Please standby, we are about to begin. 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 Ms. Theresa Womble, Director of Investor Relations. Please go ahead, ma'am.

Thank you, Aaron. With me today are Fran Malecha, CEO of Compass Minerals; and Rod Underdown, our Chief Financial Officer. 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, July 28, 2014, 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 those identified in Compass Minerals' most recent Forms 10-K and 10-Q. The company undertakes no obligation to update any forward-looking statements made today to reflect future events or developments. You can find reconciliations of any non-GAAP financial information that we discuss today in our earnings release, which is available in the Investor Relations section of our website at compassminerals.com. With that, I will now turn the call over to Fran.

Thank you, Theresa, and welcome everybody on the call. We are here today to talk about our second quarter results and outlook for the remainder of the year. I will begin by saying these results were driven by some short-term softness in the Salt business, but the second quarter results aren’t really indicative to the underlying health of the business. More important development in the quarter was our North American bid season activity, which laying the foundation for a strong highway deicing environment for the upcoming winter season. In our newly expanded and renamed plant nutrition business continues to perform well, amidst broader fertilizer turbulence. This morning I will touch on some of the high level factors influencing our results and outlook, as well as discuss our ongoing strategies to drive growth and improve performance. Turning first to our Salt segment, we underperformed on our volume expectations for highway deicing. The primary factor here was that we expected our North American highway deicing customers who had not yet reached a maximum purchase allowance under the 2013/14 contracts to take this tons in the core in order to take advantage of this past season prices. Not all of these orders materialized and we instead we understand this customers are waiting for the next fiscal year to begun to make these purchases for the timing of these sales has been delayed into the third quarter. The other primary factor limiting our quarterly Salt results was our average reported selling price, which was lower in both Salt business versus the prior year, and in both cases, shifts in salt and sales mix to lower-priced product categories cause a decline. We saw the higher percentage of lower-priced tons to chemical producers this quarter in our highway deicing business. And in the consumer and industrial…

Sure. Thanks, Fran, and I'll begin today with a look at our Salt segment results. A 3% increase in consumer and industrial sales was not enough to offset the 19% decline in highway deicing sales year-over-year. As a result, total Salt segment sales were 7% lower than prior year and as Fran just described our quarterly results are certainly counterintuitive, just given the market dynamics that have developed. So I'd like to discuss in a granular way the second quarter results with a bit of detail. So for our highway deicing salt products, both average selling prices and sale volumes declined when compared to last year. And sales volumes for the highway deicing products are a bit fickle in the second quarter of each year, as much of those sales typically depend on our customers own internal decision making factors that really have nothing to do with current period product demand drivers. Obviously, this is not a time when the customer typically need highway deicing salt for wintry conditions, though occasionally early April weather result in a sales boost. In this particular year, most of our customers had maximized their purchase under their prior winter contracts and there was no additional salt for them to purchase until this fall when the customer -- new customer contracts going to affect. But we did have some customers who haven’t taken their full maximum commitments and we had expected them to complete those purchases in the second quarter. Some of those final sales to reach the maximum commitments were not requested during the June quarter. Given the rising price environment, we certainly expect those customers to complete their purchases very shortly and as a result of these unanticipated customer order timing, our sales were lower than we had originally inspected -- expected and…

(Operator Instructions) And we will take our first question from Jeff Zekauskas with JPMorgan.

Hi, good morning.

Good morning.

You spoke about your prices being up 20% for the bid season. Did you round it to the nearest 5%? Is 20% the best estimate or is it the number like 25% or 23% or 22%, a more accurate estimate?

Sure, Jeff. This is Rod. In a year like this, the range of price increases has been fairly wide. It's been a little more than 20% as we've gotten to this point in the bid season. And recognizing that there's just a little bit of time remaining, we didn't want to provide a specific point number. We certainly wouldn’t have provided a number of more than 20% unless we thought it was going to exceed that by the time we get to the end of the bid season. It has been more than 20% up until now. And I would say that gives us a little room once we report the final number, following the third quarter results.

So if your prices are supposed to be up, I don’t know 12% in the second half of ’14, or I don’t know, let’s assume that the fourth quarter price increases 12% than I don't know maybe average price increase for the first quarter of 2015, must be like I will call it 25% or some materially larger turnover. Is that right?

Jeff, I want to make sure that the 12%, we try to put that in proper context, the 12% is a weighted average across all of our salt products. That includes chemical in U.K., that are in highway deicing, that aren’t part of the North American bid season. It also includes all of our consumer and industrial salt products in that weighted average. So the 20-plus percent on the highway, on the North American highway bids factors in those actual expected bid season results that were run through the rest of our salt products aren’t increasing at those kind of rates. And so that’s where we get the weighted average of more than 12% for the second of the half year.

Okay. Why is your tax rate higher this year? What was the factors that seem to be driving it up?

Sure. Well, just a couple of things. Our primary tax jurisdictions are the U.S. and Canada and the U.K. Those all have different rates of corporate tax and there was a bit of a mix shift there towards our U.S., which is a higher tax rate. But you’ve probably also heard me in the past talk about how some of our rate benefits that we get that reduce our rate below the statutory rate are fixed. And so when we have a rising earnings expectation environment, those fixed benefits aren’t as significant to the rate as when earnings are going in the other direction. And so you know there's an element of VAT that also comes into play in that rate change.

Okay, great. Thank you so much.

And we'll take our next question from Mark Gulley with BGC Financial.

Good morning. On the Salt segment, this is the first I can remember ever having to purchase competitor salt for the North America highway deicing season. Is that because your sales force maybe did a little bit too good of a job in getting volume, or the production shortfalls maybe in some of the mines, maybe help explain the need for the purchased salt?

Sure, Mark. It’s Fran. I mean, I think that it really points to the strength of the demand in the market and probably not just Compass’ production impacts but others as well. I mean. I suspect we’re all producing at or near capacity to fill that void, but the demand is still greater. And so the market is importing salt and I think we look at our customer base and our ability, our capability to do that, given our transportation agreements and our distribution capability, as something that makes a lot of sense for us to meet the demand to the extent we can this year and then go from there. So I think it’s just managing our customer base and trying to do that as effectively as possible in a fairly unique environment for us this season.

And a second question. You were talking about the negative mix impact of having to sell more C&I product to bulk people. When your Buffalo plant is onstream, is that going to enable you to have a positive mix shift back to your own packaged products and then you kind of cut back on some of the low-margin stuff to the bulk guys?

Yeah. I think that's right. I mean, we’re always looking at our customer base and where we can get closer to the customer and expand those margins and earn the kind of returns that we look to earn on our capital investment, we’ll do that and Buffalo is an example of that.

Okay. Thank you.

Welcome.

And we’ll take our next question from Chris Shaw with Monness, Crespi.

Good morning everyone. How are you doing?

Good morning.

Couple questions. About the volumes you think that might have got pushed out of 2Q to 3Q from customers fulfilling the remainders of the contract. Are you seeing that volume now or are you just assuming it’s going to happen, based on a rational business decision? I mean, is there potential that they just don’t and then they -- because their budgets are under some flux and they’re just waiting for that to happen, to actually be buying it later maybe under the new pricing. Is that possible?

Yeah, we -- it’s a good question, Chris. We actually haven’t seen it yet, I would say in July. From our perspective, if the customer doesn't make the right business decision and go ahead and purchase that salt under the contract that should be a net positive for us. It would free up those tons to be able to be allocated into the current better price environment in upcoming winter. Our customers, we stay in contact with them. Some of them have told us the remainder of the contract they expect to purchase here in the third quarter. So we are talking about huge volumes but in order of magnitude on that uncertain portion is just south of couple of 100,000 tons. So in the scheme of things, not a huge amount but to a quarter like the second quarter, it’s meaningful just because it’s seasonally weakest quarter for our salt business.

Okay. Maybe somewhat following up on Mark's question, with 25% of the bid season left. You are already accessing that additional capacity -- sorry, not additional capacity, but additional supplies from overseas. What happens to the last 25%? I mean, I assume there is a really -- as those last customers put out bids, there's a real even more tightening of the supply/demand. Are there going to be some customers that are going to be left without salt if they wait too long to have their bids done or does the pricing then accelerate from here? I'm just curious how the dynamics work at the end of a bid season.

Yeah, we’re nearing the end of the kind of the state-bidding process. There is certainly industrial customers and some other customers that are still looking to secure supplies for their upcoming season. And I think as we look at the last 25% or so to be priced -- and I think starting -- as the bid season starts back in April, you learn a lot as you go through it. And the market, certainly, I think, has done that as we’ve seen kind of escalation in pricing. I would expect that. As we manage our customer base, we’ll do the best to supply those customers for the upcoming season. I would say if it’s a kind of an average winter, we would expect that our customers to find salt and are planning to set up for that and manage the pricing accordingly. It’s a year where we’re resetting the market. And I think if you look back in history over last 10 or 15 years, you'll see years where you get some follow-on in the second year depending on the strength of the winter. I mean, we’re managing this business for -- certainly to optimize short term but the long term as well and are mindful of that as we price our customers throughout the season.

Just a quick one, you mentioned again the, sort of, guidance that you first said at the Investor Day, more like 500 bps improvement in margins for salt next year. If pricing, sort of, comes in the way you think, is that now, I mean, with your sort of guidance for second half sort of a pretty good margin as well. Is that 500 bps on top of the, I guess, sort of expanded margin that you're seeing now in the second half?

Yeah, Chris, that’s a full year expectation. So if you look at, kind of, expectation based on our guidance for this year, we roughly be flat because the first quarter, first half was lower than the prior year in 2013.

Okay. Thank you.

And we'll go next to Chris Parkinson with Credit Suisse.

Thank you. You hit on this a little but can you offer a little more color on which regions within the U.S. are seeing the largest increases and then also, which regions remain in the 25% with still having bids outstanding? Thank you.

Yeah, Chris, this is Fran. I mean, we don’t talk about specific geographies and specific customers in terms of contracting. And I would just say that when you look at the state bids, which are tendered and those results are made public. I mean, that's basically almost complete and our industrial customers and some of the other customers from throughout our service area are continuing with the contract. So I wouldn't say it’s specific to anyone region anyways. But we just don’t really want to get into those geographic specifics when we talk about activity with our customers.

Perfect. Fair enough. And just a quick follow-up, on the Ogden improvements in the second half of the year, can you just give a little bit more of a timeline regarding the benefits of that and how you expect them to roll through the first half of ‘15, and possibly the second half of ‘15? Thank you.

Sure. I think those capital projects will be initiated this back half of the year and depending there is a few projects that are depending on the timing and length to get them complete. That implementation will continue into the first half of the year. So I really wouldn't expect to see a significant yield change in Ogden as an example until I would probably get into the last half of ‘15. The other thing we have to manage is as we take the plant up and down for maintenance, the timing of implementing those projects gets matched with that operating cycle. And we’re -- we want to make sure that we continue to produce as much as possible even as we go through those changes. So I would just anticipate more of that benefit being realized in the back half of ‘15.

Perfect. Thank you.

You’re welcome.

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

Thanks. Good morning. Just want to follow up a little more on some of the pricing you’ve seen so. So we’ve seen obviously highly pricing. We’ve seen a lot of situations, at least I have where you've had single bidders winning at well above the award ranges last year. So what I know is, in your crystal ball here, if you look at the next year's bid season, which is a long way away -- is it reasonable to assume that prices would go back to the normal ranges, assuming normal weather and normal inventories and more bid situations or multi-bidder situations?

I mean, Joel, that’s pure speculation on our part or anybody’s part from that -- for that matter. I guess the way I think about it is the inventories for our customers and for producers are basically completely depleted going into this season. Production is being ramped up. We mentioned there’s some imports that are going to come in which we’re participating in. And I think it all boils down to winter and if we have a -- I would say normal or average winter or greater than, then that will certainly impact pricing in the next season as we just wouldn’t replenish or really be able to build much on inventories throughout the season heading into the following year. So conversely, a mild winter would allow the market to probably build some inventory. So I think that's what you have to look at is as we get into late '14 and '15 until we really start to maybe get an idea of what pricing might be into '15. And if you go back and look at pricing as I mentioned earlier over last 10 or 15 years, I think you’ll see. And if you kind of look at those seasons, you'll see what can happen with follow-on winter seasons.

Okay. And also following up on the import questions. So, can you give us a sense of sort of types of volumes of imports you expect to buy, the types of prices you'll be paying? Will you be profitable on those purchases? And are you doing this because you did end up winning a lot of nontraditional business in some of the single bidder situations that maybe you didn't think you’re going to win, and you did?

We want to comment on the actual tons and the prices. I will say that two things, I guess, one, when you look at those tons in isolation, they are profitable tons. But we look at the business holistically and really setup to manage our customer base in the short term as well as in the future and we are looking to build our market share. I think as we mentioned in June at the Investor Day over the next four to five years and want to make sure that we’re in position to do that. And I think imports in this current year will help us with that. So it’s not something that’s unplanned. We thought going into the season early that market would need more than it could supply through North American production. I think we’re able to get on that early and continue to make those purchases effectively throughout the season and that includes a lot of logistical setup and requirements as well to get that product to the market. So I think our team has done a great job of that and will certainly help our customers get through this year and deliver more profit as a result for Compass for the entire season, if we had -- if the winter does progress on an average basis.

Okay. And finally just going through all the commentary you've made on this call, just do you think that in Q3 the preseason sales for highway deicing will be average, a little bit above average, below average; sort of putting it all together? Thanks.

Joel, I guess it depends on, again, our customers. Usually there is pre -- early season bids and those contracts typically allow the customer to take it any time between the contracts signing and October 31. Some years they tend to be early purchasing. Others years they wait towards the end. So, at this point, it’s hard for us to guide specifically about the third quarter number. That’s kind of why we did this second half guidance because all that potential timing noise is out of the system by then. I will say that the early fill bids have been a bit larger than they have in the past and typically you would expect that government would want to make sure their supply is secured as they enter the winter. And many times that will result in a healthy bid of ordering earlier into those early bids, you know those preseason bids. But it’s too early to predict that at this point.

Just one more. Why do you think that the government entities are not taking advantage of buying under their maximums from last season, and instead paying 20% to 50% higher? Is it just straight budget when their funds are available?

Yeah. I don’t think we’re saying that they won’t take all the salt on the previous contracts. We just expected or anticipated them to do that a bit earlier and that those tons would have hit this quarter rather than the third quarter. I mean, it’s in their best interest to take those tons and not leave them for higher pricing in the next season. I think it’s just timing. And as Rod mentioned, we’re talking about a couple 100,000 tons, which you know isn’t a lot, but does impact certainly to a greater degree on our second quarter than you would see on any other quarter. So it would be in their best interest to take those tons. We expect them to do that and certainly have a salt earmark for that at this point.

Okay, thank you. Thank you very much.

You’re welcome.

(Operator Instructions) And we'll go next to Bob Koort from Goldman Sachs.

Thanks very much. Good morning.

Good morning.

Fran, I guess I'm a little confused. So the folks that have deferred their purchases from when you expected to take them -- they will still be able to make those purchases under their prior contract terms. It's just going to happen more in the third quarter than the second quarter, is that right?

That’s correct. Those contracts -- everyone is a bit different on timing, but some may go through August and even early September. So by the third quarter, all those tons will either be picked up or will be moving on to new contracts by that time?

And the volumes of imported salt you are going to use, which port do those come into? Because I know in the past, you've talked about not really accessing the East Coast from a cost standpoint and that water transportation is critical to cost. So where will you receive those tons and where will they go?

I think the majority of those tons will come up through the southern markets, so come up through the Louisiana Gulf and make it up through the river system into the southern. That’s the majority of those tons. You may see some tons come up through the northern -- northeastern side. But I think the majority are going to come up from South.

And then my last one is, is there any hope of inking a long-term MOP contract that you can convert to SOP, given the price declines you've seen there? Would you consider doing it now? Do you think there's more room to file an MOP with some of the projects on the horizon? How do you think about sourcing your MOP for any medium-term or long-term contract opportunities?

That’s a great question. I mean -- we certainly think about that and as we look at our suppliers and talk to them, if the timing and the pricing was right for us. And we could construct an agreement that was longer term in nature, we would do that. And this is my personal -- from a personal standpoint, I think with the capacity that’s going to come online over the next one or two, maybe three years, I think bodes well for that type of an arrangement. And I think the pricing will be kind of attractive to us as well. So just the overall MOP pricing, I’m not expecting a huge run-up here over the next couple of season. So we’re taking that today on a, kind of, more short-term and near- term contracts. That’s been working well for us with our suppliers and we have ongoing conversations for that supply and for as I mentioned for longer type opportunities, if they meet with our requirements.

Great, thanks.

Thank you.

And we'll go next to Eugene Fedotoff with KeyBanc Capital Markets.

Good morning guys. Just to follow up on a previous question, what's driving your assumption of higher SOP prices in the second half of the year?

Eugene, one of the things that that we mentioned is that there will be, we expect, some SOP price lift. However, the bigger effect on the prices that we’ve guided to is just that the Wolf Trax micronutrient business should be a larger, richer mix in the total. And so that is -- that's driving the topline gross price number higher, just on average.

And this does conclude today's question-and-answer session. I would like to turn the call back over to Theresa Womble for closing remarks.

Thank you, Aaron, and thank you, everyone, for joining us today. As usual, we invite you to contact our Investor Relations department with any additional question. Have a great day.

This concludes today’s conference. Thank you for your participation.