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Darling Ingredients (NYSE:DAR)
Q1 2018 Earnings Conference Call
May. 10, 2018 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, everyone, and welcome to the Darling Ingredients Inc. conference call to discuss the company's first-quarter 2018 financial results. With us today are Mr. Randall Stuewe, chairman and chief executive officer of Darling Ingredients, and Mr.

Brad Phillips, executive vice president and chief financial officer. After the speakers' opening remarks, there will be a question-and-answer period, and instructions to ask a question will be given at that time. Today's call is being recorded.I would now like to turn the call over to Melissa Gaither, vice president, investor relations and global communications for Darling Ingredients. Ms.

Gaither, please go ahead.

Melissa Gaither -- Vice President, Investor Relations and Global Communications

Thank you, Alison. Good morning, everyone. Thank you for joining us to discuss Darling Ingredients' earning results for the first quarter ended March 31, 2018. To augment management's formal presentation, please refer to the Presentations section of our IR website for the earnings slide presentation.Randy Stuewe, our chairman and CEO, will begin today's call with an overview of our first-quarter operational and financial performances, focusing on year-over-year comparisons, and will discuss some of the trends impacting our business.

Brad Phillips, executive vice president and chief financial officer, will then provide additional details about our financial results. Finally, Randy will conclude the prepared portion of the call with some general remarks about the business and the year ahead, after which we'll be happy to answer your questions. Please see the full disclosure of our non-U.S. GAAP measures in both our earnings release and earnings slide presentation.Now, for the safe harbor statement, this conference call will contain forward-looking statements regarding Darling Ingredients' business opportunities and anticipated results of operations.

Please bear in mind that forward-looking information is subject to many risks and uncertainties, and actual results may differ materially from what is projected. Many of these risks and uncertainties are described in Darling's annual report on the Form 10-K for the year ending December 30, 2017, our recent press release announced yesterday, and our filings with the SEC. Forward-looking statements in this conference call are based on our current expectations and beliefs, and we do not undertake any duty to update any of the forward-looking statements made in this conference call or otherwise.With that, I'd like to turn the call over to Randy.

Randall C. Stuewe -- Chief Executive Officer

Hey. Thanks, Melissa. Good morning, everyone. Thanks for joining us today.

As we discussed on our 10-K call in February, we anticipated the reinstatement of the 2017 blenders tax credit during the first quarter for both our North American biodiesel operations and our joint venture with Valero. For discussion purposes today, we'll provide color about the business segments net of the blenders tax credit. Overall, we remain highly constructive on 2018 and see growing momentum for another good year.Now, let's start. First quarter 2018 is pretty much off to a predictable start.

Influencing our first-quarter performance was: One, highly historical slaughter rates and raw material supplies; declining global fat prices; improving demand and pricing for our specialty proteins for both wet and dry, and strong demand for our low-carbon fuels; growing collagen sales; and we survived a very harsh North American winter.So let me talk a little bit about each segment and give you a little detail. In our feed segment, global slaughter volumes were up 3.2% over last year. Most notably, global fat prices remained under pressure most of the quarter due to the record slaughter, a strong global soy crush, declining palm oil prices, and Argentine biodiesel flooding the European market. More than offsetting this pressure was the natural hedge we have in Diamond Green Diesel.For now, it appears we have seen the bottom in fat pricing, and we should see improvement throughout the second quarter.

And then with the new demand from an expanded Diamond Green Diesel, we should see a return to more historical discounts from relationships to other fats. Once again, the significant discount our global portfolio of fats and oils experienced in Q1 gives us, even more, the reason to double the size of Diamond Green Diesel.On a positive note, the feed segment enjoyed improving finished-product prices for proteins during the quarter, especially for our higher-grade specialty pet food products and aqua-feed ingredients. Mixed PC protein values also improved during the quarter, but nonetheless, inventories build and historically wide discounts to soy remain due to significant volumes we produced. Also, in the feed segment, our global blood business enjoyed a record volume quarter, especially in China.

Volume grew to all-time highs, driven by the larger-than-anticipated hog slaughter. And our specialty wet pet food business once again saw both volume and margin improvements.The food segment results were modestly improved year over year. Rousselot, our global collagen business, grew sales volume and improved margins year over year. In Brazil, earnings improved nicely compared to the year-ago period, while macroeconomic factors continued to plague operations in Argentina.

Our U.S. factories had strong volumes and improved margins, while our European factories felt the pressure of a strengthening euro.Our European edible fats business maintained robust sales volumes, due to increased raw material availability only to be offset by lower selling prices due to deflationary pressure on the global palm oil market. Our casings business, CTH, again posted a solid quarter and continues to see robust supplies and demand for its products in all global markets.The fuel segment continues to deliver consistent earnings. Rendac, our European animal disease-mitigation business, leveraged strong supply volumes and produced consistent results.

Ecoson, our bioenergy business, returned to full production capacity, capitalizing on ample supply and continued strong demand. Our North American biodiesel business operated at breakeven during the quarter without the 2018 blenders tax credit. As I mentioned, fuel segment earnings for the quarter included $12.6 million of the retroactive BTC passed in February.Now, turning to Diamond Green Diesel, our 50/50 partnership with Valero. The facility reported an impressive quarter with entity EBITDA of $1.19 per gallon on sales volumes of 33.4 million gallons.

When adjusting entity EBITDA for the expensed catalyst swap-out during the 12-day turnaround, the EBITDA per gallon would have been $1.28. Additionally, we loaded a large vessel at the end of the quarter that will be reflected in Q2 sales and earnings. Most importantly, we have successfully transitioned this facility from a first-generation road fuel supplier reliant on the RFS to a second-generation global low-carbon fuel additive producer. This is a transformational change in strategy and now provides us the opportunity not only to realize improved earnings but also capture increased value from the Darling low-carbon feedstock supply.EBITDA for the quarter, excluding the 2017 blenders tax credit, totaled $39.8 million.

Including the retroactive BTC, the entity-adjusted EBITDA was at $200.1 million, with Darling's share being right at $100 million.During the quarter, DGD used a portion of its cash to retire the remainder of the JV's long-term debt, totaling $53.7 million, leaving a total cash position of $41 million. The $160.4 million receivable blenders tax credit is expected in Q2 and will cover the remaining capex of the 275 million gallon expansion project, an increase in working capital, and issuance of quarterly dividends for the remainder of the year.Based on current production levels, we continue to expect Diamond Green Diesel production will total around 180 million gallons to 200 million gallons during 2018, with an average EBITDA of around $1.25 a gallon without the benefit of the 2018 blenders tax credit. At those levels, we would expect Diamond Green Diesel to distribute an estimated $75 million to $100 million dividend to the company during 2018. As of today, we anticipate shutting down Diamond Green for approximately 45 days in mid-June.

Once the tie-ins are complete, we will recommission the factory at the newly rated capacity of 275 million gallons annually.Our team continues to advance engineering and financial analysis to confirm the viability of a Super Diamond Green Diesel, which expands the plant to 600 million gallons. Funding for the detailed engineering and cost estimate has been approved by the DGD board. And we expect to make a final decision on this later this fall.With that, let's have Brad take us through some financial highlights. Brad?

Brad Phillips -- Chief Financial Officer

Thanks, Randy. Before we review first-quarter results, I'd like to review the impact of the new revenue recognition accounting standard, ASC 606, given its impact on our results. For periods beginning December 31, 2017, we adopted ASC 606 using the modified retrospective method. The adoption did not change the timing of revenue recognition, as revenues are recognized at a point in time and not over time.

For consolidated results in the first quarter 2018, we reported net sales of $875.4 million, a decrease of $46.2 million because of the new standard. There was no impact to operating income, as the cost of sales and operating expenses also decreased by $46.2 million as a result of the new standard.Moving on to our balance sheet, our cash position ended at $123 million, up from $107 million at the end of fiscal 2017. Our leverage ratio for the first quarter 2018 was 3.71, up a bit from fiscal year-end 2017, primarily due to the retirement of the remaining $53.7 million in debt at the Diamond Green Diesel Joint Venture level, which Randy referred to, rather than distributing a dividend to the partners, as well as the U.S. value of euro-denominated debt increasing noticeably in the first quarter due to FX.Additionally, we had revolver borrowings to cover our normal first-quarter seasonal increase in working capital.

Our liquidity remained strong with approximately $921 million of availability under our revolving credit loan facility, and we expect to pay down a total of $100 million during 2018. Capex for the period was $56.6 million for the first quarter of 2018, compared to $62.3 million for the same period in 2017.Gross margin in the first quarter was 22.5%, compared to 21.7% for the same period last year. Gross margin growth is due primarily to the inclusion of the $12.6 million 2017 blenders tax credit, which was not included in Q1 2017 results. Gross margins also benefited from stronger protein pricing and increased global sales volumes.

Those improvements were partially offset by the impact of severe weather on our rendering facilities in North America and the global impact of significantly lower fat prices.SG&A during the quarter was flat at $86.9 million and included performance compensation and retirement provisions. For the full year 2018, we project our SG&A expenses to be in the $88 million to $90 million range per quarter. Depreciation and amortization increased during the first quarter of 2018 compared to the same period in 2017 due to higher capital expenditures during 2017. Interest expense increased $1.4 million to $23.1 million for the quarter, primarily due to the change in foreign currency translation rates on the company's 4.75% Eurobonds compared to the previous year.Now, I'll address our tax expense for the quarter.

The company reported income tax expense of $3.7 million for the three months ended March 31, 2018. The effective tax rate is 3.6%, which is lower than the federal statutory rate of 21%, due primarily to the retroactive reenactment during the quarter of the biofuel tax incentive for 2017. Excluding the biofuel tax incentive and other first-quarter discrete items, the effective tax rate is 30.4%.The company also paid $7.1 million of income taxes in the first quarter. For 2018, we are projecting an effective tax rate of 25%, including our 50% share of Diamond Green Diesel's 2017 biofuel tax refund, which we expect to receive in the second quarter.

If the biofuel tax incentive is reenacted for fiscal 2018 before the end of the year, the effective tax rate is projected to be 15%. Finally, we are projecting cash taxes of approximately $30 million for fiscal 2018.Lastly, as another step in continuing to maintain an efficient capital structure, on May 3, we settled a refinancing tender of our 4.75% euro notes due May 2022 by issuing 3.625% eight-year euro notes due May 2026.With that, I'll turn it back over to Randy.

Randall C. Stuewe -- Chief Executive Officer

Hey. Thanks, Brad. We continue to build positive momentum around the globe. Our capital projects are proceeding on schedule and on a budget, as we continue to transition to our World of Growth strategy.

As always, we like to remind our investors of our strategy that we will build, acquire, and develop businesses and geographies, where we can achieve a top three market position within five years for food, feed, and fuel. These projects include greenfield plants and plant expansions.Our Mering, Germany, blood plant is up and running and made its first saleable material during the quarter. Our newest Ecoson digester in Denderleeuw, Belgium, is in the final commissioning stages and will start up here later in June. In Grapeland, Texas, the largest and newest poultry protein ingredient plant built in the U.S.A.

in the last several decades is taking shape, and we expect equipment to be set in June and fully operational by year-end.Our second new poultry protein ingredient plant in Wahoo, Nebraska, is also under construction and on schedule to be completed in early 2019. The construction by our EnviroFlight joint venture on black soldier fly larvae plant is well under way and should start up in the fourth quarter. And our Peptan plant in Angoulême, France, and our Peptan expansion in Amparo, Brazil, is expected to come online during the first quarter 2019.Overall, we are pleased with the start and see improving conditions for the balance of the year. We are positioned well; our business model is robust, and we are poised to reap the benefits of the next supercycle.

Diamond Green Diesel has once again proven to be the hedge and the catalyst for transforming Darling. Our leading position as North America's premier supplier of low carbon fuels has now set the stage for the future.With that, Alison, let's go ahead and open it up to Q&A.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. Our first question will come from David Katter with Baird. Please go ahead.

David Katter -- Robert W. Baird & Company -- Analyst

Good morning, guys. Thank you for taking the question. Quickly, on the further expansion of Diamond Green to 600 million gallons. What could change between now, when you make a decision that'll make that more or less likely, your decision to proceed there?

Randall C. Stuewe -- Chief Executive Officer

David, this is Randy. And I do have John Bullock in the room with me here. I'll take the first stab at it, and John can help me if I don't say it right. I think No.

1, from a macro perspective, we're very close on that decision but it's still very much part of the process to nail down the final engineering cost, plus or minus 10%. We've funded that to go forward here and expect that to be completed later this summer, early the fall.So, the real checkpoint is, as you guys know, obviously with the challenging trade issues around the world; with steel, aluminum, copper pricing moving around, we're trying to make sure we have a strong understanding of both what the cost is and what the risk is there, so that'll be nailed down. And then, ultimately, we'll take one final snapshot at any potential policy implications, both good or bad, and make the final go here on or around probably the end of September, October 1.John, is that fair enough?

John Bullock -- Executive Vice President, North American Specialty Businesses, and Chief Strategy Officer

That's exactly right.

Randall C. Stuewe -- Chief Executive Officer

OK. Thanks, David.

David Katter -- Robert W. Baird & Company -- Analyst

Thank you. One more on fat pricing. You guys, I think mentioned that you think you're at the bottom here. What gives you confidence in that?

Randall C. Stuewe -- Chief Executive Officer

What gives us confidence is historically it's just too low, No. 1. No. 2, Diamond Green Diesel had 12 days down in the first quarter.

That's a big supply chain air bubble. The market's anticipating Diamond Green to go down here in about 30 days from now or a little more. And then, we've seen that stay down around the world in one or two of their factories. And then you couple that on top of the Argentine biodiesel that was flooding the U.S.

but now is flooding Europe. And it's just put a lot of fat on the market. So, it's always hard to call the bottom to this, David, but at the end of the day, it just feels like it's about ready to perk back up.The long harsh winter didn't really get us back into feeding rations, where we thought we would be to take on a little bit of the surplus. The good news is slaughter is big.

Our formulas in our business are working but there's just a lot of fat on the market. It looks like it's being worked through. You take the biodiesel seasonality and the generation one plants, those should be coming online now and taking up a little more of the slack. So, it kind of feels like that we're turning a corner here.

David Katter -- Robert W. Baird & Company -- Analyst

Great. That's helpful. And then maybe one more from me, and I'll hop back in the queue. We've seen some volatility in RIN prices and some rumors coming out of Washington.

Is anything there that worries you yet, or is this kind of just par for the course?

John Bullock -- Executive Vice President, North American Specialty Businesses, and Chief Strategy Officer

Yeah, this is John Bullock. What we're used to out of Washington, D.C., is volatility around these programs. I think it seems like this is part of our quarterly call is to discuss the most recent volatility that happens out of Washington, D.C. At the end of the day, as Randy mentioned in the opening, we really now are so focused on what we're doing at these LCFS markets, it's become a bigger driver for us than what's happening with the federal RFS2 program.

Having said that, we have full confidence that that program's going to continue. There will always continue to be volatility around it. It is politically a very controversial program.However, RFS2 is the main demand driver for one-third of the corn in the United States that's produced and one-third of the soybean oil in the United States that's produced. And the farm lobby is strongly in favor of the Renewable Fuel Standard.

We continue to believe that program will be in place and will move forward. And as Randy said, with the RINs, where they are today, we continue to have full confidence that Diamond Green Diesel will make $1.25 a gallon with no tax credit. So, what we're interested in is good margins for Diamond. We continue to have great margins for Diamond despite the volatility that always seems to come out of Washington D.C.

in a relationship with the RFS2.

David Katter -- Robert W. Baird & Company -- Analyst

Great. Thanks for the color, and congrats on the quarter guys.

Operator

Our next question will come from Chip Moore of Canaccord. Please go ahead.

Chip Moore -- Canaccord Genuity -- Analyst

Hey. Good morning. Thanks.

Randall C. Stuewe -- Chief Executive Officer

Hey. Good morning.

Chip Moore -- Canaccord Genuity -- Analyst

Maybe just to follow up on that, as we get close here to the downtime and tie-in on that first expansion at Diamond Green, maybe you can talk about LCFS markets? How you're positioned there, as you come up from that? I guess we'd start there.

John Bullock -- Executive Vice President, North American Specialty Businesses, and Chief Strategy Officer

We're positioned great.

Randall C. Stuewe -- Chief Executive Officer

Chip, we just need to know, do you have any tanks at your house that we can store a little fat in, borrow her down 45 days?

Chip Moore -- Canaccord Genuity -- Analyst

Yeah, absolutely, yeah.

John Bullock -- Executive Vice President, North American Specialty Businesses, and Chief Strategy Officer

The demand from the LCFS market's not only California but around the world, continues to explode. And we see that demand every time we go out and look to create a new marketing agreement out of Diamond Green Diesel. That seems like those deals are better and better every single time that we go to market with this. And so, we could not be more excited about the demand potential from the LCFS markets, both in terms of the actual volume and in terms of the pricing associated with those gallons as we move those gallons to market.

Chip Moore -- Canaccord Genuity -- Analyst

Excellent. And sticking with the regulatory question. Chatter on ethanol exports counting toward RFS compliance, what are your thoughts there?

John Bullock -- Executive Vice President, North American Specialty Businesses, and Chief Strategy Officer

Well, primarily, that's going to affect the ethanol RIN and the D6 RIN. What we all have to remember about the RFS2 program is it's a nested program, in which there is a demand bucket created for the conventional overall, then there's a separate demand bucket created for the advanced, and what's the D4 biomass-based diesel RIN fits into it.And even if that D6 RIN devalues, the question is what is the SND for the advanced RIN pool going to look like? And quite frankly, without biodiesel coming in from Argentina, and if Europe, in particular, takes the action that everybody thinks they are going to do to stop the biodiesel coming in from Argentina into Europe, well, that's going to mean that, that advanced pool can be a fairly tight pool from an R&D standpoint going forward. And that's really what determines the pricing of D4 RINs, as opposed to what's happening with the conventional. So, a lot of smoke and noise but it's mostly on the ethanol side.

There's very little that impacts the advanced side here.

Chip Moore -- Canaccord Genuity -- Analyst

Yeah. OK. That's great. And then on the new facilities, and planned expansions under way, and starting up here in Q1 for some, maybe just remind us on capex for the year.

Any changes to those plans?

Randall C. Stuewe -- Chief Executive Officer

No, not really. We spent, as Brad said, around $56 million, $57 million, a little less than we actually spent last year, which is your basic barometer of how bad the weather was for construction this year. So, we've got about a $330 million-ish type of number for this year. As we look and have expanded the number of facilities, that's about $195 million maintenance capex and $135 million, $140 million of expansion capex.

And that's all the factories we're building. And some time on or about Q1 2019, they should all be online and producing for us.

Chip Moore -- Canaccord Genuity -- Analyst

Yeah. OK. Got it. And then, just lastly, I mean, given leverage where it is and the cash flow coming in with the dividend hopefully, M&A, I know you've done a few bolt-ons lately, how's that pipeline, and how are you thinking about that? Thanks, guys.

Randall C. Stuewe -- Chief Executive Officer

Well, I think those are two separate questions. Obviously, as we look at our focus here, it's continued de-leveraging and part of the strategy here was to fully de-lever Diamond Green Diesel. So, we've been co-de-leveraging both businesses, the core asset and Diamond Green. So, Diamond Green is now de-levered with a cash positive balance that should provide quarterly dividends that are fully transparent now to you guys, which will just continue to knock down the debt ratio and put us at the end of the year without the blenders tax credit at around 3.0 or less; and with the blenders tax credit, if it's retro, which we've not spoken here but we still feel there's a very high probability of that coming back online, then you're way south at 3.From an M&A pipeline standpoint, we continue to see a lot of different businesses around the world that are available to us.

We're just being very conservative and cautious, and we still believe the best use of our money at this time is both de-leveraging and organic expansion as multiples just aren't where they should be for us to put them in our portfolio and provide the returns that we're accustomed to delivering to you.

Chip Moore -- Canaccord Genuity -- Analyst

Understood. Appreciate it. Thanks very much.

Operator

The next question will come from Adam Samuelson with Goldman Sachs. Please go ahead.

Adam Samuelson -- Goldman Sachs --Analyst

Yes. Thanks. Good morning, everyone.

Randall C. Stuewe -- Chief Executive Officer

Good morning.

Adam Samuelson -- Goldman Sachs --Analyst

Maybe to start, going into the feed business a little bit in the quarter. Pretty clear on the impact of the harsh winter weather; fat price environment, clearly, has been sluggish; and you get the offset in Diamond Green. You talk about, kind of as you look forward, kind of lapping the weather some of the organic growth from last year and even 2016 starting to be more meaningful contributors, protein markets, in particular, have perked up pretty significantly in the second quarter. How to think about the second quarter, just given, outside of fats, a more constructive commodity environment and some of the organic growth [Inaudible].

Randall C. Stuewe -- Chief Executive Officer

Yeah, Adam. This is Randy. We had a pretty horrendous February around here, and then March came back pretty strong, and we're still closing the books on April but the pricing and the raw material spreads that have been achieved, it looks like, in April, have brought back what we're more accustomed to in that area. I think there's a couple of things.

One, in that feed segment, the global rendering business, it got hit hard by the low-fat prices. You just couldn't bring down raw material prices quick enough to make up for the spread loss in that business. And so, I think we're getting there, and that'll be reflected in Q2.In the feed business or the protein business, we saw very, very strong demand for our specialty ingredients, which are low ash chicken meals and feather meals and some different things around the world. The world is short protein, and there's no doubt about it right now.

Obviously, with the reduction of 10 million tons or 12 million tons of soybeans out of Argentina, the world has got a lot of animals to feed, and they're clearly coming for protein. Crush is running very, very hard around the world. Margins are good in that business. And that's putting a lot of protein on the world market but there's a lot of demand for it, and so we've been able to capitalize on that.

The excess oil that's on the market today is what's pressured the oil. That's just got to be worked through.The other piece in the feed segment's our global blood business. It had all-time record supplies and you want to say why and where. We always talk about we can see what other people can't see.

China's hog herd expansion is probably greater than most people understood. The number of animals going to slaughter filled up all of our blood plants, and that's a good thing there but at the end of the day, they stopped importing materials from around the world. The little cheaper meat cuts that were being sent to China ended up back in the rendering streams and then further created volume in our plants and both protein and fat to market. So, we think that the market has now adjusted to that.Our wet pet food business, as I said, continues to grow.

The pet food expansion in this country in Europe, South America, around the world continues to grow. You've seen that in the results of the companies and the acquisitions that have made by the retail companies.And then, finally, as we look at the total feed segment, we sat there and looked at it, and said, the real impact that we've always talked about in there was the used cooking oil business. And the used cooking oil business is the one that has the full commodity exposure. And we've kind of said in the past that, basically, each penny of lower prices is an annualized rate of $4 million to $5 million of EBITDA.

And you can kind of look at that and see where the market move and say, OK, that's pretty much the majority of the shortfall in that segment this quarter.The used cooking oil business is coming back nicely as we warm up here. There were nine, 10, 12 days we weren't able to run routes in the United States because of ice and snow. Look, what we tried to emphasize here is Diamond Green Diesel got the benefit of those lower prices. And that's the hedge that we've always talked about in the business, that's why we invested into that asset, was to try to take some of the seasonality, cyclicality and offset some of the downsides when we do cycle here.

So, overall, I think we're set up very nicely for second quarter right now with what I've seen going into May here.

Adam Samuelson -- Goldman Sachs --Analyst

OK, that's helpful. And then maybe just a follow-up, and you alluded to this briefly in the prepared remarks but a bit more uncertainty on the general trade outlook and it matters for your business, where some of the byproducts can get backed up specifically for the U.S., the pork business being unable to now have a tariff on China and the impact that that can have on the drop credit and byproduct values. Help me think about how the current trade environment impacts your business and the kind of key pinch points you're watching?

Randall C. Stuewe -- Chief Executive Officer

Yeah, we've had some discussions around here. I would say, there's very limited impact that is really apparent today. I mean, potential impacts are you've got a lot of ingredients headed to China, not necessarily from Darling but both in the ag industry and different ingredients from different producers out there, feather mill, poultry mills, that if they are put tariffs on those, those will back up here for a while but China is still short protein, they'll buy it from somewhere else, and then we'll just have to redirect or reposition our supply. So, it's more time being spent around here that if we get some countervailing duties or tariffs that are put into place, can we then continue to move the product around.

The one product we're having challenges within the world today is what we call mixed PC meat and bone meal. And that's just really now being fed to poultry in the Pan-Asian countries. And so, we're just trying to continue to develop markets for that but relative to any other trade flows, we've seen more of the trade flow affect additional raw material supply than affect finished product pricing at this time.

Adam Samuelson -- Goldman Sachs --Analyst

OK. That's [Inaudible]. I'll pass it on. Thanks.

Operator

The next question will come from Heather Jones of Vertical Group. Please go ahead.

Heather Jones -- Vertical Group -- Analyst

Good morning. Thanks for taking the question. So, first, just sticking with China really quickly. So because of their expansion, their hog prices have plunged.

So I was just wondering, are you seeing them move into liquidation mode there on their hog herd?

Randall C. Stuewe -- Chief Executive Officer

Heather, this is Randy. I don't know that I would call it liquidation mode. Remember, the meat supply always builds up prior to Chinese New Year. And then if it's not sold by Chinese New Year, then they then just move it to market to get rid of it and restart the cycle.

We've seen a pretty nice expansion there. Remember, I think the numbers out of there are less than perfect but essentially, they add or lose the entire U.S. hog herd in anywhere from a 12- to 15-month period from time to time.We're still seeing our blood plants full. I mean, really at the end of the day, the impact for us over there is, is we produce a couple of products through the five or six factories we have in the blood business over there that produce red blood cells for aquaculture.

Aquaculture is still booming, about ready to kick off into season here in May, June. And then the white blood cells end up as a plasma feed for baby pigs. And we're continuing to see robust demand and solid pricing for those products.So, I don't know that I'm ready to call it a contraction in that herd yet that would be meaningful for anybody over here or even over there. Clearly, the appetite of the Chinese consumer, the economy feels good over there.

And I just returned from there. It just feels fine to me right now.

Heather Jones -- Vertical Group -- Analyst

OK. And moving on to Diamond Green, so am I remembering correctly that there were still some of the old contracts in place until the end of January, and this is the first quarter where there were none of those in place any longer?

John Bullock -- Executive Vice President, North American Specialty Businesses, and Chief Strategy Officer

Yeah. Heather, this is John Bullock, your memory is very good. Yes, that's right. This will be the first quarter where we do not have any of the legacy pipeline contracts in place.

Heather Jones -- Vertical Group -- Analyst

And then, if I remember correctly, you guys were talking about the Super Diamond expansion beyond 550 million gallons, and now you're talking 600 million gallons. Can you walk us through the thinking of what has caused you to upsize that?

Randall C. Stuewe -- Chief Executive Officer

Well, No. 1, again, as John says, your memory is good. No. 2, I'm not sure 600 million gallons is the right number yet.

We're looking at final engineering. That's what's important. In final engineering, you're doing hydraulics, vessel sizes, and you're looking for that incremental capacity, what's the right size for the right dollars per cost per gallon to spend here. So, the site that's being laid out right now, this is a second plant, Heather, it's got incredible logistics between a second railroad, water transportation in and out, pipeline hydrogen, so that number will be finalized but I think it's safe to say it's now bigger than 550 million gallons.

And 600 million gallons is a number being contemplated.

Heather Jones -- Vertical Group -- Analyst

And then did I hear you say you are highly confident or believe there's a high probability that the BTC is implemented for 2018?

Randall C. Stuewe -- Chief Executive Officer

That's what you heard out of me, so I still believe that. I don't know that I want to handicap it for you here but my feelings are after the guys that are hanging out in Washington, given all of the RIN sanity and the politicals around this, we still believe that there's a high probability that the BTC will be reinstated for 2018. It'll probably be put in for 2019. And if you had to handicap it, it's probably got some step-down attached to it after that but I just don't think I'm ready to call it and say, it's dead in the water.

I think we've talked about our margins without it, and we'll just stay there, and we'll accept it if it comes, and that we feel pretty confident it will come.

Heather Jones -- Vertical Group -- Analyst

OK. And then my final question is going back to the Diamond Green and the downtime there. So, even though that downtime hasn't begun, you still believe there's been a bottom in the fats market and it's going to improve. And just because of lower fat supply from other parts of the world, the lower crush in Argentina, seasonal increase in demand, all of these factors make you think that they should be able to more than offset Diamond Green going down for 45 days?

Randall C. Stuewe -- Chief Executive Officer

Yeah. I mean, we've been known Diamond Green Diesel's going down for 45 days for a year. And it doesn't mean that the lunchroom's not a little interesting every day to figure out what you're going to do with that production but I think we're well-positioned as we can be right now for that between storage and other avenues that we've got, and moving it out of our traditional markets. So, a little bit of the pressure in Q1 was us just positioning ourselves to go down in Q2.

So, that's where our confidence is coming from.

Heather Jones -- Vertical Group -- Analyst

OK. Perfect. Thank you so much.

Randall C. Stuewe -- Chief Executive Officer

But we'd still like to store a little bit at your house.

Heather Jones -- Vertical Group -- Analyst

I'll do it. I'll do it. It's all yours.

Randall C. Stuewe -- Chief Executive Officer

You sure?

Operator

Our next question will come from Craig Irwin with Roth Capital. Please go ahead.

Craig Irwin -- Roth Capital -- Analyst

Thank you for taking my questions. And first, Randy, I'll say one of my neighbors had a code violation for storing fats a few years ago, making the room biodiesel. So, I'm sorry.

Randall C. Stuewe -- Chief Executive Officer

And he's now, what, growing marijuana instead, or what?

Craig Irwin -- Roth Capital -- Analyst

Yeah. I think it was probably about as big a fine, which is pretty crazy. So, my question is really about the impact to the U.S. biodiesel market, right.

So, we've seen profitability in biodiesel really firm nicely in the second quarter. April was up on a spot basis about 30% over the average in the first quarter of May despite what's going on in D.C. seems to be trending higher, maybe falling energy prices a little bit. Can you maybe talk about how this maybe translates into fats demand and pricing today and the anticipated impact when Diamond Green is down? And then what we should think about the profitability outside the window when the plant is actually down?

John Bullock -- Executive Vice President, North American Specialty Businesses, and Chief Strategy Officer

I'm not quite sure I totally understand all of the question or different aspects to it. I think in a relationship with the fat price, as Randy just said, we've actually had to get warm in the United States now in the past 15 or 20 days. If you see where the price of corn is, there's excellent demand coming in from the feed sector. We typically don't see a lot of that until the weather warms up obviously in the summertime.

Excellent season for biodiesel because you don't have the cold flow properties working.And we have a really excellent relationship right now between the heating oil market. I mean, diesel fuel has quietly climbed here to over $2.20 a gallon on the NYMEX yesterday. That's a big increase from where it was six months ago, or even three months ago. And so, the relationship between heating oil and our biodiesel prices has improved.

The "HOBO" spread, as the trade calls it, has improved. That leads to decent margins in the biodiesel segment. And I wasn't sure I understood in relationship to Diamond Green Diesel the question.

Craig Irwin -- Roth Capital -- Analyst

So, really the most important question for Diamond Green right now is profit seem to be firming even today. How should we think about profitability outside of the window where the plant goes up until the day before the plant goes down? Should Diamond Green see affirming profitability into that, or are the dynamics of the anticipated shutdown maybe going to impact that?

Randall C. Stuewe -- Chief Executive Officer

No. I think we're going to stand by. Obviously, we're through April; we're almost halfway through May. We're going to stand by our $1.25 a gallon for the year guidance.

Clearly, you can run the spot margins with $150 a ton carbon out in California today, and the spot margins are quite a bit better than that but we're going to stick with our estimate right now, where it's at.

Craig Irwin -- Roth Capital -- Analyst

Great. Thank you for that, Randy. I'll hop back in the queue.

Operator

Our next question will come from Thomas Palmer with J.P.Morgan. Please go ahead.

Thomas Palmer -- J.P.Morgan -- Analyst

Good morning. Just had a couple of clarification questions around Feed. First off, just wanted to get an update on segment expectations for the rest of the year. Last quarter, you had talked about EBITDA being at or above the level of 2017.

So, as we look at the remainder of the year, is that still the case kind of excluding maybe some of the lag effect and things that hit the first quarter? And if so, kind of when do you see that inflection from a timing standpoint of the year-over-year increase? Would it be mostly the third quarter?

Randall C. Stuewe -- Chief Executive Officer

Yeah. I think, Tom, I mean, No. 1, we try not to give too much guidance in there because I also went into the year believing the fat prices would be firm and proteins would be weak, and I was 100% wrong. So, you always have to take my guidance with a little grain of salt here.

At the end of the day, we're seeing volumes remain very strong around the world. And the global rendering business, that is primarily the biggest piece in the feed segment, that will contribute nicely. Formulas did play a little bit of catch-up here. We've been chasing the market.

I think we'll have an improved, would be my guess, second quarter. Third quarter, we should start to feel that the improving fat prices that should be a result of our uptime now and [Inaudible] around the world and the impact of the true seasonality in the biodiesel business in the U.S. So, I think it's very safe, as I reflected in my comments, to say, we see increasing momentum. And I think we'll get through Diamond Green shutdown.

And we'll have a much better third quarter and fourth quarter in that area as we bring on projects and see some improvement in that fat value. So, I think that's a fair assumption.

Thomas Palmer -- J.P.Morgan -- Analyst

OK. Thank you for that. And then you also, I think, touched on this earlier but I wanted to just clarify, obviously, the shutdown of Diamond Green Diesel leaves a lot of yellow grease to be placed into the market. Are you going to be building inventory on your balance sheet in anticipation of Diamond Green Diesel expansion? Will you be selling it, just at a potentially suppressed price, or might we see Diamond Green Diesel also build up some inventory itself?

Randall C. Stuewe -- Chief Executive Officer

The answer is yes to all of the above. Like we said, the shutdown has been planned for a long time. Obviously, the window keeps getting narrowed down as we get closer. So, it probably won't be precisely perfect but the inventory that was going to go down there, No.

1, we'll go down full; No. 2, we'll be full in our own storage; and No. 3, we've got sales to offset that, that have already been in place. So, obviously, we're trying to do our best to minimize those spot discounted sales that'll happen.

So, I feel pretty confident we've done a pretty good job of that.

Thomas Palmer -- J.P.Morgan -- Analyst

OK. Thank you.

Operator

Our next question will come from Ken Zaslow of Bank of Montreal. Please go ahead.

Ken Zaslow -- BMO Capital Markets -- Analyst

Hey. Good morning, everyone.

Randall C. Stuewe -- Chief Executive Officer

Good morning, Ken.

Ken Zaslow -- BMO Capital Markets -- Analyst

So, just coming back to the LCFS credit, how much did you benefit this quarter versus again rolling off from last quarter? And then, how much do you expect to gain momentum throughout the year? Can you just give some sort of qualitative, if not quantitative, way of thinking about it?

John Bullock -- Executive Vice President, North American Specialty Businesses, and Chief Strategy Officer

Yeah, I can. This is John Bullock. It needs to be qualitative because obviously, what we do with our customers and the specifics about our contracts is something that we've always kept as a non-public information and kind of view that as very important from our customers' perspective.What I can say is that you've seen the LCFS, it's interesting because, remember, earlier this year, CARB, redid the timeline in which they implemented the LCFS volume increase, they're really going to go to a 10% reduction target by 2020 and they've evened that out toward 10% by 2022. And then they increased the target from 18% to 20% by 2030, and now, have given us the timetable on the implementation of that increase, 23% to 2030.When they did that, CARB credits were at $150 a ton.

And then when they made that evening of that curve, CARB credits dropped to $115 a ton. While, as we sit here today, I believe, CARB credits are $154 a ton. And so, it tells you that the demand that comes out of California is driving the LCFS prices up. And I can tell you that every time we redo our contracts to the LCFS markets, Diamond Green Diesel is receiving an increasing percentage of that LCFS credit.

And those numbers are fairly dramatic when you look at them on a time-over-time basis of every six months or every year. And so, that's one of the reasons we feel really positive about what we're seeing in California but it's not just California. We have increasing LCFS demand that comes out of Canada, that comes out of Europe. The UK just announced that they're going to be increasing their targets.

And if BREXIT really happens, and they leave the EU, that means the barrier from the tariff perspective of being able to move renewable diesel into the U.K. will not be there. So, we see demand coming from all corners. And as that happens, we are increasing both the base price of the carbon, and we are negotiating better and better contracts with our customers simply because our supply is so valued by those customers.

Ken Zaslow -- BMO Capital Markets -- Analyst

My second question, Randy, look, you have a better corn environment, a little bit weaker yellow grease prices, and kind of on the food and feed side. Is your outlook similar to what it was last quarter, and has it changed markedly? Can you kind of just put some parameters to that because there seems to be a lot of moving parts between the trade, and the corn prices, and yellow grease prices, how's is it all playing out, and what you're thinking in terms of the outlook relative to last quarter?

Randall C. Stuewe -- Chief Executive Officer

Well, first off, after the last earnings call in the quarter, you had the feeling that we were under a little pressure. We're giving a little more positive outlook. I don't know that we're changing the year. We're just going to build momentum into it, just like we said.

We're feeling a little better right now after we came out of March and April here and have seen what the business is doing from there. Like I said, it's going to come down to the final size of the South American crops and what we actually get planted up here.Corn seems to be wanting to hang around that $4 mark. I don't know that I would have felt that going into the year. You've got to always look back at cash prices in the Midwest, they're a little depressed but at the end of the day, it feels pretty good, Ken.

And I guess I'm not ready to move the full-year expectation of saying, I think we'll have an improved year over last year but it's feeling like we're gaining momentum on it right now.

Ken Zaslow -- BMO Capital Markets -- Analyst

Great. I appreciate. Thank you.

Operator

Our next question will come from Garrett Rubin of Gates Capital. Please go ahead.

Jeff -- Gates Capital -- Analyst

Hi, Randy. It's Jeff. So, a couple of things, one is, can you give me what the revenues would be pro forma the first quarter of 2017 pro forma for the accounting change, and also the restatement or the deconsolidation of the hide facility? That's the first thing. And then the second thing is the revenues on the accounting restatement, it looks like they all came from the feed segment, can you confirm that? And then, third, can you tell me, on Diamond Green Diesel, the capex for the first quarter and the remaining amount to spend on the expansion to 275 million?

Brad Phillips -- Chief Financial Officer

Ken, this is Brad.

Jeff -- Gates Capital -- Analyst

Jeff.

Brad Phillips -- Chief Financial Officer

Jeff, I'm sorry. On the first item, on net sales, the freight revenue adjustment was $46.2 million. So that would have been $921.5 million. Can't remember your second question.

Jeff -- Gates Capital -- Analyst

Now, what would be revenues have been last year if I take it out?

Brad Phillips -- Chief Financial Officer

There was $38.2 million would-have-been adjustment last year for that, $38.2 million.

Jeff -- Gates Capital -- Analyst

And did that all come out of the feed segment revenue?

Brad Phillips -- Chief Financial Officer

The freight revenue, most of it comes out of feed.

Jeff -- Gates Capital -- Analyst

OK.

Brad Phillips -- Chief Financial Officer

Yes.

Jeff -- Gates Capital -- Analyst

And what about the deconsolidation of the hide subsidiary? What effect did that have on revenues and EBITDA?

Brad Phillips -- Chief Financial Officer

That was a $2.8 million sale going from 60% down to 40%. And there was a $0.9 million, just under $1 million loss from that.

Jeff -- Gates Capital -- Analyst

How much comes out of revenues for the first quarter of 2017 and how much for the first quarter of 2018?

Brad Phillips -- Chief Financial Officer

I'll get back to you with that number.

Jeff -- Gates Capital -- Analyst

It sounds like it wasn't a very big number, though.

John Bullock -- Executive Vice President, North American Specialty Businesses, and Chief Strategy Officer

It's not a large number.

Randall C. Stuewe -- Chief Executive Officer

It's not a large number. That hide business was a joint venture with our large supplier in Europe. As part of the renegotiation and extension of those contracts, they wanted a little bigger skin in the game on the hide business. And so that's the reason we backed down to a minority position there.

Really not material to us.

Jeff -- Gates Capital -- Analyst

And then what was the capex at Diamond Green Diesel in the first quarter, and how much left is there to spend on the $275 million-dollar expansion?

Randall C. Stuewe -- Chief Executive Officer

Yeah. Nominally, Jeff. I think after we paid off the debt, we had about $41 million cash, and then we've got the $160 million receivable, and then the balance of the year of production went over 150 million gallons at $1.25. And I want to say that I think the capex for the balance of the year was around $100 million if I remember right.And then, we are also saying that we're going to have a pretty significant creep in working capital for the new supply chain that could be anywhere from $35 million to $45 million by the end of the year.

Won't all hit Day 1. So, that's kind of the numbers that you run within there. I mean, and what it says if you're going to have a very significant cash build at these margins without the blenders tax credit as we approach year-end, and that's the reason we're giving the dividend expectations.

Jeff -- Gates Capital -- Analyst

I wasn't on the earlier part of the call. So, the $100 million is just for the 275 million gallon expansion?

Randall C. Stuewe -- Chief Executive Officer

Yup.

Jeff -- Gates Capital -- Analyst

OK. That would not include anything for additional expansion?

Randall C. Stuewe -- Chief Executive Officer

No. That's years out yet.

Jeff -- Gates Capital -- Analyst

OK. That's helpful. Thank you.

Operator

Our next question will come from Bill Baldwin with Baldwin Anthony Securities. Please go ahead.

Bill Baldwin -- Baldwin Anthony Securities -- Analyst

Good morning, everybody.

Randall C. Stuewe -- Chief Executive Officer

Good morning, Bill.

Bill Baldwin -- Baldwin Anthony Securities -- Analyst

Clarification, just one item. Randy, did you indicate that Darling would receive a dividend in the area of $75 million to $100 million from Diamond Green, or that would be the total dividend to the joint venture partners?

Randall C. Stuewe -- Chief Executive Officer

No. Bill, it's a timing deal right now but right now, what we're showing is somewhere between the $75 million and $100 million to each partner, so --

Bill Baldwin -- Baldwin Anthony Securities -- Analyst

Each partner, OK.

Randall C. Stuewe -- Chief Executive Officer

Yeah. And so that was part of paying off the debt in Q1 here was to flush the debt. So, now, as the cash balance is build, we can pull out, balance it for the working capital needs and that's somewhere between a $25 million and a $30 million, $35 million dividend per quarter going forward here.

Bill Baldwin -- Baldwin Anthony Securities -- Analyst

OK. Well, thank you for that. Secondly, a little housekeeping here, on the plant expansions or new plants, did you have a new rendering or a plant expansion in the Los Angeles come online here in the first quarter?

Randall C. Stuewe -- Chief Executive Officer

Yeah, we had a complete rebuild of a 1954 plant come online out there. I get to see it tonight, so I'm looking forward to it. That's Phase 1. And then we're also in the construction of building a new poultry plant in LA on the same site today, too.

And that'll come on later this year. So, yes. New capacity --

Bill Baldwin -- Baldwin Anthony Securities -- Analyst

So, the plants that you had expanded was a beef plant, a rebuild, a beef conversion?

Randall C. Stuewe -- Chief Executive Officer

Yeah, it was a mix PC plant. And now we're breaking it out. We're going to run beef on one side, and then poultry on the other side. And that poultry plant is under construction right now, too.

Bill Baldwin -- Baldwin Anthony Securities -- Analyst

OK. And secondly, did you have a beef rendering plant come online in Nebraska here in the first quarter also?

Randall C. Stuewe -- Chief Executive Officer

We had the rebuild of our antique plant in Wahoo, Nebraska, that has been fully rebuilt and online. Yes, that's been commissioned. Both of those are replacement factories. You're going to get some modestly lower operating costs, lower repairs and maintenance, and a chance to go out and gain some additional volume over time but as far as the materiality of moving the needle here, they're really just replacement investments at this time.

Bill Baldwin -- Baldwin Anthony Securities -- Analyst

Thank you very much.

Operator

Ladies and gentlemen, this will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Stuewe for any closing remarks.

Randall C. Stuewe -- Chief Executive Officer

All right. Thanks, Alison. Thanks again, everybody, for joining us. Look forward to reporting on the second-quarter performance in August.

As you see on our website, we'll be presenting the Darling strategy and outlook at the BMO Conference here the mid-next week, and look forward to seeing any of you there that show up. Thanks again. Appreciate it.

Operator

[Operator signoff]

Duration: 57 minutes

Call Participants:

Melissa Gaither -- Vice President, Investor Relations and Global Communications

Randall C. Stuewe -- Chief Executive Officer

Brad Phillips -- Chief Financial Officer

David Katter -- Robert W. Baird & Company -- Analyst

John Bullock -- Executive Vice President, North American Specialty Businesses, and Chief Strategy Officer

Chip Moore -- Canaccord Genuity -- Analyst

Adam Samuelson -- Goldman Sachs --Analyst

Heather Jones -- Vertical Group -- Analyst

Craig Irwin -- Roth Capital -- Analyst

Thomas Palmer -- J.P.Morgan -- Analyst

Ken Zaslow -- BMO Capital Markets -- Analyst

Jeff -- Gates Capital -- Analyst

Bill Baldwin -- Baldwin Anthony Securities -- Analyst

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