Darling Ingredients (NYSE: DAR) announced first-quarter 2019 earnings on Wednesday after the market closed, detailing surprisingly strong results in the face of international trade disruptions, adverse weather, and tough comparisons to the year-ago period given the perennially delayed blender's tax credit (BTC) that helps bolster its bottom line.
With shares up modestly on Thursday afternoon as of this writing, let's dig in for a better idea of what Darling accomplished over the past few months, and what we should be watching going forward.
Image source: Getty Images.
Darling Ingredients results: The raw numbers
Net income attributable to Darling
Net income per diluted share
Data source: Darling Ingredients.
What happened with Darling Ingredients this quarter?
- Darling's net income decline was primarily driven by the 2017 retroactive BTC recognized in the first quarter of 2018.
- Adjusted EBITDA increased 1% to $103.4 million.
- By segment:
- Feed ingredients net sales climbed 2.1% to $495.8 million, driven by higher slaughter volumes and prices in North America that were offset by unfavorable supply volume mix internationally. China trade disruptions and seasonally weaker North American pet food demand served as a headwind for protein values. Feed segment operating income declined 30% to $15.2 million.
- Food ingredients net sales fell 8.6% to $279.2 million, mostly due to the closure of Darling's collagen plant in Argentina. Food segment operating income roughly doubled year over year to $23.6 million, thanks to improved gelatin and collagen market results.
- Fuel ingredients net sales (excluding Diamond Green Diesel) declined 28.5% to $60.1 million, as strength from Ecoson bioenergy and the addition of Darling's Belgium digester business were offset by lower livestock and slaughter volumes for the Rendac disposal rendering business in Europe. Fuel segment operating income fell from $14.2 million to $3 million during the quarter, primarily due to the absence of the $12.6 million BTC, which has yet to be reinstated this year.
- At the Diamond Green Diesel joint venture with Valero:
- Performance has been in line with expectations, with entity-level EBITDA of $0.84 per gallon on 71.1 million gallons sold.
- Following the completion of DGD's expansion to 275 million gallons, the venture is on target with an average net run rate for the past two quarters of $1.24 EBITDA per gallon.
- DGD subsequently paid a joint-venture partner dividend of $17.7 million, which Darling received in early April.
- DGD's recently approved phase 3 expansion to 675 million gallons, plus another 50 million to 60 million gallons of renewable naphtha for green gasoline markets, is now underway. The expansion's cost of $1.1 billion should be "substantially" funded by DGD's cash flows.
What management had to say
Chairman and CEO Randall Stuewe stated:
Our teams executed well during the first quarter 2019 despite headwinds impacting our finished product pricing, challenging weather events disrupting some of our operations in North America and African Swine Fever pressuring the global marketplace. Global volumes trended higher, the Food segment reported record results, and we delivered overall improved adjusted EBITDA when adjusting the prior year for the BTC and a stronger U.S. dollar. Construction is under way on Super Diamond that increases annual production capacity at our Diamond Green Diesel JV to 675 million gallons of renewable diesel plus additional renewable naphtha. We anticipate completion in fourth quarter 2021.
Darling does not provide specific financial guidance. But investors can take comfort knowing the company has once again demonstrated the resilience of its various operating segments while continuing to press forward with its ambitious expansion in the green diesel market. With shares up a modest 6% year to date leading up to this encouraging update, I think the stock is rightly climbing today in response.
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