Feb 10, 2015
Executives
Theresa Womble - Director, IR Fran Malecha - CEO Matthew Foulston - CFO
Analysts
Chris Parkinson - Credit Suisse Chris Shaw - Monness Crespi & Hardt Ivan Marcuse - KeyBanc Capital Markets Jeff Zekauskas - JPMorgan Joel Jackson - BMO Capital Markets Garrett Nelson - BB&T Capital Markets David Begleiter - Deutsche Bank
Operator
Good day, everyone, and welcome to the Compass Minerals Fourth Quarter Earnings Conference. 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.
Theresa Womble
Thank you, Rebecca. Today our CEO, Fran Malecha; and our CFO, Matthew Foulston; will be reviewing our fourth quarter and full-year results.
Before I turn the call over to them, let me remind you that today's discussions 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, February 10, 2015, and involve risks and uncertainties that could cause the company's actual results to differ materially.
These differences could be caused by a number of factors, including those identified in the Company's 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. Now I'll turn the call over to Fran.
Fran Malecha
Thank you, Theresa. Good morning, everyone.
I'm glad to be with you today to discuss our 2014 fourth quarter and full-year results. I'm pleased to have our new CFO, Matthew Foulston, on the call today.
He has been with us now for just over two months and has been immerse in getting to know our businesses. I'm looking forward to Matthew working with our team to execute our growth plan, while being a strong steward of the balance sheet.
So turning to the task at hand today we are going to cover three topics. First, our strong 2014 results and our confidence in our 2015 outlook; second, material progress in executing our five-year vision; and third, our 12th consecutive dividend increase.
I'll start with some of the high level financial results. We reported very strong results for the full-year in the fourth quarter.
Total sales for 2014 were up 14% from 2013 due to strong pricing for our central mineral products in both segments. We expect this pricing strength to carry forward into the first half of 2015.
Sales volumes were particularly robust for the plant nutrition business which sold 26% more tons of products this year as compared to 2013. The plant nutrition average selling price for the full-year climbed 8% above 2013 results, and moved 15% higher in the quarter.
Part of the improvement is due to the inclusion of Wolf Trax higher priced micronutrients products, but we've also worked hard to drive home the message to growers regarding the value they can achieve from using our sulfate of potash. Part of this was branding the product as Protassium+ to create a platform for growth and differentiation.
Our educational marketing program for SOP, as well as the tight supply in our key North American markets has resulted in our SOP-only price increasing to $681 per ton in the fourth quarter compared to $626 per ton in the prior year. And we've introduced a $50 per ton price increase effective January 1, 2015.
We do have some production headwinds in that segment that Matthew will discuss shortly, but I'm pleased with the performance of the business this year, and excited about the future of the plant nutrition segment. Turning to the Salt segment, 2014 began with extreme winter weather activity which has had a meaningful impact on our full-year salt segment results.
When we excited the winter, we were almost fully depleted at the icing salt inventory, and our customer's inventories were depleted as well. This supply deficit set up a bid season which resulted in the average awarded price increasing 25% for our North American contracts.
We began to see the price benefit in the third quarter, and then saw the full benefit in our fourth quarter results. In addition to the carry-on effect of pricing, our sales volumes were higher than we would have expected during the fourth quarter in a normal or mild winter scenario.
This was due to the need for customers to restock after the prior winter, as well as a flurry of order activity resulting from above average November snow, and these factors more than offset the below average winter weather we saw in the end of the fourth quarter. The market dynamics of both segments generate top-line growth as you can see on Slide 3 of our Investor Presentation.
We've also generated meaningful improvements in our EBITDA from both the dollars and a margin percentage perspective. In fact, in our salt segment, we set a record high for EBITDA for the fourth quarter.
I'd like to spend a few minutes stepping back from the quarterly details and discussing how we are progressing on the five-year plan that we outlined in our Investor Day in June. Our goal is to exceed $500 million of EBITDA by 2018.
To reach that goal we must have a focused effort throughout the company on strengthening our foundation, improving our performance, and delivering profitable growth. As a reminder, we expect that about 80% of our growth will come from organic initiatives, while the remainder will come from strategic acquisitions such as the acquisition we made last year of Wolf Trax.
I think it is important for our investors to know the steps we've taken in each of these areas that we've completed our action and important initiatives that are instrumental in getting to our goal. First, let's turn to strengthening our foundation.
Just three areas I'll briefly discuss and they are safety, investment in our assets, and business process improvement. Safety is critical to the success of Compass Minerals.
We've begun implementing best in the world practices to eliminate serious safety incidents and we're engineering out as much as those risks as possible. We'll manage the remaining risks by implementing improved company-wide standards and metrics, which we expect will improve our safety culture and take our safety performance to industry-leading levels, ultimately our goal is zero incidence.
Safety and reliability are also important elements of our major capital improvement projects, particularly those special almost once in a lifetime investments we're making in the infrastructure of our key assets. We've begun our shaft relining project at Goderich, which will update two four-year old mine shafts, thus ensuring the safe productivity of this flagship assets for decades to come.
At our Ogden facility, we've renovated and upgraded several of the component pieces of our SOP processing plant. These investments are expected to lower our cost and increase our productive capacity at both facilities.
Another step we've taken is to link compensation for our senior leaders to the returns they achieve from capital investments. This will create additional accountability and make certain that management interest and shareholder interests are further aligned as we enter this period of increased capital spending.
Last in this area of strengthening our foundation, we're engaged in a comprehensive effort to look at every business process we have, and ensure that it's simple; it meets the needs of the business now, and in the future, and is consistent with best practice. This business process improvement project reaches throughout the entire organization and focuses not just on updating software, but on reengineering the way we do business and assuring that we meet our commitment to customers to deliver our essential mineral products when and where it matters.
Next focus of our strategy, improving our performance is expected to drive most of our organic growth initiatives. This involves strategies across our business to achieve the best margins for our products.
In the salt segment, we've tightened our focus in our go-to-market strategy in the consumer and industrial business by streamlining our product offerings. In the highway deicing business, we're improving our production efficiencies through investing in more continuous mining at Goderich, and smoothing our production calendar to be more consistent throughout the year.
In the Plant Nutrition business, in 2014, we produced a record amount of SOP from our low cost pond-based feedstock. We do have some headwinds this year from lower pond-based feedstock availability, but we have made improvements there which will allow us to more efficiently use KCl to augment our production.
We've also run our Goderich rock salt mine near 7.5 million tons of annual capacity and are expected to continue at this rate in 2015. At Cote Blanche, we've produced consistently at capacity for much of the year, but recently we've encountered some unplanned downtime related to mechanical issue there.
We expect to have the mine producing back to the level it was prior in the next few weeks. Given the mild weather in many of the markets served by that mine, we've enabled to meet all of our customer's deicing demands, and have mitigated any supply impact for our chemical customers.
Turning to the third focus, delivering profitable growth, we're keenly focused on the margin potential of our businesses. Our pricing strategies in both plant nutrition and salt are ultimately based on extracting the greatest possible value we can for our essential mineral products and doing so on a sustainable cost effective manner.
The opening of our end market salt packaging facility in Buffalo is one example. This facility expands our footprints in the key geography and allows us to efficiently serve more customers.
At our Ogden facility, we pursued a program to convert more KCl on the sulfate of potash, which makes sense for us right now given the economics of KCl and the price we're achieving in the market for SOP. In addition, we have just approved a project for the Ogden facility to add a second crystallizer and improve our compassion abilities there.
Once these investments are completed in 2016, we are expecting to meaningful increase of our production of SOP both from pond-based feedstock and KCl conversion. We have also made significant improvements in our approach to our agricultural business.
First, we have renamed the business Compass Minerals plant nutrition to create greater clarity internally and for our customers. Second, we expanded our product offering with the acquisition of Wolf Trax, which gives us a wider ray of technology driven value-added micronutrient products.
And we have created the Protassium+ brand for our sulfate of potash, which will also become a platform for product development with our micronutrients. Our goal is to become the go-to source for premium plant nutrition.
And these developments are certainly moving us in the right direction. Clearly, we are making progress throughout the company and these developments are positioning us for a long-term strength.
Now, turning back to the near-term, we have had the benefit of a strong winner on our backs for the second half of 2014, and will continue to experience the benefits of improved highway deicing pricing in the first half of this year. Our outlook for the first half of 2015 also includes healthy price improvements for our plant nutrition products.
Given the strong fundamentals in our core markets, we are projecting earnings growth in 2015. Currently, we expect to earn between $510 per share and $550 per share for the full-year.
And Matthew will talk through some of the assumptions that are underlying this guidance. As a further demonstration of our confidence in this five-year plan, our Board of Directors recently approved a 10% increase in our dividend for 2015.
This marks the 12th consecutive annual dividend increase, and reflects our commitment to returning real value to shareholders, while we continue to invest in the company to achieve our goals. And with that, I'll turn the call over to Matthew to walk us through our detailed financial results.
Matthew Foulston
Thanks, Fran. Before I get into the numbers, I'd like to stop by saying that I'm delighted to be here at Compass Minerals.
When I did my research on the company a few months ago, three things became clear. Financials are extremely strong with a very healthy balance sheet, great margins, and consistently strong free cash flow.
Secondly, the people. Fran has assembled a great team here to take the company to the next level.
And finally, the chance to be part of the team that grows this business throughout stated objective of more than $500 million of EBITDA by 2018 is extremely exciting. So with that brief introduction, let me dive right into the results.
Consolidated revenue increased 12% year-over-year for the quarter and 14% for the full-year. Adjusted EBITDA also increased year-over-year, up 34% for the quarter and 20% for the year.
Our adjusted EBITDA margin percent expanded to 30% for the quarter and 24% for the year, driven by strong performance in both segments. For those of you looking at our Investor Presentation online, if we turn to Slide 8, our salt segment posted record earnings for the quarter.
Year-over-year fourth quarter revenue for this segment increased 10%, driven largely by a 26% increase in the highway deicing sales price, and 6% price improvement on the consumer and industrial side. These price increases were a combination of three factors.
First, we saw a real price improvement across all products in the marketplace. Second, overall consumer and industrial products represented a higher mix of total sales than in 2013.
And lastly, there was a year-over-year mix shift to our higher value package deicing products within the consumer and industrial area. While highway deicing salt sales volumes for the quarter were down 13% from the prior year, sales volume of consumer and industrial products increased 4%, driven primarily by restocking demand of packaged deicing products, following the extreme 2013/2014 winter.
Even though fourth quarter weather was mild, our highway deicing sales volume exceed our expectations. That again can be explained by the very low inventories that our customers had going into this winter season.
The salt segment earned $115.7 million of adjusted EBITDA this quarter compared to $91.9 million last year. Adjusted EBITDA margin increased to 33% from 28% in the prior year.
And this increase would have been about 1 percentage point greater have we not chosen to purchase imported salt to serve additional customer needs. Full-year salt segment results, shown on Slide 9, were driven by many of the same factors we've just discussed.
Perhaps the most important takeaway here is that last winter we set the supply/demand dynamics in the North American highway deicing market. The highway deicing price improvement we realized during the second half of the year is generating attractive margins for the company.
On the production side, we ran our North American mining operations close to capacity. This helped offset higher per unit cost related to the sales mix increase on the consumer and industrial packaged salt products, general inflation, and the impact of imported salt.
We do expect to sell the remainder of this purchased salt in the first half of 2015. Looking specifically at logistics costs, the salt segments per ton shipping and handling costs continue to be burdened by freight rate inflation throughout the year.
While this inflation may moderate in 2015, we do expect the continuation will mute the benefit we realized from lower fuel costs. Before shifting gears to plant nutrition, I'll end the salt discussion with the winter weather impact estimate.
As usual we've published the estimated sales and earnings impact from winter weather variances in our press release. This year, although winter weather events were below average in the 11 cities we track, we've estimated a benefit to our earnings from weather variances.
This is because we actually sold more deicing salt than we would historically have expected to sell during an average fourth quarter, primarily due to the robust restocking demand created by last year's extreme winter. Now turning to plant nutrition on Slide 10.
Strong pricing and increased sales volume continued in the fourth quarter and lifted total segment revenue 23% from last year's result. Segment sales volume at a 105,000 tons, increased 7% compared to the 2013 quarter.
Average selling price for our total portfolio of plant nutrition products increased 15% year-over-year. A sizeable portion of the increase was due to the inclusion of Wolf Trax's micronutrients this year, but as Fran mentioned, our SOP price was $681 a ton compared to $626 a ton in the fourth quarter of 2013.
For the full-year price and volume improvements drove 39% increase in adjusted EBITDA. Also contributing to this result was improving production at our Ogden facility, where we produced more low-cost pond-based tons than ever before.
We also increased our production output by using more KCl feedstock. Even with the additional cost of KCl, per unit production cost declined to $421 a ton versus $456 a ton last year.
Before turning to the outlook, I have a couple of corporate items to mention. SG&A expenses were up year-over-year, most notably during the fourth quarter.
A large portion of the increase was driven by the inclusion of Wolf Trax's in our results. We have mentioned previously that these micronutrient products have highest sales and marketing expenses than our SOP products.
Additionally, current period results were also inflated by restructuring and increased sales driven variable compensation costs. However for the full-year SG&A is down 30 basis points to 8.6% of revenue.
Turning to Slide 13. As you heard from Fran, we have taken significant steps towards simplifying our guidance over the last year, and are taking an additional step today by adding full-year EPS guidance.
Before we get to that I'm going to walk through the market dynamics and operational factors that we expect to influence our results in 2015. Its only February 10 and there's still a lot of winter left, so we can only talk generally about the year, and a bit more specifically about the first half, where we largely know what our pricing is expected to be.
The outlook for the second half will be determined by the winter weather we experience for the remainder of the season, both in terms of sales volume and highway deicing bid season prices. After a relatively mild fourth quarter, recently there has been a significant uptick in snow events.
So if average weather continues for the remainder of the season, we would expect the total number of snow events for 2014/2015 to come in close to the 10-year average. Given the recent headline movement in oil prices, I'd like to step back for a moment and discuss what we expect to report for per ton shipping and handling costs.
As you know, the price of oil has dropped dramatically over the last several months, but the impact on our logistics costs has not been as significant as you might anticipate. Here are some of the factors.
On-road diesel prices which drive many of our fuel surcharges have not fallen anyway near as far as crude oil prices; some of our carrier contracts have fuel surcharge floors that limit the benefit we realized from lower fuel prices; and lastly, we think base freight rates will continue trending higher in 2015. Based on the current on-road diesel prices, and assuming oil prices stay in the $50 to $60 range, we would expect to see a $1 per ton year-over-year decrease in total shipping and handling on a full-year basis, with this improvement skewed towards second half of the year.
If on-road diesel prices fall more coming in line with the lower oil prices by midyear, we would expect an incremental $0.50 per ton improvement. Turning to Slide 14.
Strong fundamentals continue for the plant nutrient segment. The average price of our portfolio of products is expected to rise when compared to first half of 2014 results, due to the January price increase of $50 per ton on SOP products, and the impact of Wolf Trax.
Offsetting these benefits will be the impact of higher per unit costs as a result of the poor 2014 solar evaporation season that manifests itself in our 2015 results. The additional cost of the potassium feedstock is expected to increase full-year cost by $100 per ton in 2015.
Fortunately, price we've been able to achieve in the market is helping us mitigate the impact of these additional short-term costs. On Slide 15, we summarize our outlook for the first half and full-year.
First, for the salt segment. Assuming average winter weather continues we are projecting to sell between 5.5 tons and 6 million tons of salt products in the first half of 2015, at an average selling price in the $74 per ton to $78 per ton range.
Operating margins taking into account price, changes in fuel costs, and the impact of purchased salt, should range from 23% to 24%. In the plant nutrition segment, for the first half of 2015, we expect to sell between 180,000 tons and 200,000 tons at an average selling price in the $750 per ton to $780 per ton range.
Our operating margin will contract slightly to the 23% to 25% range. Turning to corporate items.
We expect corporate and other expense to be about $12 million to $13 million a quarter or approximately $50 million for the full-year about $5 million lower than we reported in 2014. We expect our interest expense to remain around $6 million a quarter and a full-year tax rate in the 27% to 28% range.
These factors result in our full-year EPS guidance range of $5.10 to $5.60 as Fran mentioned earlier. As usual, our salt guidance assumes average winter weather throughout the period, and within plant nutrition, we are expecting consistent pricing with typical seasonality.
Before we open the line for questions, I'd like to speak to our capital allocation philosophy and the dividend increase we announced today. Compass Minerals generates strong cash flow from operations.
We deploy this cash in a disciplined manner that ensures we maintain and enhance our assets, capitalize on growth opportunities, and return value to shareholders directly. Today, we announced another 10% increase in our dividend, demonstrating our confidence in our operations and our growth plan.
We did this, even though we have some sizable capital investments planned for the next couple of years. The most significant of these is the Goderich shaft relining project that we've been discussing since June and which is now underway.
2015 plans also include more investments and continuous mining at Goderich, and a numbers of projects at Ogden that will allow us to increase our production volumes. We expect these investments to provide additional capacity, improved asset reliability, and lower production costs that are critical to delivering our 2018 goal of $500 million of EBITDA.
With that, I'll turn the call over to Rebecca, for questions.
Operator
Thank you. [Operator Instructions].
And your first question will come from Chris Parkinson with Credit Suisse.
Chris Parkinson
Perfect, thank you. Just very quickly on Wolf Trax, it's been a little more than a year since you've had that under your wing.
Can you just give a little kind of more color and some updates there on what you've seen thus far and then the potential you see going forward, particularly on a geographic basis? Thank you.
Fran Malecha
Well, Chris, this is Fran. We've actually owned the business little less than a year.
So we've had it for about three quarters now. And the first year we -- after closing the transaction we've been implementing -- integrating that business into in the Compass and it's been performing well slightly accretive to earnings in the first year.
We expected to grow as we anticipated when we acquired the company. So there's nothing out there that tells us that we won't continue to achieve kind of that 20%-ish growth a year on the top-line and see the results all the way to the bottom-line as well.
And even though the farm economics for corn or soybeans may be lower today than they were a year or two ago, we still believe that the value of these products bring and the requirements that growers have to achieve their yields will continue to ensure strong demand going forward. So we're pleased with the business.
We think it's certainly going to help us deliver profitable growth which is one of our key strategies.
Chris Parkinson
Perfect. And just a quick follow-up -- you ran through a helpful overview of your 2018 plan.
Can you just give a little more color on some of those additional initiatives you mentioned that may be a little more off investors' radar, particularly some of the things you mentioned that could have been incremental at Ogden and Goderich? Thank you.
Fran Malecha
Sure, at Goderich, and if you look at our salt business generally that growth from here forward will really come from cost reduction. So we're investing in things like continuous mining, more technology at our Goderich mine initially to take costs out and drive our per unit cost lower.
And we think that we'll continue to be able to hold these price increases and stay on that trend line but hopefully, increase our market share slightly in salt, as time goes on and we've talked about that in the past. So that's really the growth we see in earnings coming from improving our performance there.
At Ogden, we've made some recent investments in the plant to allow for greater capacity. But the significant investments in the plant, the compaction, and the crystallizer, which will allow us to take that volume, net annual production capacity, up to about 550 a year.
We've proved those projects and will begin them here shortly. And that's 2015/2016 capital project with those benefits coming fully in 2017.
Chris Parkinson
Okay. Thank you.
Fran Malecha
You're welcome.
Operator
And moving on we will hear from Chris Shaw with Monness Crespi & Hardt.
Chris Shaw
Yes, good morning, everyone. How are you doing?
Fran Malecha
We're doing well.
Chris Shaw
So the first question, just on the -- the salt margin, obviously, was very strong and it sort of exceeded what the guidance has in it. Is that -- is the extra margin there all just sort of due to the higher volumes and higher prices?
Or was there anything else logistically that was helping the margin exceed the guidance for the quarter?
Fran Malecha
It was primarily the volume and the price. We saw the full impact of our price increases from the bid season this last summer take effect in the fourth quarter.
So it's primarily price.
Chris Shaw
Then just a follow-up on margin -- is the drag from the imported salt -- is that -- will the impact be the same for 1Q as it was for 4Q? Or does that sort of lessen up a little bit to 1Q?
Matthew Foulston
I think as we -- this is Matthew. I think as we go into 1Q, one of the things we've done to mitigate the impact of the downtime at Cote Blanche is to have a little more imported salt.
So I think Q4 to Q1 that's probably a similar kind of impact with that diminishing as we move through the year.
Chris Shaw
Okay. And then just sticking to salt, there's been a lot of -- I guess it's been slightly below average in some of your areas.
But I know that the East Coast is getting hammered, particularly in New England. Is there any opportunity -- and actually, I saw an article specifically saying somewhere in Vermont was short on salt.
Is there any opportunity to move -- for you guys to move into that market on a temporary basis or -- if you have extra salt, say, in regions nearby?
Fran Malecha
It's difficult for us to reach too far out of our normal area this year, I would say, just mainly because we have those commitments and we've had recently strong weather across the north. I would definitely say there is -- it's been weaker on the south.
So we have some bifurcation in our kind of delivery area. But it's difficult for us to reach the Northeast from coming out of our southern shipment area.
So I don't see us taking a short-term opportunity there when we've shipped salt into the Northeast. But at the end of the day, any weather that uses salt in North America from our perspective is good for us as we head into the next year.
And we suspect that the competitors in the markets that are delivering into their key markets are going to be fully tapped out into the coming year.
Chris Shaw
Great. Thanks guys.
Fran Malecha
Thank you.
Operator
From KeyBanc Capital Markets, we'll hear from Ivan Marcuse.
Ivan Marcuse
Hi. Thanks for taking my question.
Real quick, on your pricing guidance of $74 to $78, why is there such a sequential decline. It seems like more than historically.
It's may be down $2 to $3? Is that more of a mix function or is there something going on in terms of -- I don't know, why is there such a seasonal decline, I guess, is the question?
Fran Malecha
Ivan, I think it's probably more so from a 2Q impact than it would be from a first quarter impact. And I think it's probably -- some of that is probably in the mix that drives that.
But that's really all that I would say comes to mind for us at this time.
Ivan Marcuse
Great. And then within your full-year assumptions, right, what are you assuming for price in the back half?
In terms of for salt?
Fran Malecha
We're not -- right, we're not going to talk about salt pricing today on the call. I think, if you look at the winter being average, the balance of winter which we're hopeful about, and as I talked about earlier just mentioned briefly the -- we've been stronger in the north or weaker in the south and coming off a year where prices were up 25%.
I think it's one, too early to talk about pricing and we'll wait till we get through winter to be updating on that going forward. But we still think that we have strong margins here and we will be able to maintain those strong margins with average winter into the back half of the year.
Ivan Marcuse
Right, and just a quick follow up on your operating costs -- with everything that you have, I know you have a lot of moving parts going on talking specifically to salt, but will you be able to have less imported salt this year, now that you have been running everything with an average winter? And what were your unit operating costs, I guess, going through the year?
Will they slowly decline or will they ultimately stay flat on a year-over-year basis?
Matthew Foulston
I think this is -- this is Matthew, again. I think we've got this phenomenon we talked about on the imported salt which will be in there initially at the start of the year and then it's going to gradually trail off as we go through 2015.
So I think the impact of imported salt will decline as we go through the year and basically be gone once we get into the second half.
Ivan Marcuse
How much did the imported salt impact your operating cost on a year-over-year basis for 2014?
Matthew Foulston
It's in the range of about I think $0.70 a ton on average, $0.70 a ton, $0.75 a ton.
Ivan Marcuse
Okay, great. Thanks.
Operator
And from JPMorgan, we'll hear from Jeff Zekauskas.
Jeff Zekauskas
I think you have $267 million cash on your balance sheet. Why is that the right number?
Are you holding too much cash or too little, or why is that's the number that Compass needs?
Fran Malecha
Yes, this is Fran. I think we raised additional capital debt last summer, took advantage of the market at that time.
And I would say that a portion of that cash is earmarked towards the capital projects that we've initiated, as I mentioned earlier, as an example some of that cash is in Canada and is earmarked towards the Goderich project to realign the shaft one, but also the continuous mining equipment that we'll be buying there to lower our cost in the future. So I think as we look at our platform here to improve performance and deliver profitable growth, we think that we're going to use that cash in a responsible manner and continue to drive the returns that our investors require.
We said that that return target is in the mid-2015 or mid-teens IRR on a risk adjusted basis and we'll continue to find opportunities to invest cash in those types of projects, and if we don't, then we'll return more cash to shareholders.
Matthew Foulston
Just to put a bit more texture on that if I can, Fran, I think we declared back in Analyst Day that our CapEx for 2015 it would be about $250 million which is about double what we spent this year.
Jeff Zekauskas
Yes. You talk about your targeted leverage ratio of up to 2.5 times adjusted EBITDA.
Isn't your leverage ratio more like 1.2 times currently? And does this mean that you intend to lift it up, or are you using simply a debt to EBITDA?
Matthew Foulston
I think the -- the slightly difference here, may be whether you're looking at it with the tornado proceeds in or the tornado proceeds out, that was about $80 million piece of income that came in, in 2014, and we prefer to look at it without that end.
Fran Malecha
I think, maybe just to add to that, I think on a gross debt basis we're at about 2 times on a net debt basis we're closer to 1, I think the 1.2 that you mentioned. And we've been looking at that at least to this point on a gross basis just because of where the cash has been sitting.
And I think as we move forward we plan to continue to stay kind of in that 2.5 times or less knowing that it's going to go up and down a bit and knowing that our business is -- has the variability that it has, I think it's a prudent way to look at it.
Jeff Zekauskas
Okay. And then lastly, leaving aside your first-half pricing, just focusing on salt pricing in the first quarter, shouldn't salt pricing in the first quarter be more or less what it was in the fourth quarter?
Fran Malecha
Yes, so I think those prices that we made the commitments on in the summer for the winter and will carry into the fourth quarter for salt.
Jeff Zekauskas
Okay, great. Thank you so much.
Fran Malecha
Thank you.
Operator
[Operator Instructions]. Next we'll hear from Joel Jackson with BMO Capital Markets.
Joel Jackson
Hi, good morning. I just wanted to thank you for starting to give us 2015 outlook guidance.
That's a very good incremental add for the investor community. So I had a couple questions.
My first question is looking at your salt volume guidance. Your first-half volume guidance suggests -- and there was a bit of, of course, the strong presales in Q4.
But if we extrapolate out your full-year number, it seems that you are suggesting that second-half your salt volumes will be about 10% above the last-decade average. Can you just elaborate on that?
Matthew Foulston
Yes, this is Matthew. Let me start with the full-year and we've got our full-year setup around that 10-year average.
So we feel very comfortable with where we are on a full-year basis. And I think what you've probably done is taken the midpoint of our guidance ranges for the first half and the full-year and then backed into the second half.
To be honest that's why we gave you ranges instead of points, because I think there is some give and take between those two. The other fact is that we're dealing with is, we had a much stronger fourth quarter than we anticipated.
And the wild card really is whether that was true restocking from the impacts of the very extreme winter the year before, or it was some premature buying with that very early snow in November that may have caused some buying that had a pull-ahead impact. So I think to be fair, we've been just a little bit cautious as we go into the first half not having complete knowledge around those two dynamics.
Joel Jackson
If I understand that, though, you decided for your 2015 number, full year, to take the average -- the last 10 -- just to bookend around the average of the last decade. So is it fair that if you get normal weather for now and normal weather in the second half of 2015, that full-year 2015 will come in at the lower half, lower end of the range?
Matthew Foulston
I mean, it's just so very difficult to call this weather. I mean when you look back over the last 30 days, we've had extremely mild and extremely severe.
So we're running with the 10-year average for the full-year and whatever much better handle on that one when we close out first quarter.
Joel Jackson
Okay, that was helpful. The second question is on the Canadian dollar FX.
It's obviously been weak; the Canadian dollar is really weak. Can you talk about your sensitivity to the Canadian dollar and also -- for earnings -- and also what the tailwinds are, were in Q4 from the weaker Canadian dollar and may be what they would be in Q1?
Thanks.
Matthew Foulston
Yes, we've just recently looked at this obviously with the movement in the Canadian dollar and in the pound to be honest. And both are weaker by 10% or more versus the U.S.
dollar. And essentially on a net income basis it's about a wash.
So we're essentially in a position of a natural hedge net-net.
Joel Jackson
Okay, that's great. Thank you very much.
Fran Malecha
Thank you.
Operator
And next, we'll hear from Garrett Nelson with BB&T Capital Markets.
Garrett Nelson
Hi, congrats on the strong results. I'm curious regarding the 2015 salt shipment guidance.
12 million tons to 13 million tons would be below the 13.3 million tons you've shipped each of the past two years. Obviously, salt demand has been very strong in recent quarters.
But is there any reason you wouldn't be able to ship 13.3 million tons again if the weather is favorable and demand is strong? For example, does the Goderich project have a negative impact on your production capacity?
Or is there anything else we should be keeping in mind?
Fran Malecha
We hope the weather is favorable. And I think that would lead to higher volumes for us.
But in our assumption we're assuming kind of average weather. And if you're coming off the last winter with what happened in the last quarter of 2013, and the first quarter of 2014, that was driving significant amount of that volume increase.
So we in our guidance were looking at average weather, which puts us in that 12 million ton to 13 million ton range. We would like to certainly, over time we talked about increasing our market shares slightly from about four points of share that we lost back in I'd say 2010, 2011, 2012.
And we're just kind of have to see coming out of this winter how well that shakes out. It's going to be, I think an interesting bid season, and I think we're ready for that.
We'll be ready for that as we come out of the winter and we'll update on that as we get into that season.
Garrett Nelson
Okay, great. And then how many of them 5.5 million tons to 6 million tons of salt shipments for the first half of this year -- how many tons have been committed in price so far?
Fran Malecha
Basically, we lock in, in those commitments back in this summer. And the municipalities, which are the majority -- which is the majority of the volume will take a -- we'll look at that commitment based on a base amount with a minimum or a maximum that we have to deliver and they have to take depending on the winter.
So and it really is driven by the extent that winter occurs throughout the year. So if winter comes early, winter comes late, we are there to deliver to our customers.
And then we ground that out with commercial business, which is a small percentage of that and then some business that we call chemical business which goes to some large chemical manufactures that take that consistently throughout the year. So the majority of that guidance number will go to our highway customers, primarily in the first quarter.
Garrett Nelson
Okay. And then on the $250 million CapEx guidance for this year, how much is maintenance versus growth?
And what's the total CapEx breakdown between salt and plant nutrition?
Fran Malecha
I don't think we'll give you the breakdown between the two. But the maintenance CapEx kind of the -- what I would call the normal ongoing maintenance CapEx is about $70 million.
Garrett Nelson
Okay.
Fran Malecha
And then the balance is split between kind of this one-time capital, mainly what we spend on the shaft realigning at Goderich and return capital split about evenly.
Garrett Nelson
Okay. And then in the past you have implied that 2015 would represent a peak CapEx year and begin to drop off next year and then even more so in 2017.
Is that still a reasonable assumption? And what kind of drop-off, roughly, should we expect over the next couple of years?
Fran Malecha
Yes, I think as we've said the two biggest spending years will be this year and next year. So it's hard to say exactly what next year will be, but it should be close may be slightly less to what we're going to what we plan to spend in 2015 and then we'll drop-off in 2017.
And beyond that we should be really at our, I would say our core MLB which would be in that kind of $70 million to $80 million range going out from there.
Garrett Nelson
Okay, great. Thank you very much.
Operator
From Deutsche Bank, we'll hear from David Begleiter.
David Begleiter
Thank you. Fran, looking out to 2018, what are the unit production costs embedded for both salt and SOP for the $0.5 billion of EBITDA target guidance?
Fran Malecha
Yes, I'm not going to give you the exact numbers out there. I mean it's -- I don't have that in front of me.
But when we announced kind of our plans at -- in the Investor Day and we're still continuing with that. We looked at taking real cost out of the business of about I think we said about $60 million in salt and about $20 million in the plant nutrition business.
So total of $80 million against the portion of the investments that are going to deliver kind of the real cost savings. And I think the other thing that may be just worth mentioning, we know that in the year ahead our costs are going to be inflated at Ogden, due to the impact of harvest and we do have some variability there.
But I believe that the work that we're doing on differentiating ourselves in the market and really receiving the value that that unique product delivers to growers and more normal conditions we're going to see the cost impact as we go down the road here and then I think assuming a normal harvest for us out there this summer. This should be real dollars falling at the bottom-line in 2016.
So we're -- even though we have some short-term challenges, we're pretty bullish on the future there and that lead to the decisions that we made to expand our capacity and continue to do things to lower our cost in a real way going forward.
David Begleiter
Understood. And just may be back on the oil issue, do you have a sensitivity to may be a $10 per barrel change in crude and its impact on your either shipping and handling costs or overall corporate cost?
Matthew Foulston
This is Matthew. I think what I'd like to do is stay clear of the per barrel thing, because we have seen such a disconnect in the diesel that drives out cost and the price of a barrel of oil.
Oil is down close to 50% and we've seen less than half of that drop in the diesel fuel. So I think I'd rather stay away from that kind of rule of a thumb.
And I think in my presentation we talked a little bit like, if that relationship reestablishes itself as we go through 2015, it could be another $0.50 a ton pickup on the business.
David Begleiter
And lastly, Fran, if you achieve your first-half salt volume guidance, where do you think customers will and year-end inventories at? Normal, below normal, above normal, in your view?
Fran Malecha
I think if we have a normal finish, kind of normal weather here, and average snowfall through the end of the season, I think given the situation at the beginning of the winter that inventories won't be fully restocked. So that should bode fairly well for pricing and demand as we look into the back half of the year and next winter.
I just would caution though that -- the Northeast has been hit particularly hard and I'm sure most of you on the call are aware of that and our northern region has had better winter, stronger winter than the south. And so it's just going to be difficult to kind of paint a brush over this whole thing and say average or what our expectations are.
We'll certainly have a strong view of that as we head into the pricing season, and I wouldn't be surprised if we have a bit of a compressed pricing season this year. I think the states that may be bid later in the year last year, may have felt they were out of this advantage.
So I think that will be interesting as well. And so I would just stay tuned as we go forward here and start to talk about that pricing as we get into early spring and through the summer.
David Begleiter
Thank you very much.
Operator
And our last question is a follow-up question from Chris Shaw with Monness Crespi & Hardt.
Chris Shaw
Just quickly on the UK situation, right, this winter, I know last year was mild. And I haven't in tracking exactly what it has been this winter.
But from a few articles that pulled up it seems like it was a fairly decent snow-event winter so far. Have you guys been tracking the UK?
And if so, is it above average or average?
Fran Malecha
We definitely track it, we have a mine there. So it's the kind of comeback to average, it was much below average last year, and we think that -- it's a combination of snowfall and temperatures probably equally or more important there that the temperatures have been such where they've had to apply salt to deal with moist roads that tend to ice up.
So we're off to a much better start this year than we were last year and it's looking to be average at least at this point.
Chris Shaw
Okay, great. Thanks a lot.
Fran Malecha
You're welcome.
Operator
And at this time, I would like to turn the conference back over to Theresa Womble for any additional or concluding remarks.
Theresa Womble
Thank you, Rebecca. We appreciate your time today and your interest in Compass Minerals.
Please feel free to contact the Investor Relations Department with any follow-up questions you may have. Have a great day.
Operator
Ladies and gentlemen, that does conclude today's presentation. We do thank everyone for your participation.