CMP
#I think if I look at the way the salt business has progressed over the past few years, and you're going back, in the time frame you mentioned, about five years now, we have been working hard to increase our margins and you have been seeing that over the last eight quarters of consistent margin improvement.
And as the margins have increased, I would just offer that I think in mild ---+ when we do experience mild winters like we have gone through this past year, we're probably going to have a little more volatility in the pricing.
We have seen that with our 7% lower pricing expectation, given the competitive nature of the bid season.
The real story, though, for us is volume, in addition to that pricing, and not only do we have the weaker North American market impacting us, but also a very mild winter that we just experienced in the UK impacting this year, and we will look in the next year and see how the weather impacts that.
So we are getting the combination of both of our key markets that have gone through a mild winter and the volume impact is, I would suspect, probably even greater than looking back maybe to the time frame you mentioned.
Yes, I think the other thing that is happening out there is, at least for the last bit of time, maybe the last couple months, we have seen the MOP prices stabilize.
Granted, they are at probably 10-year low pricing, but they have stabilized.
So that's, from our perspective, a positive signal.
And as I mentioned earlier, I think we have the pricing on SOP at a point where we will continue to defend against imports, but can grow the demand from here on the chloride-sensitive crops.
And as the profitability of those growers returns in some of those key crops for us, key specialty crops improve, we think we will get some benefit over the midterm.
But I think right now we're just in the middle of the perfect storm and wanting to make sure that we are doing the blocking and tackling with the customer base so that as things do improve, our volumes will go up and hopefully the pricing will go up as well.
<UNK>, this is <UNK>.
I think in my comments I mentioned that we are in a bit of a timing gap here because of the winter impact more than anything else.
When we put that plan together, we assume normal weather, and that's normal weather on both the winter season for salt and the evaporation season for our SOP harvest.
This hasn't been this way for the past couple of seasons.
With that said, so we will continue to assume in our planning average weather going forward, so not the benefit of a harsh winter or things like that, but average weather going forward.
We are going through our plans, working through the impact that the cost reductions and to the extent what demand growth we can get, especially on the SOP side, to fill that gap that we have with organic growth that is going to come from our Wolf Trax business and we will just have to see about Produquimica.
We're going to assume that that full transaction will be complete at the end of the plan in 2018, which will be the last year that the put could be exercised.
So with all those things in play here, we think that we have a good plan in front of us to bring us close to those ---+ that original target, and as we work through the coming months and revisit on an ongoing basis our strategies, we'll probably give a little bit more clarity on the timing and the dollar impact of the earnings that you're looking for.
But right now, I would say that we are doing the right things.
We haven't given up on the $500 million and I would say that we will provide more clarity as time goes on.
That number reflects a shortfall of about $50 million to that target that drives that free cash flow, so if we get to $500 million, we're a little bit better.
If we come up a little short to the $450 million, we would be off that a little.
But as <UNK> said, we are going through the deep-dive refresh and strategic planning process right now, so we're deep into that, and over the coming couple of months, we will have that completed in a much more ---+ what's the right word ---+ accurate kind of view of where we think 2018 is going to land with the assumptions we make.
Their third quarter will show up in our fourth quarter, and consistent with how we have talked about that business, we've said all along that we thought it would be a modest single-digit positive contribution to our profits this year because we only pick up our 35% of their net income while we own this minority ownership.
So, we continue to have a profitable outlook for that in the full year.
The big number will be their Q3, our Q4.
We will tap into it a little more than we are now.
I don't think you're going to see it materially rise significantly that will cause anyone any alarm, but it will be a higher level by the time we get to the end of the year than we are at now.
We will still have a lot of revolver capacity left.
I am not sure I want to be specific about that right now, but we are going to be nowhere near tapping our revolver to the limit.
We talked about the year to date in terms of where they are this year versus last year, but also we said they are tracking on to slightly ahead of plan, so we don't see a really material change in what it is going to cost us, driven by their earnings.
But probably the biggest thing that's changed is the currency.
The reais has appreciated significantly since then, so with that, the cost of the put goes up and the quality in terms of US dollars of the income stream moves.
So, I think we will see some upward pressure on that number, but primarily due to FX, not due to any big change in the business.
We are not disclosing their EBITDA numbers precisely, but we are up year over year and we are ahead of plan, so we are extremely happy with the way that thing is progressing.
Sure.
We will finish the expansion there in the first quarter of 2017, so we are putting in a new crystallizer and a new compactor.
The new compactor will be complete in this year, by the end of 2016, and the crystallizer in the first quarter of 2017, and that will create additional capacity that we can access.
And I think, as I talked earlier, we plan to ramp up that volume by building demand on the chloride-sensitive crops and really focusing on the key markets for us, which are primarily in the West and California, and we will compete against MOP for the crops that aren't sensitive to the chlorides, but that's where the bulk of the growth will come.
That's sustainable, in our mind.
And as we talked about earlier, looking to 2018 and the ramp-up to our EBITDA target, we're assuming measured growth, I would say, on the SOP side, so not full capacity in 2018, so we are being more realistic there, given the current situation as we see it.
And we ---+ in terms of pricing, we will just have to see where it goes, but we aren't plugging in a huge price increase into our numbers to get to a target.
It is looking at the market as it is today and doing the things that we can do that are under our control to build demand and manage margins.
The bid season is not over yet, but we are about two-thirds through and we generally expect to hold our share.
It might be ---+ as the season starts and progresses through the geography, it may not be in exactly the same place that we thought it would be when we started the bid season, given the competitive nature and just the way the bidding happens, but we do expect to largely maintain our share.
It is different because if you recall the ---+ from last year, we were coming off a significant increase in price in the prior year, and at the tail end of that pricing season, we had ---+ a fair amount of our volumes were at a significantly higher price than was probably sustainable.
So that just fell off, if you will, as you looked into what we priced last year.
So this year, I think we were starting at maybe a narrower pricing scenario from start to finish, looking to the year prior.
And so, I would say from that aspect it is more disappointing than the prior year.
But we also had a milder winter and the volumes are down significantly in our served area, and we think given the fact that the eastern part of the US was even milder, that ---+ and they were coming off probably a stronger winter the year before, that has certainly a significant influence on the bid season this year that wasn't there last year.
We're pretty comfortable with our share as it stands today.
As I mentioned, the share will bounce around a bit from year to year in the geography, but in terms of our overall share of the market, we think we're in pretty good shape.
So I would expect that the cost benefit that <UNK> has described will fall straight to the bottom line.
In general, I would say that they don't have significant inventory capacity, and in most cases, those depots will hold about three salt events.
And they are carrying inventory more than they would like, because usually they like to be out or close to out so they can then do their road construction work and utilize their facilities and their assets accordingly.
So I think certainly their inventories are higher than they were a year ago.
Inventories throughout the market are higher, but I think that I would say for us as we look at our inventory levels, they are lower than we look back to the previous mild winter that we had in the 2012 season.
So, I think that's a result of we reacted quickly to the weather this year and did reduce production, primarily at Goderich, to help improve our inventory situation, which we knew would be higher than normal, as well as the rest of the industry.
We do.
Yes.
I think as I mentioned earlier we think we have the pricing where it needs to be to drive the volumes that we are guiding to and to hold our share, and then we will go from there.
Sure, <UNK>, this is <UNK>.
I don't think it is particularly pressure from imports, although I would say that given vessel freight rates and currency rates, the move in those over the past couple of seasons, there has been a slight dynamic there in terms of the cost to land imports into the US and that's putting pressure on the overall market, I would say, and probably shine through on some of the pricing.
But I think more the pressure is just coming due to the fact that the eastern US had an extremely mild winter, and so the tendency for the producers in that part of the country will be to move west, and I think we saw the opposite happen a bit last year where we moved into the east and picked up some volume and some early fill volume in some cases that the others just couldn't secure.
So, you are seeing some of that dynamic in the state tenders, but as we look at our overall business, the overall region that we serve, which is quite a large geography, there are some markets that aren't down nearly as much as maybe what you have seen in the public bids and the pricing is ---+ we are talking about the averages when we talked about how we expect the season to end up.
So, there is a lot of those types of dynamics going on in the bid season, but as I mentioned, we think that we are largely holding our share and there is a bit of a shift in some of the geographies in the volume, but not, I would say, a material shift away from where we normally compete.
As I mentioned, I think we are looking at building the demand over time, and as I said and as we look to our 2018 objective that we've laid out there, we don't expect to be at full capacity at Ogden by then, so it is going to take more time to build the demand effectively, from our perspective.
I think what will happen and the benefit that we will get at Ogden is the improvement in our yield, so we will be able to get more SOP tons produced from our own harvest than we ever had before, assuming the normal weather, and we get a benefit there on our cost, for sure.
So, that is where the early benefit comes from, from the improvements that we've made out there, and then the longer-term benefit will come from the expansion of capacity.
And as we fully utilize our own harvest, our own feedstock, we will augment that with MOP, taking advantage of our excess sulfur to make a margin and deliver into the market.
We are on this lag, <UNK>, so what we described as first-half sales ---+
So calendar year, we remain confident that they will be profitable, bearing in mind we pick up 35% of their net income only, so that's a lot different to the sort of EBITDA discussion we generally have because that's an after-tax number that we are picking up.
Through the six months and ---+ next quarter, we will get to report what happened in the quarter just gone.
That's where some of the 26% up will come into our income, and then in the fourth quarter we will report their third, which is typically every year their big planting season.
So, it is the cyclicality, plus the lag.
We remain committed to that being a positive contribution to our income in 2016.
I don't think, <UNK>, that half their sales are going to occur in the first half of the year, so there is growth happening in their sales.
And the ag sales are more heavily weighted to the back half than the first half.
The water conditioning and treatment business is more consistent throughout the year.
<UNK>, you cut out there a bit in your question.
Could you just repeat that.
I wasn't quite sure what you are asking.
I would say that the state bids, so the large bids, are virtually behind us, and so the balance of our pricing will be some of the smaller municipalities and the commercial business that we do.
That tends to be pretty close to the pricing that is in the market in the geographies that we have already priced, so we wouldn't expect a significant shift away from what has already happened through the pricing season.
And keep in mind that we have some contracts that are longer term in nature.
We have a Canadian marketplace that is a bit more consistent, probably, in terms of weather than the southern US, and so you have some of those geographic dynamics that happen in the bid that all add up to the average pricing that we guide to.
But I would say I wouldn't expect a significant differentiation in the last one-third of the pricing season from what we have experienced in the first two-thirds.
I think it's a combination of those things.
I do think we have ---+ because of profitability, the growers are looking to reduce cost and would be using more MOP relative to SOP than they normally would, and that could mean the blend is different and is more favored to MOP than normal, if they were using MOP at all in the past; they might be using some.
So I think that's happening.
And we think that there are some growers that are using less ---+ I don't know if that means they are taking the season off ---+ but applying less fertilizer per acre than they normally would.
And I think that's happening probably in all the macro fertilizers and we are seeing some of that in SOP as well.
