Darling Ingredients(DAR) - 2024 Q2 - Quarterly Results

Second Quarter 2024 Financial Highlights Overall Performance Darling Ingredients reported significant year-over-year declines in Q2 and H1 2024 net income and sales, primarily due to lower fat prices and reduced DGD earnings, yet reaffirmed full-year guidance Q2 & H1 2024 Key Financial Metrics (YoY Comparison) | Metric | Q2 2024 | Q2 2023 | Change | H1 2024 | H1 2023 | Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net Sales | $1.5B | $1.8B | -16.7% | $2.9B | $3.5B | -17.1% | | Net Income | $78.9M | $252.4M | -68.7% | $160.0M | $438.2M | -63.5% | | Diluted EPS | $0.49 | $1.55 | -68.4% | $0.99 | $2.69 | -63.2% | | Combined Adj. EBITDA | $273.6M | $508.3M | -46.2% | $553.7M | $926.7M | -40.3% | - The primary reasons for the decline in net income were a sharp year-over-year decrease in fat prices and lower earnings from the Diamond Green Diesel (DGD) segment[4] - Diamond Green Diesel (DGD) sold 311.5 million gallons of renewable diesel in Q2 2024, generating an average EBITDA of $0.49 per gallon[6] Management Commentary Management noted sequential improvement in specialty ingredients despite deflation, focusing on debt reduction and cost-cutting to widen margins, anticipating improved fat prices to benefit later quarters - The specialty ingredients business demonstrated sequential improvement after making necessary changes to enhance margins and earnings[5] - The Port Arthur facility completed a major turnaround in preparation for producing sustainable aviation fuel (SAF) later in 2024[5] - The company's focus for the rest of the year is on paying down debt and widening margins through effective cost-cutting measures[5] Financial Position and Capital Allocation As of June 29, 2024, the company held $121.6 million in cash and $4.4 billion in total debt, actively repurchasing stock and refreshing its $500 million share repurchase program until August 2026 Financial Position as of June 29, 2024 | Metric | Value | | :--- | :--- | | Cash and cash equivalents | $121.6 million | | Available Revolving Credit | $814.4 million | | Total Debt Outstanding | $4.4 billion | | Projected Leverage Ratio | 4.24x | - The company repurchased approximately 807,000 shares for $29.2 million during the second quarter of 2024[7] - On June 21, 2024, the Board of Directors refreshed the share repurchase program back to an aggregate amount of $500 million and extended it until August 13, 2026[7] Fiscal Year 2024 Guidance Darling Ingredients reaffirmed its full-year 2024 guidance for combined adjusted EBITDA - The company reaffirms its fiscal year 2024 guidance for combined adjusted EBITDA to be between $1.3 billion and $1.4 billion[9] Financial Statements Consolidated Operating Results (Income Statement) Consolidated income statement shows significant year-over-year declines in net sales and profitability for Q2 and H1 2024, driven by lower sales and reduced DGD equity income Consolidated Operating Results (in thousands) | Metric | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $1,455,292 | $1,757,621 | $2,875,591 | $3,548,793 | | Operating Income | $148,502 | $356,684 | $285,671 | $612,529 | | Equity in Net Income of DGD | $44,197 | $212,964 | $122,616 | $307,301 | | Net Income Attributable to Darling | $78,866 | $252,383 | $160,023 | $438,184 | | Diluted EPS | $0.49 | $1.55 | $0.99 | $2.69 | Segment Performance All Feed, Food, and Fuel Ingredients segments experienced year-over-year declines in Q2 and H1 2024 net sales and profitability, with Fuel Ingredients most impacted by lower DGD contributions Feed Ingredients Feed Ingredients Performance (in thousands) | Metric | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $934,147 | $1,141,661 | $1,823,995 | $2,379,155 | | Segment EBITDA | $122,056 | $187,520 | $228,865 | $400,593 | Food Ingredients Food Ingredients Performance (in thousands) | Metric | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $378,841 | $476,093 | $770,123 | $872,485 | | Segment EBITDA | $73,200 | $71,312 | $134,887 | $144,488 | Fuel Ingredients Fuel Ingredients Performance (in thousands) | Metric | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $142,304 | $139,867 | $281,473 | $297,153 | | Combined Adjusted EBITDA | $96,767 | $270,165 | $229,911 | $423,760 | Balance Sheet Highlights As of June 29, 2024, the balance sheet shows slight decreases in cash and total debt compared to year-end 2023, with H1 capital expenditures totaling $191.7 million Balance Sheet Data (in thousands) | Account | June 29, 2024 | December 30, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $121,587 | $126,502 | | Property, plant and equipment, net | $2,840,682 | $2,935,185 | | Total Debt (Current + Long-term) | $4,409,387 | $4,427,073 | - Year-to-date capital expenditures as of June 29, 2024, were $191.7 million[18] Diamond Green Diesel (DGD) Joint Venture Performance DGD Operating Results DGD joint venture experienced substantial declines in Q2 and H1 2024 operating results, with significantly lower revenues and net income reflecting challenging commodity prices DGD Operating Results (in thousands) | Metric | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :--- | :--- | :--- | :--- | :--- | | Operating Revenues | $1,184,076 | $2,246,111 | $2,595,191 | $3,926,161 | | Operating Income | $91,373 | $436,481 | $256,204 | $636,520 | | Net Income | $88,394 | $425,928 | $245,232 | $614,602 | - Darling's 50% share of DGD's adjusted EBITDA for Q2 2024 was $76.6 million, down from $247.4 million in Q2 2023[11] DGD Balance Sheet DGD joint venture's balance sheet shows slight increases in total assets and members' equity, alongside a decrease in total debt from year-end 2023 to June 30, 2024 DGD Balance Sheet Data (in thousands) | Account | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $5,860,533 | $5,805,927 | | Total Debt (Current + Long-term) | $751,597 | $1,015,736 | | Total Members' Equity | $4,687,657 | $4,355,277 | Non-GAAP Financial Measures Reconciliation of Net Income to Adjusted EBITDA The company reconciles GAAP Net Income to non-GAAP Adjusted EBITDA, with Q2 2024 Adjusted EBITDA at $196.9 million and Combined Adjusted EBITDA at $273.6 million, both significantly lower year-over-year Reconciliation to Combined Adjusted EBITDA (in thousands) | Metric | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :--- | :--- | :--- | :--- | :--- | | Net income attributable to Darling | $78,866 | $252,383 | $160,023 | $438,184 | | Adjusted EBITDA (Non-GAAP) | $196,918 | $260,909 | $361,982 | $549,969 | | DGD Joint Venture Adjusted EBITDA (Darling's share) | $76,642 | $247,398 | $191,702 | $376,721 | | Combined Adjusted EBITDA | $273,560 | $508,307 | $553,684 | $926,690 | Definitions of Non-GAAP Measures The company defines non-GAAP measures like Adjusted EBITDA and DGD Adjusted EBITDA to evaluate operating performance, noting that forward-looking reconciliation to net income is not feasible due to unpredictability - Adjusted EBITDA is presented as a measure of operating performance and is calculated by adjusting net income for items like depreciation, interest, taxes, and other specified charges[30] - DGD Joint Venture Adjusted EBITDA (Darling's share) is calculated by taking DGD's operating income plus its depreciation, amortization, and accretion expense, and then multiplying by 50%[40] - The company cannot provide a reconciliation of its forward-looking combined adjusted EBITDA guidance to net income without unreasonable effort due to the unpredictability of certain items[41] Other Information About Darling Ingredients & Conference Call Darling Ingredients transforms by-products into valuable ingredients for feed, food, and renewable energy, and held a conference call on July 25, 2024, to discuss Q2 results - Darling Ingredients operates over 260 facilities in more than 15 countries, processing about 15% of the world's animal agricultural by-products[27] - A conference call to discuss Q2 2024 financial results was scheduled for Thursday, July 25, 2024, at 9 a.m. Eastern Time[34] Forward-Looking Statements This report contains forward-looking statements, with actual results potentially differing due to risks like commodity price volatility, renewable fuel regulations, raw material availability, and DGD joint venture risks - Forward-looking statements are based on current expectations and are not guarantees of future performance[45] - Key risk factors include reduced demand or prices for biofuels, volatility in grain and oilseed commodities, changes in government policies like the renewable fuel standard (RFS), and operational risks at the DGD Joint Venture[46]