Good day, and welcome to the Compass Minerals First Quarter Earnings Conference. Today's conference is being recorded. And at this time, I'd like to turn our conference over to Theresa Womble. Please go ahead.

Thank you, Evan. Good morning, everyone. Today our CEO, Fran Malecha; and our Interim CFO and Treasurer, Jamie Standen, will review our first quarter results and current outlook. 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, May 4, 2017, 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 Form 10-K and 10-Q. The company undertakes no obligation to update any forward-looking statements made today to reflect future events or developments. Our remarks today may also include non-GAAP financial disclosures, which we feel are important to provide a full understanding of our business and operating conditions. You can find reconciliations of any of these measures in our earnings release or in our earnings presentation, both of which are available at the Investor Relations section of our website. Now I'll turn the call over to Fran.

Thank you, Theresa. Before I get started today, let me welcome all of our listeners and introduce Jamie Standen in his new role as our Interim CFO and Treasurer. Many of you have had an opportunity to meet with Jamie in that role and heard him on the call last quarter, where he provided color on our new business in Brazil. And we're glad to have him here today. Now let's get to the results. I'll begin with a high-level overview of the quarter, then turn to some strategic thoughts on our businesses and our corporate priorities. This quarter, our results were significantly impacted by what ended up being a second consecutive mild winter. We had already anticipated a lower earnings margin compared to last year due to higher salt costs, and lower highway deicing prices, which were largely the result of the mild 2015-2016 winter. Mild winter weather impacted us again this quarter and further reduced our highway deicing result. There were, however, some pockets of strength in the salt business. First, winter weather was actually near average in some of our Canadian markets. Second, we have fewer unmet commitments in terms of our contract of deicing volumes than last year. So while this will certainly be a competitive highway deicing bid season, we anticipate that results will vary across our North American market, with some areas stronger than others. Last, our Consumer & Industrial business continued to perform at a high level. Sales volumes were above prior year due to strong restocking orders of package deicing product. And the business overall is benefiting from pricing increases introduced at the end of 2016. As we've noted in our release, we are fully engaged in the continued effort to identify and reduce costs in our organization. As is our standard…

Thanks, Fran, and good morning, everyone. I'll start my remarks by turning to Slide 9 where we provide some specific detail on our salt segment results. Salt revenue dropped 6% versus last year on 4% lower volumes and 2% lower price. Salt segment operating earnings declined approximately $38 million from the first quarter of 2016, which resulted in an operating margin of 16% compared to 28% last year. The primary driver for lower salt segment operating earnings was an increase in salt costs and lower highway deicing prices. On a combined basis, these factors represented about $27 million of our year-over-year decrease in earnings. As expected, a large portion of this amount resulted from higher cost salt inventory that we carried over from 2016, and then sold this quarter. Additionally, mild winter weather pressured sales volumes and led to unfavorable per unit cost impact. A strong first quarter from our Consumer & Industrial business offset some of the highway deicing weakness, as average winter weather in the fourth quarter of 2016 drove restocking orders in the first quarter. We also realized stronger average selling prices and improved product mix. Before moving onto our plant nutrition North America results, I'd like to make a few comments regarding the winter weather adjustment. This quarter, we reported a negative impact on operating earnings of between $14 million and $18 million due to below average winter weather. That may seem a little low given the snow data that we reported, however, it's important to keep in mind both our methodology for this estimate and the fact that weather experiences can vary across our served markets. Our estimate is based on what we expected to sell in an average winter, given the commitments in contracts we had going into the winter season. Every winter, these…

[Operator Instructions] Our first question comes from Christopher Parkinson of Credit Suisse. Please go ahead.

Good morning, everyone. This is Graham [ph] on for Chris. Just a couple of questions from us. One, you guys did see some sequential improvement in 1Q versus 4Q in your SOP pricing and you mentioned how you expect that market to be stable through the course of this year. I'm just wondering if you can kind of walk us through, the puts and takes of what you're seeing on the supply and demand side there? If you're seeing any slowdown in imports that had previously been an issue? And kind of what your view is for the more commodity side of MLP as well, and what impact you think that may or may not have?

Sure, this is Fran. We have seen fewer imports this year than last year, so there's definitely been a slowdown there. And I would say, just in terms of kind of the timing of our first half demand, we had a -- I think a slower start in California because of the rains out there early in the first quarter and some of that may fall in the second quarter as a result of that. So I would say that as we think about the first half, our demand being kind of on expectation. And we're expecting a stronger back half of the year. So I think we'll see continued good demand for SOP. And the pricing will just remain to be seen. We want to make sure that we're getting every ton out there and we think that the economics compared to MLP are attractive for SOP. And that's something that we're going to continue to manage well going forward.

Got it. And then just a quick follow-up on, you guys have highlighted the fact that one of your key priorities is really to broaden your portfolio of product in the U.S. by selling some products out to Brazil. I'm just kind of curious, is there any kind of more color you can offer on that in terms of timeline, types of products that you're thinking of that look like they have potential? Anything around that would be really helpful.

Sure, we've been testing products in North America and we have roughly about 20 products that we're planning to introduce in the market in the back of this year. They're primarily soluble products, I think there may be a liquid product or two, but primarily soluble products that will hit crops from soybeans generally to some special crops in Florida and California. So I think a good addition to our portfolio here in North America will be coming this fall.

Got it. Thanks very much.

You're welcome.

The next question comes from Vincent Anderson from Stifel. Please go ahead.

Good morning, thank you. So I just wanted to dig a little bit more into your comments regarding higher costs in the middle of this year, the North America nutrients. Is this just related to kind of getting marketing ramped for the product that you'll be bringing up from Brazil? Or is there an actual change in how you're approaching the marketing of your current North America product?

It's some of both. We're obviously running this business and thinking about it as a portfolio of products. So I would say it's a combination of kind of building that go-to-market, if you will. And then also we've centralized our research and development, kind of our innovation efforts into one location near Overland Park, here in Kansas. And so there's some timing, I would say, in some of those costs that will hit the second and third quarter. But the way I think about it is year-over-year, I expect our SG&A costs in North America, plant nutrition to be roughly about flat, maybe just a slight increase but roughly flat. And we're kind of realigning those costs or reallocating costs, if you will, to drive more growth. Then also reducing cost in kind of other areas or more commodity-type areas. So it's kind of trying to rebalance those costs. And make sure that we're getting the best return on investment on the cost that we do spend.

And then just shift quickly over to the salt side. I know there's been some challenges from high-cost inventory and obviously, you'll be running at lower than optimal rates in 2017. But it looks like Goderich costs continues to perform fairly well despite this. Are you sticking with the $30 million of cost savings, if not, in 2018? But is there any outlook for maybe being able to surpass that in the out years?

So this is Jamie. I think that yes, absolutely, we're sticking to the $30 million coming out in 2018. We are working through the development stage of the area we're working on now. And as we finish that up this year and move into some more streamlined continuous mining that occurs in 2018, we feel very comfortable that the costs will drop and experience that $30 million during 2018.

Thank you.

Our next question comes from Chris Shaw from Monness, Crespi. Please go ahead.

Good morning, everyone. So if I could just clarify on the last answer you just gave. So if you ran Goderich at volumes, demand was weak, you guys ran at suboptimal rates again, you'd still expect the $30 million savings? That's not impacted by, I guess, operating rates?

I mean it -- we're talking about looking at our costs this year to next year and that $30 million reduction hitting the P&L. We know that production rates are going to change. We hope they go up. But that should be real cost reduction.

Okay, great. And then to ask you lowered the -- looks like the volume guidance for the South American business. And you spoke of adjusting costs fairly quickly, particularly on the Industrial side. What's going on there in terms of demand? What's slowing exactly?

I'll just make one comment and Jamie can add to that. Just in terms of the Ag side, the bulk of our sales happen in the late second, early third and fourth quarter and there -- that's where we're selling more direct-to-farm. And earlier in the year, it's probably more to other fertilizer customers. And it's been a little slower down there than we would would've anticipated. But I think you've got farmers down there with coming off the big crop, able to be patient in their purchases and kind of watching what happens here in North America as the crops get planted and get through part of the growing season. So we think that's a timing issue and we're fully prepared down there for a busy second half and then it's probably going to be a little more compressed than normal. But we think that we're well-positioned with our assets and our products to manage that.

Yes, and then I would add, it's definitely timing on the agro side, in terms of the business-to-business sales that we expect to start occurring later this quarter during Q2. On the chemical side, though, we have seen -- so we did reduce the top end of our guidance. And in the first half of the year here we've seen some weakness in the petrochemical sector, some on the oil and gas side, less drilling projects in the pipeline and fed up. So that really decreased the volumes a bit. And we won't necessarily get those back later this year. So that's why we brought the top end down. That being said, we are starting to get some orders and we're starting to see some of the large drillers and oil exploration guys start new projects down in Brazil, which makes us feel good about the second half.

And just on the tax rate. The 20%, it's a discrete event for 2017? We wouldn't expect a low rate for '18 as well?

Yes, so we would not expect that ongoing in 2018.

Great. Thanks a lot.

And our next question comes from Joel Jackson from BMO. Please go ahead.

Hi, this is Fawad [ph] on for Joel. Just continuing on the Brazilian business. Can you give an update on how receivables and the collectability of the receivables are progressing? It looks like on the balance, the receivables balance for Compass has increased substantially the past few quarters. I just wanted to get some color on what you're seeing around collectability and how that's fairing?

Yes, sure. We feel very good. So the increase in receivables in is function of the consolidation of the Produquimica. They do grant harvest terms in about 40% of their agro business. So we have a very stringent credit approval process down in Brazil, a lot of documentation around each customer before we grant harvest terms. We feel very comfortable with our bad debt reserve and our collection activity thus far. And we really don't have any concerns because of the credit process in place.

Okay. And just a quick follow-up. You mentioned in your presentation that Q1 margins for the Brazilian business came in better due to the delayed timing of a purchase accounting inventory adjustment. Could you just give a bit more color on that adjustment? What is it exactly? I know you had mentioned that you're expecting it in Q2. But what -- how should we be thinking about margins past Q2? And what is that adjustment?

So it would be -- it's difficult to say exactly when the adjustment's going to come through. As part of purchase accounting, when we bought the business, we have to mark the finished goods inventory up to fair value. Now when those products that were on the balance sheet when we bought the business are finally sold, that's when the expense comes through. So we had expected those costs to come through in Q1, and only a portion of them came through. We expect a couple of million dollars U.S. to come through in the second quarter likely, it may trickle into the third quarter. After that's completed, we wouldn't expect any additional adjustments related to the finished goods.

And your next question comes from Robert Koort with Goldman Sachs. Please go ahead.

This is Gavin [ph] on for Bob. I was wondering if you could give us a little more detail on the highway deicing bid season, how it's shaping up so far?

Sure. We're just getting started on the season. And we'll report on that, obviously, when we get much further down the road in terms of results. So that kind of will frame our remarks here. But I think as I said earlier on the call, the winter was quite variable from North to South. Inventory levels as a result of that are variable as well. And we expect the bidding season, those deicing volumes to come through accordingly. And that's what we've seen to date on the early bids. And for us, we -- probably as I think about coming off last year, we're expecting higher run rates in our Goderich mine than last year, and lower run rates in our Louisiana mine in last year and it will be -- is consistent with how we saw the winter. So in terms of pricing, it's just too early to tell. And we are continuing through the process and feel like we're, as always, on top of the market. And are going to do our best to optimize our opportunity there.

Great, appreciate it.

Our next question comes from Curt Siegmeyer from KeyBanc Capital Markets. Please go ahead.

Good morning. Can you comment on what to expect in terms of the cadence of CapEx for 2018? And maybe as you think kind of further out, possibly into 2019?

When we get to 2019, all of our kind of major projects will be behind us. And we'll be down to our sustaining capital, which should be in about that $75 million per year range. And that includes Brazil. In '18, we're -- as we finish the projects, we'll be slightly higher than that. And I think we're probably closer to the low hundreds range there. And that's really just the last project to complete is the shaft relining in Goderich. And that will be completed by around the middle of 2018. All the other projects will be behind us in '17, and that's mainly the Ogden compaction, which we'll be finishing up here kind of in this quarter. And we'll start to get the impact of lower cost, higher yields on our SOP tons starting in the back half of the year, probably towards the last quarter. And our compaction system is running there, and we're producing product with it. So some of these two-three projects are complete and starting to impact the company, which I think is real positive.

Great. And then just on the South America business, are you seeing any variability in terms of the market trends? You've touched on a lot of what you've seen in Brazil, but just maybe across all other countries, that may be different or -- than what you're seeing in Brazil?

I don't think so. I think if you look at Brazil. In last year, we continue to see increased acres and farmers had a great crop, and the primary crop down there is soybeans. I think there's strong demand for soybeans globally. So we really don't see any change in pattern, if you will. I do think that the farmer economics in Brazil have been very strong, certainly stronger compared to the U.S. But we saw an increase in soybean acres to plant, that are expected to be planted here in the U.S. this spring. So I think all those factors are leading to just a low slower farmers selling down there and then that leads into a slower start from them as they think about the next season. So other than that, I just don't think that we see anything fundamentally different in the market.

Got it, thank you.

You're welcome.

We have a follow-up question from Vincent Anderson from Stifel.

Alright, thank you. I just -- thinking back again on the marketing efforts in North American nutrients. Is there a market for your excess sulfur at the pond? Kind of in a pro-sulfur market rather than an anti-chlorine market? And are there ways that you can monetize that if SOP have a natural ceiling on it from domestic MOP prices?

We're -- historically and traditionally, we're trying to make as much SOP as we can for that demand and the sulfur is a component in that. But really the driver of value for the SOP is the lack of chloride. So we continue with that and I don't see an opportunity for us beyond that for sulfur in the market in the coming year.

Okay, thank you.

And at this time, I'd like to turn the conference back to Theresa Womble for any additional or closing remarks.

Thank you all for joining us today. We appreciate your interest in Compass Minerals. Please feel free to contact the Investor Relations department with any follow-up questions. You can find our contact information again on the Investor Relations section of the website at www.compassminerals.com. Have a great day.

This does conclude our conference for today. Thank you for your participation. You may disconnect.