Buy Darling International Before This Happens

Shares of Darling International  (NYSE: DAR  ) fell 2% after the company reported its fourth-quarter and full-year earnings this week, and with good reason.

After all, the rendering specialist did miss estimates for both revenue and earnings per share after wider market issues pressured gross and operating margins by driving down the price of its finished goods.

For the quarter, Darling reported net sales of $424.9 million, down 1.4% from the year-ago period, despite a 12% year-over-year decrease in fat prices. In addition, fourth-quarter earnings per share came in at $28.8 million, falling 2.4% from the same period in 2011.

For the year, revenue fell 5.3% to $1.7 billion and net income fell 22.8% to $130.8 million from 2011, thanks to "lower finished fat selling prices, lower raw material volumes, ... the impact of increased payroll and related expenses, and an increase in expense from a Fiscal 2011 purchase accounting contingency gain that did not reoccur in Fiscal 2011." Yikes! That all sounds pretty scary, right?

To be honest, not really.

In fact, Darling's results were solid by any other measure; as CEO Randall Stuewe pointed out during the company's earnings conference call, 2012 was actually the second best year in the company's 130-year history. What's more, despite those wider industry pressures, Darling is still solidly profitable and its rendering services remain essential to the nation's food industry to help prevent thousands of tons of cooking waste from clogging our landfills.

But wait, there's more!
However, Darling's core business, isn't the only reason investors should be chomping at the bit to own its shares. As I mentioned in December, Darling is close to commissioning its Diamond Green Diesel joint venture with Valero Energy (NYSE: VLO  )  which will allow the two companies to process nearly 1.2 billion pounds of fat into 137 million gallons of renewable green diesel every year.

All told, considering the project is more than two years in the making, it's understandable why both companies can't wait to get everything up and running. According to Stuewe, if the facility were working for all of 2012, it would have generated net income of more than $41 million for both Valero and Darling. On one hand, while that amount would have represented less than 2% of Valero's 2012 net income of $2.1 billion, the much smaller Darling would have seen its earnings skyrocket to the tune of more than 31% for the year.

Unfortunately, though Stuewe said last quarter he hoped the facility would begin commissioning in phases in January, he revised his comments this week to state they "anticipate a phased commissioning during the second quarter."

In short, though our market hates being told to hurry up and wait, its only a matter of time until Darling and Valero get the green diesel party started. When that happens, patient Darling shareholders will reap the rewards, and can rest easy knowing knowing this already solid company has tucked yet another long-term source of revenue in its big green belt.

More expert advice from The Motley Fool
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