Darling Ingredients(DAR) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q1 2025, combined adjusted EBITDA was $195.8 million, down from $280.1 million in Q1 2024. Adjusted EBITDA, excluding DGD, was $190 million compared to approximately $165 million in Q1 2024 [13][22] - Total net sales for Q1 2025 were $1.38 billion, a decrease from $1.42 billion in Q1 2024. Raw material volume remained stable at approximately 3.79 million metric tons [13][22] - Gross margins improved to 22.6% in Q1 2025 from 21.4% in Q1 2024 [13] Business Line Data and Key Metrics Changes Feed Ingredients Segment - Total net sales increased to $896.3 million in Q1 2025 from $889.8 million in Q1 2024, with EBITDA rising to $110.6 million from $106.8 million [14] - Gross margins for the feed segment decreased slightly to 20.3% from 20.7% due to one-time items [14] Food Segment - Total sales for Q1 2025 were $349.2 million, down from $391.3 million in Q1 2024, but EBITDA increased to $70.9 million from $61.7 million [15] - Raw material volume increased to 329,400 metric tons from 299,800 metric tons [15] Fuel Segment - Sales for Q1 2025 were $135.1 million, down from $139.2 million in Q1 2024, with EBITDA significantly impacted by DGD's results, falling to $24.2 million from $133.1 million [16][18] Market Data and Key Metrics Changes - DGD's EBITDA contribution was approximately $6 million in Q1 2025, a significant drop from approximately $115 million in Q1 2024, primarily due to the transition from the blenders tax credit to the producers tax credit and other operational challenges [18] - The renewable diesel and sustainable aviation fuel markets are expected to improve in Q2 2025, driven by a reduction in imported biofuels and adjustments in domestic production [11][19] Company Strategy and Development Direction - The company aims to continue deleveraging its balance sheet and opportunistically repurchase shares throughout the year, with a target of achieving a leverage ratio of 2.5% by the end of 2025 [20][112] - Management is optimistic about the core business's performance, expecting to generate between $950 million and $1 billion in EBITDA for the year [24][26] Management's Comments on Operating Environment and Future Outlook - Management noted that the first quarter started slowly but gained momentum in March, with rising fat prices contributing positively to the business outlook [24] - The company expects to recognize 100% of the producer's tax credit for eligible feedstocks in Q2 2025, which should enhance profitability [10][38] Other Important Information - The company paid down $146.2 million in debt during Q1 2025, reducing its financial leverage ratio to 3.33 times [5][20] - The effective tax rate for Q1 2025 was 4.6%, primarily due to the producer's tax credit [21] Q&A Session Summary Question: DGD's feedstock optimization for 45Z policy - Management explained that DGD processes a mix of feedstocks driven by margin, with a focus on low carbon intensity feedstocks to maximize value [30][34] Question: Drivers for lower margins in Q1 - Management acknowledged one-time items and inventory adjustments as factors affecting margins, but noted improvements in March [40][41] Question: RVO expectations for 2026 - Management expressed optimism about a potential RVO of 5.25 billion gallons, which could positively impact feedstock demand and margins [59][88] Question: Current tariff regime impacts - Management indicated that tariffs have had a slight net positive effect on the core business by supporting North American waste fat prices [103] Question: Capital allocation priorities - The company remains focused on deleveraging and expects to approach a leverage ratio of 2.5% by the end of 2025 or early 2026 [112][113]