Darling Ingredients(DAR) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The combined adjusted EBITDA for the third quarter was $245 million, compared to $237 million in Q3 2024 and $250 million in the previous quarter [10] - Total net sales for the quarter were $1.6 billion, up from $1.4 billion year-over-year, with gross margins improving to 24.7% from 22.1% [10][16] - Net income for the quarter was $19.4 million, or $0.12 per diluted share, compared to $16.9 million, or $0.11 per diluted share in Q3 2024 [16] Business Line Data and Key Metrics Changes - In the feed segment, EBITDA improved to $174 million from $132 million a year ago, with total sales reaching $1 billion compared to $928 million [10] - The food segment saw total sales of $381 million, up from $357 million in Q3 2024, with gross margins increasing to 27.5% from 23.9% [11] - The fuel segment, specifically Diamond Green Diesel (DGD), reported an EBITDA of -$3 million, down from +$39 million in Q3 2024, impacted by operational challenges and market dynamics [12][14] Market Data and Key Metrics Changes - Global rendering volumes and margins in the feed segment were up both sequentially and year-over-year, driven by strong demand for fats and proteins [7] - In the U.S., demand for domestic fats was robust, supported by strong agricultural and energy policies, boosting revenue and margins [8] - Export protein demand showed signs of recovery, with slightly firmer pricing trends emerging, although tariff implications affected value-added poultry protein products [8] Company Strategy and Development Direction - The company is focused on its core ingredients business, expecting EBITDA for 2025 to be in the range of $875 to $900 million, excluding DGD [17] - The management believes that the integrated model of Darling Ingredients provides a competitive advantage that is unmatched in the industry [5] - The company anticipates a shift in the renewables market that will enhance DGD's earnings potential, contingent on favorable public policy [9] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the core ingredients business despite short-term challenges in the renewables market due to policy uncertainties [5][9] - The management highlighted that the Renewable Volume Obligation (RVO) is expected to support American agriculture and energy leadership, which could be a catalyst for future growth [17] - There is optimism regarding the recovery of margins in the fourth quarter, although caution was advised due to ongoing regulatory uncertainties [64] Other Important Information - Total debt net of cash was $4.01 billion, a slight increase from $3.97 billion at year-end 2024, with capital expenditures totaling $90 million in Q3 [15] - The company recorded an income tax benefit of $1.2 million for the quarter, yielding an effective tax rate of -6.3% [16] - The company expects to generate around $300 million in production tax credits (PTCs) in 2025, with significant sales anticipated in the fourth quarter [13][14] Q&A Session Summary Question: Timeline for clarity on regulatory items like RVO - Management expects clarity on RVO and related regulatory items by December, despite the government shutdown [22] Question: Outlook for feed segment in Q4 - Management indicated that while waste fat prices have dipped, they expect the food segment to be stronger in Q4, with overall performance close to the previous quarter [24] Question: Benefits of REMS policy protectionism - Management noted that the treatment of foreign feedstocks is still unclear, and the overall supply and demand for fats and oils will influence the feed business [28][29] Question: Drivers of DGD margins - Management clarified that the DGD results were impacted by LCM and operational challenges, and they are optimistic about future margin improvements [34][39] Question: Plans for debt repayment and leverage ratios - Management confirmed they are committed to paying down debt and expect their debt coverage ratio to be around three by year-end [51][52] Question: RIN pricing scenarios and industry compliance - Management indicated that RIN prices may not see a significant lift until clarity on enforcement dates is provided, which is expected by the end of the year [76]