Darling Ingredients(DAR) - 2020 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For Q3 2020, the company reported a combined adjusted EBITDA of $218.5 million, indicating resilience in its Global Ingredients platform [7] - Net income for Q3 2020 totaled $101.1 million or $0.61 per diluted share, compared to $25.7 million or $0.15 per diluted share in Q3 2019 [18] - Year-to-date net income reached $252.1 million or $1.51 per diluted share, up from $70 million or $0.42 per diluted share for the same period in 2019 [19] - Gross margin improved to 24.9% in Q3 2020 from 22.5% in Q3 2019, with net sales increasing by $8.5 million and cost of sales decreasing by $14.6 million [19] - Operating income for Q3 2020 was $127.5 million, up from $59.8 million in the prior year [20] Business Line Data and Key Metrics Changes - The Fuel segment showed significant improvement year-over-year, with Diamond Green Diesel achieving a $2.41 per gallon EBITDA margin on record sales of 80 million gallons for the quarter [12] - The Food segment experienced a recovery in hydrolyzed collagen sales, with the commissioning of a new collagen peptide production facility in Brazil [11] - The Feed segment declined from strong Q2 performance due to lower protein prices in Q3 compared to both Q2 and Q3 2019 [9] Market Data and Key Metrics Changes - The Energy market showed improvements in demand, although oil and diesel prices remained lower than the previous year, with diesel trading $0.80 a gallon under Q4 2019 [13] - The company anticipates a better pricing environment for protein and fats products in Q4 due to upward movement in the grain and oilseed complex [10] Company Strategy and Development Direction - The company aims to be the largest low-cost producer of renewable diesel in North America, focusing on building new facilities with the latest technologies [31][32] - The company is progressing with the development of Diamond Green Diesel 3 in Port Arthur, Texas, with construction expected to begin in early 2021 [30] - The acquisition of a three-plant Belgium poultry rendering processor is expected to strengthen the company's Belgian system and be immediately accretive [33] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about finishing 2020 with combined adjusted EBITDA between $800 million and $810 million, despite the challenges posed by COVID-19 [15] - The company believes it is well-positioned for a transformative year in 2021 with the expansion of Diamond Green Diesel [16] - Management highlighted the importance of the green premium for renewable diesel, which has offset downward price pressures in the current environment [13] Other Important Information - The company successfully amended and extended its $1 billion revolving credit facility, improving its financial flexibility [26] - Capital expenditures for the first nine months of 2020 totaled $184.9 million, reflecting a disciplined approach during the pandemic [25] Q&A Session Summary Question: Insights on Diamond Green Diesel Phase 3 financing - Management indicated that structured finance is a possibility for Diamond Green Diesel Phase 3 to expedite cash flow from the joint venture [35] Question: Low carbon feedstock sourcing for Phase 3 - Management emphasized their unique position in controlling a significant supply of low carbon feedstocks, ensuring adequate supply for Diamond Green Diesel [36][38] Question: Acquisition strategy and capabilities unlocked - The acquisition of rendering plants fits into the company's strategy of controlling fat and protein production, enhancing their Belgian system [40][42] Question: Dynamics supporting fuel segment growth - The fuel segment's strength was attributed to the performance of the mortality processing business in Europe and strong demand for Cat 1 fats [44] Question: Long-term fit of biodiesel within the company - Management acknowledged the superior logistics and earnings potential of renewable diesel compared to biodiesel, indicating a strategic shift towards renewable diesel [47] Question: Challenges faced by retrofitting old refineries for renewable diesel - Management expressed confidence in their competitive position, citing the difficulties faced by others attempting to retrofit older facilities [52][54] Question: Current pricing trends for fats and proteins - Management noted that prices for fats and proteins are showing positive momentum, driven by demand from China and recovery in the grain and oilseed complex [62][68] Question: Critical milestones for Diamond Green Diesel 3 - Management confirmed that they are on track for a final investment decision on Diamond Green Diesel 3 in early 2021, with all analyses proceeding positively [72] Question: Cash deployment priorities - The company remains focused on achieving an investment-grade rating while managing debt and considering future capital expenditures [76][78] Question: Demand for renewable diesel and LCFS - Management highlighted the growing demand for renewable diesel driven by carbon reduction initiatives, with confidence in the market's ability to absorb new supply [100][104]