potash.

Compass Minerals announced it has suspended the development of its lithium project indefinitely because of regulatory uncertainty in the state of Utah. We have updated our model to assume just a 25% chance the project enters production, versus our prior base-case assumption of a 100% chance the project moves forward. We have also revisited our forecasts for the salt and plant nutrition businesses. Having updated our model, our fair value estimate is now $45 per share, down from $65. Excluding lithium, we value Compass Minerals at $35 per share in our base case, with the remaining $10 per share reflecting our 25% probability-weighted valuation of the lithium project.

Compass Minerals holds an enviable portfolio of cost-advantaged assets. Its Goderich rock salt mine in Ontario benefits from unique geology, and with access to a deep-water port, it can deliver deicing salt to customers at a lower cost than competitors. Additionally, the company controls one of only three naturally occurring brine sources that produces the specialty fertilizer sulfate of potash, or SOP. These operations at the Great Salt Lake in Utah can produce SOP at a lower cost than marginal cost producers who convert standard potash.

After updating our model to incorporate Compass Minerals' fiscal third-quarter results, we maintain our $65 per share fair value estimate. Our wide moat rating is also unchanged.

Compass Minerals holds an enviable portfolio of cost-advantaged assets. Its Goderich rock salt mine in Ontario benefits from unique geology, and with access to a deep-water port, it can deliver deicing salt to customers at a lower cost than competitors. Additionally, the company controls one of only three naturally occurring brine sources that produces the specialty fertilizer sulfate of potash, or SOP. These operations at the Great Salt Lake in Utah can produce SOP at a lower cost than marginal cost producers who convert standard potash.

We maintain our $65 per share fair value estimate for Compass Minerals after updating our model to incorporate the company's first-quarter results. Our wide moat rating is also unchanged.

Compass Minerals holds an enviable portfolio of cost-advantaged assets. Its Goderich rock salt mine in Ontario benefits from unique geology, and with access to a deep-water port, it can deliver deicing salt to customers at a lower cost than competitors. Additionally, the company controls one of only three naturally occurring brine sources that produces the specialty fertilizer sulfate of potash, or SOP. These operations at the Great Salt Lake in Utah can produce SOP at a lower cost than marginal cost producers who convert standard potash.

We reduce our Compass Minerals fair value estimate to $65 per share from $80 after incorporating the company's fiscal first-quarter results into our model to reflect our lower near-term outlook for the salt business and lower long-term outlook for the plant nutrition business. Our wide moat rating is unchanged.

Compass Minerals holds an enviable portfolio of cost-advantaged assets. Its Goderich rock salt mine in Ontario benefits from unique geology, and with access to a deep-water port, it can deliver deicing salt to customers at a lower cost than competitors. Additionally, the company controls one of only three naturally occurring brine sources that produces the specialty fertilizer sulfate of potash, or SOP. These operations at the Great Salt Lake in Utah can produce SOP at a lower cost than marginal cost producers who convert standard potash.