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Salt, South America Weigh on Compass Minerals

Compass Minerals International (NYSE: CMP) has sought to diversify its business in recent years, adding a greater emphasis on plant nutrition products to complement its road salt unit. Even though the move has taken away one element of seasonality from the company's overall results, it hasn't made Compass invulnerable to simultaneous slowdowns for portions of both businesses.

Coming into Monday's second-quarter financial report, Compass investors were prepared for net losses yet wanted to see continued revenue gains from the expansion of its agriculture business in South America. Compass' losses were worse than expected, however, although the company remains optimistic that it can manage to make up for lost ground and still have maintain its expected performance for the full year. Let's look more closely at Compass Minerals and what its results mean for the company's future.

Image source: Compass Minerals.

Compass sees red ink

Compass Minerals' second-quarter results showed ongoing challenges for the company. Revenue was up 35% to $228 million, but that was far short of the more than 50% gains that investors had wanted to see from the company. Similarly, net losses of $6.4 million reversed almost identical gains in the year-ago quarter, and the $0.19 per share loss was more than triple the $0.06 per share consensus forecast among those following the stock.

Taking a closer look at the numbers, Compass saw a lot of variation in its three key business units. In the salt segment, revenue declines amounted to about 9%, with the company citing large reductions in highway deicing volume and a smaller decline in sales from consumers and industrial customers. Two straight warm winters were responsible for the move, and falling prices for deicing products didn't help. Operating income fell by more than half because of the drop in revenue and the higher costs that Compass bore to ensure steady supplies of salt.

Meanwhile, the South American plant nutrition business also saw pressure. Second-quarter revenue was less than projected because producers delayed buying fertilizer and other products because of slower sales of harvests from the previous planting season. Operating earnings amounted to just $800,000.

Only the North American plant nutrition unit lived up to its full potential. Segment revenue rose 6% as volumes climbed modestly, and operating earnings jumped by more than 60% because of lower potash manufacturing costs and measured increases in overhead expenses.

CEO Fran Malecha put the report in the proper perspective. "While this has been a challenging period," the CEO said, "I am pleased with the progress we have made in positioning our plant nutrition business for growth and in aggressively identifying areas across the company for cost reductions."

What's ahead for Compass Minerals?

In particular, Compass Minerals thinks that improving internal efficiency will be the key to its future success. As Malecha noted, "Because of the expected benefits of these efforts, our full-year earnings-per-share guidance remains unchanged." That will keep the anticipated numbers at between $3 and $3.50 per share, which is particularly noteworthy given the shortfall for the quarter.

The bigger question is what lies ahead for Compass further down the road. About 65% of the annual bidding process for North American highway deicing products has already taken place, and Compass estimates that demand across the market is down about 5% compared to the 2016-17 bidding season. The company anticipates that bid prices will fall 3% to 4% compared to the prior year's seasonal results, and only relatively normal weather in Canada kept the declines from being even more pronounced.

Compass Minerals shareholders weren't pleased with the results, and the stock fell almost 3% in after-hours trading following the announcement. In the long run, Compass appears to be on the right track, but the ups and downs of weather and agricultural activity will inevitably bring setbacks like the ones that Compass investors are dealing with right now.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Compass Minerals. The Motley Fool has a disclosure policy.