Darling Ingredients(DAR) - 2022 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported strong first-quarter earnings of $330.7 million and combined adjusted EBITDA [5] - Net income for Q1 2022 was $188.1 million or $1.14 per diluted share, compared to $151.8 million or $0.90 per diluted share in Q1 2021 [12] - Net sales increased by 30.5% to $1.37 billion in Q1 2022 from $1 billion in Q1 2021 [12] - Operating income rose by 16.7% to $232.9 million in Q1 2022, driven by a gross margin increase of $71.9 million or 26.2% [12][14] Business Line Data and Key Metrics Changes - The Global Ingredients business achieved a record EBITDA of $244.1 million [5] - The food segment earned $57.7 million in EBITDA, driven by the peptide business and a shift to hydrolyzed specialty collagens [6] - The fuel segment reported $110 million in EBITDA, with $86.6 million coming from Diamond Green Diesel [5] Market Data and Key Metrics Changes - Raw material volumes in the feed segment increased year-over-year, with fat prices continuing to escalate [6] - Protein prices improved sequentially during the quarter, although logistical disruptions kept prices lower year-over-year [6] - European energy prices rose by 250% year-over-year, impacting operational costs [15] Company Strategy and Development Direction - The company is focused on expanding its Green Energy business in Europe and diversifying feedstock supply for Diamond Green Diesel [15][16] - Strategic acquisitions, including Valley Proteins and FASA Group, are expected to enhance operational synergies and increase EBITDA contributions [9][10] - The company aims to process over 15 million metric tons of animal by-products globally, representing about 15% of the world's supply [9] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the business environment, citing robust rendering volumes and improved raw material availability [15] - The company is addressing rising energy costs and supply chain challenges while maintaining margin structures [6][15] - The forecast for combined adjusted EBITDA for 2022 is projected to be between $1.55 billion and $1.60 billion, excluding additional gallons from Diamond Green Diesel 3 [17] Other Important Information - Total debt at the end of Q1 2022 was $1.7 billion, up from $1.5 billion at year-end 2021, primarily due to acquisitions [14] - The company repurchased $17.2 million of common stock in Q1 2022 [14] - The effective tax rate for Q1 2022 was 12%, with projections for an 18% effective tax rate for the remainder of the year [13] Q&A Session Summary Question: Future growth prospects for Darling Ingredients - Management highlighted a four-legged growth strategy focusing on Green Electricity, Diamond Green Diesel, food segment expansion, and core ingredients business [20][24] Question: R&D efforts and innovation pipeline - The company emphasized its expertise in transforming by-products into valuable products and has a robust innovation pipeline [28][29] Question: Leverage and cash flow management - Management discussed plans to maintain sub-three leverage while balancing growth investments, share buybacks, and potential dividends [30][50] Question: DGD's economics and feedstock sourcing - Management noted that DGD is pulling feedstocks from Brazil and expects to continue sourcing globally to support renewable diesel growth [66]