Core Insights - The investigation reveals that Diamond Green Diesel, a significant player in the U.S. sustainable fuels market, is sourcing animal fat from cattle raised on illegally cleared lands in the Amazon rainforest, raising concerns about the environmental impact of its supply chain [7][5][3]. Company Overview - Diamond Green Diesel is a joint venture between Darling Ingredients and Valero Energy, with substantial investments in a Texas refinery that converts cattle fat into a cleaner alternative to petroleum-based fuels [6][5]. - The company has received over $3 billion in U.S. tax credits for biofuel production since 2022, indicating its financial backing and growth potential in the sustainable fuels market [5]. Supply Chain Concerns - Reports indicate that at least two Brazilian factories supplying Diamond Green Diesel have sourced cattle fat from slaughterhouses linked to illegally deforested ranches in the Amazon [5][11]. - The tallow trade from these ranches to Diamond Green Diesel has been tracked through various investigative methods, including interviews and government data [8][9]. Market Dynamics - The global market for sustainable jet fuel is projected to be approximately $2.9 billion by 2025, significantly smaller than the $239 billion market for conventional aviation fuel, but expected to grow due to government incentives [3]. - Airlines like JetBlue and Southwest Airlines are under pressure to purchase more green jet fuel to meet net-zero emissions targets by 2050, which may drive demand for tallow as a biofuel [19]. Regulatory and Certification Issues - The International Sustainability and Carbon Certification (ISCC) has certified Diamond's imports from Brazil as sustainable, but it did not investigate the supply chain, considering tallow a byproduct of the beef industry [20]. - Experts have raised concerns that the current sustainability standards may overlook the deforestation linked to the tallow supply chain, as the program assumes that demand for tallow will not incentivize ranchers to clear more land [21].

Core Insights - Darling Ingredients Inc. (NYSE: DAR) was covered nearly a year ago when its stock price was around $35, highlighting its strong positioning in the shift towards low-carbon inputs and structural advantages in the market [1] Company Analysis - The company is well-positioned to benefit from the global trend towards low-carbon inputs, indicating potential for growth and investment opportunities [1] Market Trends - The analysis emphasizes the importance of fundamental financial ratios and metrics in understanding market trends, particularly in the tech sector, which may influence investment decisions [1]

Company Overview - Darling Ingredients Inc. (NYSE: DAR) operates at the intersection of sustainable food, renewable energy, and animal product by-product processing [1] - The company's shares have recently fallen to multi-year lows, trading around $35–$37, primarily due to weak renewable diesel margins [1] Market Context - The decline in share price reflects broader challenges in the renewable diesel market, impacting the company's profitability and investor sentiment [1] Investment Strategy - The investment strategy focuses on identifying high-growth companies with strong financial momentum and rapid earnings growth, often overlooked by mainstream analysts [1] - The approach combines technical analysis with the CAN SLIM methodology to uncover emerging businesses showing signs of institutional interest [1] Research Process - The research process integrates both fundamental and technical perspectives, paying close attention to indicators such as relative strength, unusual trading volume, and earnings acceleration [1] - The goal is to identify stocks poised for significant breakouts before broader market recognition drives prices higher [1]

Core Insights - Darling Ingredients reported a significant decline in GAAP EPS to $0.08, missing the consensus estimate of $0.24, primarily due to weak profitability in its Diamond Green Diesel joint venture [1][5] - Revenue for the second quarter of fiscal 2025 was $1.5 billion, slightly above expectations, but profitability metrics indicated ongoing challenges [1][5] - The company lowered its full-year Combined Adjusted EBITDA guidance to $1.05–$1.10 billion, down from previous estimates of $1.25 to $1.3 billion, reflecting persistent headwinds in the renewable fuels market [1][11] Financial Performance - Q2 2025 EPS was $0.08, down 83.7% year-over-year from $0.49 in Q2 2024 [2] - Revenue increased by 2.7% year-over-year, from $1.46 billion in Q2 2024 to $1.5 billion in Q2 2025 [2] - Adjusted EBITDA for Q2 2025 was $249.5 million, an 8.8% decrease from $273.6 million in Q2 2024 [2][5] Business Overview and Strategy - Darling Ingredients specializes in converting animal by-products, used cooking oils, and food waste into value-added ingredients for various markets, operating over 260 facilities globally [3][4] - The company's strategy focuses on product diversification to reduce dependence on any single market, addressing sectors like agriculture, pharmaceuticals, and renewable energy [3][4] Segment Performance - The Feed Ingredients segment generated net sales of $936.5 million, contributing significantly to overall revenue, supported by strong fat prices [6][8] - The Food Ingredients segment reported net sales of $386.1 million, with a 1.9% increase year-over-year, and includes the launch of the Nextida joint venture targeting health and wellness markets [6][9] - The Fuel Ingredients segment, heavily impacted by the Diamond Green Diesel joint venture, recorded revenue of $158.8 million, with a significant decline in profitability due to regulatory uncertainties and market dislocations [6][10] Future Outlook - The company anticipates continued improvement in its core ingredients business, particularly in the Feed Ingredients segment, driven by strengthening fat prices [6][11] - Management emphasized the importance of maintaining balance sheet health and focusing on high-margin product categories, especially in food ingredients and collagen innovation [11][12] - Investors are expected to monitor operational metrics across segments, particularly for signs of margin improvement and the performance of the Nextida joint venture [12]

Core Insights - Darling Ingredients reported Q2 2025 revenue of $1.5 billion, slightly above analyst forecasts, but earnings per share fell sharply to $0.08, missing the consensus of $0.24, primarily due to weaker performance in its renewable fuels joint venture, Diamond Green Diesel [1][5][10] Financial Performance - Q2 2025 EPS (GAAP) was $0.08, down 83.7% year-over-year from $0.49 in Q2 2024 [2][5] - Revenue remained flat year-over-year, with a slight increase of 1.8% compared to Q2 2024 [5] - Combined adjusted EBITDA (non-GAAP) decreased by 8.8% to $249.5 million, driven by declining margins in renewable fuels [2][5] Business Overview - Darling Ingredients specializes in repurposing animal by-products and used cooking oil, producing essential ingredients for various industries, including food, pharmaceuticals, and renewable fuels [3] - The company operates 83 production facilities across five continents, serving a diverse customer base [3] Strategic Developments - Recent acquisitions, including Valley Proteins, Gelnex, and FASA Group, have aimed to enhance the company's portfolio in growth areas like specialty collagen peptides and renewable fuels [4] - A new joint venture, Nextida, was announced to develop the global collagen and gelatin business targeting the health and wellness market [9] Challenges and Guidance - The company revised its full-year FY2025 combined adjusted EBITDA guidance down to $1.05 to $1.10 billion from the previous forecast of $1.25 to $1.30 billion, reflecting uncertainties in U.S. renewable fuel policy and the need for improvement at DGD [10][11] - Key areas for investors to monitor include policy clarity, margin recovery at DGD, and the ramp-up of specialty collagen initiatives through the Nextida venture [12]

Core Insights - Darling Ingredients reported $1.48 billion in revenue for the quarter ended June 2025, marking a year-over-year increase of 1.8% and aligning with the Zacks Consensus Estimate, resulting in a surprise of +0.32% [1] - The company's EPS for the same period was $0.09, a significant decrease from $0.49 a year ago, leading to an EPS surprise of -25% compared to the consensus estimate of $0.12 [1] Revenue Breakdown - Net Sales from Feed Ingredients were $936.53 million, below the four-analyst average estimate of $997.05 million, reflecting a year-over-year change of +0.3% [4] - Net Sales from Fuel Ingredients reached $158.84 million, exceeding the average estimate of $138.21 million, with a year-over-year increase of +11.6% [4] - Net Sales from Food Ingredients amounted to $386.14 million, surpassing the average estimate of $366.46 million, showing a year-over-year change of +1.9% [4] EBITDA Analysis - Segment Adjusted EBITDA for Food Ingredients was $69.95 million, slightly above the average estimate of $68.51 million [4] - Segment Adjusted EBITDA for Feed Ingredients was $135.9 million, falling short of the average estimate of $161.84 million [4] - Segment Adjusted EBITDA for Fuel Ingredients was $18.64 million, compared to the average estimate of $19.79 million [4] - Segment Adjusted EBITDA for Corporate was reported at -$17.59 million, worse than the average estimate of -$10.3 million [4] - Combined Adjusted EBITDA for Fuel Ingredients was $61.29 million, significantly higher than the average estimate of $31.85 million [4] Stock Performance - Over the past month, shares of Darling have returned -1.2%, contrasting with the Zacks S&P 500 composite's +5.7% change [3] - The stock currently holds a Zacks Rank 3 (Hold), indicating potential performance in line with the broader market in the near term [3]

Financial Data and Key Metrics Changes - Combined adjusted EBITDA for Q2 2025 was $249.5 million, down from $273.6 million in Q2 2024, while year-to-date combined adjusted EBITDA totaled $445.3 million compared to $553.7 million for the same period in 2024 [13][14] - Total net sales in Q2 2025 were $1.48 billion, slightly up from $1.46 billion in Q2 2024, with raw material volume remaining nearly unchanged at approximately 3.74 million metric tons [14] - Gross margins improved to 23.3% in Q2 2025 from 22.5% in Q2 2024, with year-to-date gross margins at 23% compared to 21.9% in the first half of 2024 [14][17] Business Line Data and Key Metrics Changes Feed Ingredients Segment - Total net sales for Q2 2025 were $936.5 million, up from $934.1 million in Q2 2024, with gross margins improving to 22.9% from 21% [15][16] - Raw material volumes remained approximately 3.1 million metric tons for both quarters, with year-to-date volumes at roughly 6.2 million metric tons [16] Food Segment - Total sales for Q2 2025 were $386.1 million, compared to $378.8 million in Q2 2024, with gross margins unchanged at 26.9% [18] - Year-to-date gross margins improved to 28.1% from 25.3% in the same period a year ago [18] Fuel Segment - Darling's share of DGD EBITDA was approximately $42.6 million in Q2 2025, down from $76.6 million in Q2 2024, with year-to-date EBITDA at $48.7 million compared to $191.7 million in 2024 [19][20] - Overall fuel segment sales for Q2 2025 were $158.8 million, up from $142.3 million in Q2 2024 [20] Market Data and Key Metrics Changes - The renewable fuel environment remains challenging, with small refinery exemptions and delayed compliance enforcement impacting margins [11][12] - Tariff volatility and increased domestic oilseed crush have pressured protein prices, particularly in Asia, but rising fat prices are expected to support the Feed segment [8][10] Company Strategy and Development Direction - The company announced the formation of NexTata, a joint venture focused on health and wellness, aligning with its strategy to diversify into high-margin markets [6] - The company is focused on operational discipline and strategic timing to position itself for improved margins in the future [12][24] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the core ingredients platform, anticipating sequential improvement driven by rising fat prices [24] - The company expects full-year combined adjusted EBITDA in the range of $1.05 billion to $1.1 billion, reflecting optimism about market conditions [25] Other Important Information - The company successfully refinanced its Eurobond and replaced its revolving credit facility, enhancing financial flexibility [21][22] - Total debt net of cash decreased to $3.89 billion as of June 28, 2025, from $3.97 billion at the end of 2024, lowering the leverage ratio to 3.34 times [22] Q&A Session Summary Question: Discussion on policy benefits for domestic renewable diesel - Management highlighted the evolving domestic market and the expected drop in imported raw materials, benefiting U.S. fat pricing [28][30] Question: Outlook for LCFS prices - Management indicated a positive trend in carbon prices and anticipated potential increases, although exact estimates were challenging [34][35] Question: Impact of lower UCO pricing - Management explained the fluid dynamics of the UCO market and the lag effect in pricing, which impacted margins [39][41] Question: Opportunities for DGD outside California - Management confirmed significant exports to Europe and the UK, with growing demand for renewable diesel globally [50][51] Question: Expectations for SREs - Management expressed uncertainty regarding the timing and impact of SRE announcements, emphasizing the need for clarity in the market [53][56] Question: CapEx plans and capital discipline - Management committed to maintaining CapEx at $400 million or lower for the year, focusing on debt reduction [101]

Financial Data and Key Metrics Changes - Combined adjusted EBITDA for Q2 2025 was $249.5 million, down from $273.6 million in Q2 2024, while year-to-date combined adjusted EBITDA totaled $445.3 million compared to $553.7 million for the same period in 2024 [13][14] - Total net sales in Q2 2025 were $1.48 billion, slightly up from $1.46 billion in Q2 2024, with raw material volume remaining nearly unchanged at approximately 3.74 million metric tons [14] - Gross margins improved to 23.3% in Q2 2025 from 22.5% in Q2 2024, with year-to-date gross margins at 23% compared to 21.9% in the first half of 2024 [14][16] Business Line Data and Key Metrics Changes - In the Feed Ingredients segment, total net sales increased to $936.5 million in Q2 2025 from $934.1 million in Q2 2024, with gross margins improving to 22.9% from 21% [15][16] - The Food segment saw total sales rise to $386.1 million in Q2 2025 from $378.8 million in Q2 2024, with gross margins unchanged at 26.9% [17] - The Fuel segment's sales for Q2 2025 were $158.8 million, up from $142.3 million in Q2 2024, but the share of DGD EBITDA dropped to $42.6 million from $76.6 million year-over-year [19][20] Market Data and Key Metrics Changes - The regulatory environment has shown signs of improvement, particularly in the Feed segment, which is expected to enhance performance into 2026 [6] - Tariff volatility and increased domestic oilseed crush have pressured protein prices, especially in Asia, but rising fat prices are expected to support the Feed segment [7][11] - The renewable fuel environment remains challenging, with DGD facing near-term pressure but expected to benefit from policy support in the long term [11][12] Company Strategy and Development Direction - The company announced the formation of NexTata, a joint venture focused on health and wellness, aligning with its strategy to diversify into high-margin markets [6] - The company is focused on operational discipline and strategic timing to position itself for improved margins in the future [12] - The outlook for the core ingredients platform remains strong, with expectations for sequential improvement driven by rising fat prices [24] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the core ingredients business, anticipating a more constructive market environment ahead [24][25] - The company expects full-year combined adjusted EBITDA in the range of $1.05 billion to $1.1 billion, reflecting optimism about market recovery [26] - Management acknowledged challenges in the renewable fuel sector but highlighted the potential for margin recovery as policy rules clarify [12][24] Other Important Information - The company successfully refinanced its Eurobond and replaced its revolving credit facility, enhancing financial flexibility [21][22] - Total debt net of cash decreased to $3.89 billion as of June 28, 2025, from $3.97 billion at the end of 2024, lowering the leverage ratio to 3.34 times [22] - The effective tax rate for Q2 2025 was 22.2%, slightly above the federal statutory rate, with expectations for a full-year effective tax rate around 15% [23] Q&A Session Summary Question: Discussion on policy benefits for domestic renewable diesel - Management noted that evolving domestic markets are expected to reduce reliance on imported raw materials, benefiting U.S. fat pricing and production [28][30] Question: Outlook for LCFS prices - Management indicated that carbon prices are moving positively, with expectations for further increases in the coming years [34] Question: Impact of lower UCO pricing - Management explained that pricing dynamics in a rising market can lead to temporary impacts on margins, but they expect improvements as prices stabilize [37][41] Question: Opportunities for DGD outside California - Management confirmed that while California is a significant market, they also export renewable diesel to Europe and other states, with demand growing globally [48][50] Question: Expectations for SREs - Management expressed uncertainty regarding the timing and impact of SREs but indicated that they expect an announcement soon [51][55] Question: CapEx plans and capital allocation - Management emphasized a commitment to maintaining capital discipline, with plans to keep CapEx below $400 million for the year while focusing on debt reduction [102][104]

Financial Performance - Total Net Sales increased by 1.8% to $1,481.5 million in Q2 2025 compared to $1,455.3 million in Q2 2024[4] - Gross Margin increased by 5.8% to $345.9 million in Q2 2025 compared to $326.9 million in Q2 2024[4] - Net Income decreased significantly by 83.9% to $12.7 million in Q2 2025 compared to $78.9 million in Q2 2024[4] - EPS Diluted decreased by 83.7% to $0.08 in Q2 2025 compared to $0.49 in Q2 2024[4] - Total combined adjusted EBITDA decreased by 8.8% to $249.5 million in Q2 2025 compared to $273.6 million in Q2 2024[4] Segment Performance - Feed segment adjusted EBITDA increased by 11.3% to $135.9 million in Q2 2025 compared to $122.1 million in Q2 2024[4] - Food segment adjusted EBITDA decreased by 4.5% to $69.9 million in Q2 2025 compared to $73.2 million in Q2 2024[4] - Fuel segment adjusted EBITDA decreased by 29.1% to $61.3 million in Q2 2025 compared to $96.8 million in Q2 2024[4] Balance Sheet - Cash and cash equivalents were $95 million as of June 28, 2025, compared to $76 million as of December 28, 2024[5] - Total debt was $3,980 million as of June 28, 2025, compared to $4,042 million as of December 28, 2024[5]

Group 1: Earnings Performance - Darling Ingredients reported quarterly earnings of $0.09 per share, missing the Zacks Consensus Estimate of $0.12 per share, and down from $0.49 per share a year ago [1] - The earnings surprise was -25.00%, and the company previously reported a loss of $0.16 per share, resulting in a surprise of -180% [2] - Over the last four quarters, Darling has surpassed consensus EPS estimates only once [2] Group 2: Revenue Performance - The company posted revenues of $1.48 billion for the quarter ended June 2025, exceeding the Zacks Consensus Estimate by 0.32%, and up from $1.46 billion year-over-year [3] - Darling has topped consensus revenue estimates just once over the last four quarters [3] Group 3: Stock Performance and Outlook - Darling shares have increased approximately 9.4% since the beginning of the year, compared to the S&P 500's gain of 8.1% [4] - The current consensus EPS estimate for the upcoming quarter is $0.44 on revenues of $1.55 billion, and for the current fiscal year, it is $0.95 on revenues of $6.01 billion [8] Group 4: Industry Context - The Zacks Industry Rank for Food - Miscellaneous is currently in the bottom 32% of over 250 Zacks industries, indicating potential challenges for stock performance [9] - Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact investor decisions [6]