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Darling Ingredients Inc (NYSE:DAR)
Q3 2019 Earnings Call
Nov 7, 2019, 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 third quarter 2019 financial results. On the call today we have Mr. Randall C. Stuewe Chairman and Chief Executive Officer; Mr. Brad Phillips Executive Vice President and Chief Financial Officer; Mr. John Bullock Executive Vice President and Chief Strategy Officer; and Ms. Melissa Gaither Vice President of Investor Relations and Global Communications. [Operator Instructions]. I would now like to turn the call over to Melissa Gaither Vice President of Investor Relations and Global Communications for Darling Ingredients. Ms. Gaither please go ahead.

Melissa A. Gaither -- Vice President of Investor Relations & Global Communications

Thank you Chuck. Good morning everyone and thank you for joining us to discuss Darling Ingredients' earnings results for the third quarter ended September 28 2019. To augment management's formal presentation please refer to the Presentation section of our IR website for the earnings slide deck. Randy Stuewe our Chairman and CEO will begin today's call with an overview of our third quarter operational and financial results focusing on year-over-year comparisons followed by a discussion about 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 after which we'll be happy to answer your questions. Please see the full disclosure on our non-U.S. GAAP measures in both our earnings release and earnings slide presentation. Now for the safe harbor statement.

The conference call will contain forward-looking statements regarding Darling Ingredients' business opportunities, anticipated results of operation. 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 describing Alexandra report on the form 10 k for the year ended December 29 2018 and our recent press release issued 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 take any duty to update any of the forward-looking statements made in this conference call or otherwise.

Now I'd like to turn the call over to Randy.

Randall C. Stuewe -- Chairman & Chief Executive Officer

Thanks Melissa. Good morning everyone. Thank you for joining us. Our circular and vertically integrated global system for repurposing animal-derived bionutrients into sustainable and renewable ingredients for food green fuel and value-added feed delivered very solid and improving results in the third quarter. Our discussion today will focus on the combined results of Darling's overall portfolio. It should be noted that during the third quarter we consulted with the SEC and they do not object to this methodology as this is how we view and operate our business. For the quarter our combined adjusted EBITDA was $147.8 million versus $97.5 million in the third quarter of 2018. It should be noted that DGD was shut down for expansion during last year's third quarter. Sequentially our results also approved when adjusting for the land sale in China. Now let me provide some global highlights for the quarter. First our Food segment improved both year-over-year and sequentially led by our global collagen business. Our health and nutrition platform is gaining momentum and our capacity to serve this growing sector will be augmented by 3 additional plants commissioning in mid- to late 2020. Our Fuel segment anchored by Diamond Green Diesel delivered solid results.

Year-over-year results reflect last year's expansion shutdown and sequential results reflect the 20-day catalyst turnaround performed this year during the third quarter. DGD earned $1.35 per gallon on 58.7 million gallons of renewable diesel sales in the third quarter. Year-to-date DGD has delivered $1.26 EBITDA per gallon when adjusting for hedge accounting in the first quarter of 2019. For fourth quarter and next year we anticipate running at full capacity. And current margins are approximately $1.40 per gallon. This is once again portraying the significant earnings power of our vertically integrated system for the production of low carbon intensity green fuels. In our global feed segment, we delivered significant year over year and sequential improvements in light of a very challenging macro environment. Simply put, the combination of trade disruptions, African swine fever and the lack of certainty of biofuel programs and the BTC are pressuring global protein and fat markets. Offsetting this deflationary pressure are continued strong material volumes as the world prepares to feed a hungry China. It should be coming clearer that Darling's diverse global business model via raw material mix geography and ability to produce a wide array of sustainable ingredients will provide the catalyst for the creation of long-term shareholder value. In terms of our capital structure we maintain a disciplined approach and continue to deploy capital to capture growth. We received dividends over the last 12 months of $107.6 million from DGD and during the third quarter we paid down $33.6 million in debt. This improved our debt ratio meaningfully as we continue to advance toward investment-grade levels. Additionally we repurchased $19.3 million of stock so far in 2019 with purchases of 636634 shares in the third quarter and 407076 shares in early fourth quarter for a total of 1 million shares purchased thus far in 2019. Our Diamond Green Diesel II expansion is proceeding on schedule and will more than double our current production volume to 675 million gallons of renewable diesel and 60 million gallons of renewable gasoline once completed in late 2021. Also we are very excited about additional opportunities to expand our relationship with our joint venture Partner Valero as we explore advanced engineering and development cost reviews of a new renewable diesel plant in Port Arthur Texas adjacent to Valero's existing refinery.

The proposed facility would produce 400 million gallons of renewable diesel increasing total DGD production capacity to more than 1.1 billion gallons annually in addition to the nearly 100 million gallons of renewable gasoline. The new plant will be the first renewable diesel plant in Texas and at full production will make Diamond Green Diesel the largest producer of renewable diesel in the United States and the second-largest globally. We expect the final decision on this investment in 2021 with construction to start the same year and commissioning to take place some time in 2024. And on a final note we believe there is good momentum building around the blenders tax credit and we anticipate a positive decision by year end. It is expected the $1 per gallon credit will be made retroactive for 2018 and will be extended to cover 2019 and 2020 production. If it is reinstated we have the potential to receive an additional $78.7 million of EBITDA for 2018; and year-to-date $99.9 million in Diamond Green Diesel for 2019. The soonest we could receive a retroactive payment for the credit would be in early 2020.

So with that let's have Brad take us through a financial -- few financial highlights. Brad?

Brad Phillips -- Executive Vice President & Chief Financial Officer

Okay. Thanks Randy. Net income for the third quarter of 2019 totaled $25.7 million or $0.15 per diluted share compared to a net loss of $6 million or negative $0.04 per diluted share for the 2018 third quarter. The significant increase was primarily due to DGD earning $32 million in the 2019 third quarter compared to a $2.6 million loss in the 2018 third quarter. Net income for the nine months of 2019 totaled $70 million or $0.42 per diluted share compared to $60.8 million or $0.37 per diluted share for the nine months of 2018. As Randy mentioned we are reporting Darling's 50% share of the earnings from the Diamond Green Diesel JV in our operating income for all periods presented rather than as a nonoperating item. Operating income for the 2019 third quarter was $59.9 million as compared to $15.6 million in the 2018 third quarter. And operating income for the nine months 2019 was $182.5 million as compared to $181.3 million in the comparable 2018 period. Now looking at taxes. The company reported income tax expense of $10.9 million for the three months ended September 28 2019. The effective tax rate is 28.8% which differs from the federal statutory rate of 21% due primarily to the relative mix of earnings among jurisdictions with different tax rates and nondeductible compensation-related items.

The company also paid $8.9 million of income taxes in the third quarter. As you know Congress continues to discuss the tax extenders package including the biofuel tax incentive. We are optimistic that the biofuel tax incentive will ultimately be reinstated. For 2019 we are projecting an effective tax rate of 30% excluding the biofuel tax incentive. If the tax incentive is reinstated retroactively for 2018 and 2019 the effective tax rate is projected to be 15%. Finally we are projecting cash taxes of approximately $15 million for the fourth quarter. Capital expenditures were $245.1 million made during the first nine months of fiscal 2019. We also received a $12.1 million cash dividend from Diamond Green Diesel subsequent to the end of the third quarter bringing total cash dividends received for 2019 from Diamond Green Diesel to Darling to be $67.5 million and $107.6 million in the past 12 months. Our liquidity remains strong with unrestricted cash of $69.1 million and $926.9 million available under our revolving credit line.

With that I'll turn it back over to you Randy.

Randall C. Stuewe -- Chairman & Chief Executive Officer

Thanks Melissa. Good morning everyone. Thank you for joining us. Our circular and vertically integrated global system for repurposing animal-derived bionutrients into sustainable and renewable ingredients for food green fuel and value-added feed delivered very solid and improving results in the third quarter. Our discussion today will focus on the combined results of Darling's overall portfolio. It should be noted that during the third quarter we consulted with the SEC and they do not object to this methodology as this is how we view and operate our business. For the quarter our combined adjusted EBITDA was $147.8 million versus $97.5 million in the third quarter of 2018. It should be noted that DGD was shut down for expansion during last year's third quarter. Sequentially our results also approved when adjusting for the land sale in China. Now let me provide some global highlights for the quarter. First our Food segment improved both year-over-year and sequentially led by our global collagen business. Our health and nutrition platform is gaining momentum and our capacity to serve this growing sector will be augmented by 3 additional plants commissioning in mid- to late 2020. Our Fuel segment anchored by Diamond Green Diesel delivered solid results.

Year-over-year results reflect last year's expansion shutdown and sequential results reflect the 20-day catalyst turnaround performed this year during the third quarter. DGD earned $1.35 per gallon on 58.7 million gallons of renewable diesel sales in the third quarter. Year-to-date DGD has delivered $1.26 EBITDA per gallon when adjusting for hedge accounting in the first quarter of 2019. For fourth quarter and next year we anticipate running at full capacity. And current margins are approximately $1.40 per gallon. This is once again portraying the significant earnings power of our vertically integrated system for the production of low carbon intensity green fuels. In our global feed segment, we delivered significant year over year and sequential improvements in light of a very challenging macro environment. Simply put, the combination of trade disruptions, African swine fever and the lack of certainty of biofuel programs and the BTC are pressuring global protein and fat markets. Offsetting this deflationary pressure are continued strong material volumes as the world prepares to feed a hungry China. It should be coming clearer that Darling's diverse global business model via raw material mix geography and ability to produce a wide array of sustainable ingredients will provide the catalyst for the creation of long-term shareholder value. In terms of our capital structure we maintain a disciplined approach and continue to deploy capital to capture growth. We received dividends over the last 12 months of $107.6 million from DGD and during the third quarter we paid down $33.6 million in debt. This improved our debt ratio meaningfully as we continue to advance toward investment-grade levels. Additionally we repurchased $19.3 million of stock so far in 2019 with purchases of 636634 shares in the third quarter and 407076 shares in early fourth quarter for a total of 1 million shares purchased thus far in 2019. Our Diamond Green Diesel II expansion is proceeding on schedule and will more than double our current production volume to 675 million gallons of renewable diesel and 60 million gallons of renewable gasoline once completed in late 2021. Also we are very excited about additional opportunities to expand our relationship with our joint venture Partner Valero as we explore advanced engineering and development cost reviews of a new renewable diesel plant in Port Arthur Texas adjacent to Valero's existing refinery.

The proposed facility would produce 400 million gallons of renewable diesel increasing total DGD production capacity to more than 1.1 billion gallons annually in addition to the nearly 100 million gallons of renewable gasoline. The new plant will be the first renewable diesel plant in Texas and at full production will make Diamond Green Diesel the largest producer of renewable diesel in the United States and the second-largest globally. We expect the final decision on this investment in 2021 with construction to start the same year and commissioning to take place some time in 2024. And on a final note we believe there is good momentum building around the blenders tax credit and we anticipate a positive decision by year end. It is expected the $1 per gallon credit will be made retroactive for 2018 and will be extended to cover 2019 and 2020 production. If it is reinstated we have the potential to receive an additional $78.7 million of EBITDA for 2018; and year-to-date $99.9 million in Diamond Green Diesel for 2019. The soonest we could receive a retroactive payment for the credit would be in early 2020.

So with that let's have Brad take us through a financial -- few financial highlights. Brad?

Brad Phillips -- Executive Vice President & Chief Financial Officer

Okay. Thanks Randy. Net income for the third quarter of 2019 totaled $25.7 million or $0.15 per diluted share compared to a net loss of $6 million or negative $0.04 per diluted share for the 2018 third quarter. The significant increase was primarily due to DGD earning $32 million in the 2019 third quarter compared to a $2.6 million loss in the 2018 third quarter. Net income for the nine months of 2019 totaled $70 million or $0.42 per diluted share compared to $60.8 million or $0.37 per diluted share for the nine months of 2018. As Randy mentioned we are reporting Darling's 50% share of the earnings from the Diamond Green Diesel JV in our operating income for all periods presented rather than as a nonoperating item. Operating income for the 2019 third quarter was $59.9 million as compared to $15.6 million in the 2018 third quarter. And operating income for the nine months 2019 was $182.5 million as compared to $181.3 million in the comparable 2018 period. Now looking at taxes. The company reported income tax expense of $10.9 million for the three months ended September 28 2019. The effective tax rate is 28.8% which differs from the federal statutory rate of 21% due primarily to the relative mix of earnings among jurisdictions with different tax rates and nondeductible compensation-related items.

The company also paid $8.9 million of income taxes in the third quarter. As you know Congress continues to discuss the tax extenders package including the biofuel tax incentive. We are optimistic that the biofuel tax incentive will ultimately be reinstated. For 2019 we are projecting an effective tax rate of 30% excluding the biofuel tax incentive. If the tax incentive is reinstated retroactively for 2018 and 2019 the effective tax rate is projected to be 15%. Finally we are projecting cash taxes of approximately $15 million for the fourth quarter. Capital expenditures were $245.1 million made during the first nine months of fiscal 2019. We also received a $12.1 million cash dividend from Diamond Green Diesel subsequent to the end of the third quarter bringing total cash dividends received for 2019 from Diamond Green Diesel to Darling to be $67.5 million and $107.6 million in the past 12 months. Our liquidity remains strong with unrestricted cash of $69.1 million and $926.9 million available under our revolving credit line.

With that I'll turn it back over to you Randy.

Randall C. Stuewe -- Chairman & Chief Executive Officer

Hey thanks Brad. This was a solid quarter both financially and strategically. And while our macro environment presents challenges we are executing well against our long-term growth initiatives driving consistent and improved performance amplified by our vertically integrated supply chain. We are carrying solid momentum into fourth quarter and next year. Our circular repurposing system will provide us a chance next year to improve earnings even further. Globally the demand for low-carbon fuels will continue to expand and we are positioned well to capture a greater share of the LCFS in 2020. Our expanded footprint for the production of hydrolyzed collagen peptides will also fuel both revenue and earnings growth. And finally our global rendering system should feel the positive effects of a growing global biofuel demand and improving feeding economics. Lastly we talked about our sustainability commitment that has always been integral to who we are and what we do every day. Essentially our purpose is to repurpose and by doing so leaving a positive impact on our global environment our community and our people.

We also recognize setting and meeting our sustainability goals is another opportunity for us to positively impact people and the environment while also improving our risk profile and creating long-term shareholder value. In September our Sustainability Committee pushed our first ESG fact sheet which highlights our progress on 7 priority ESG-focused areas based on both the global reporting initiative or GRI; and SASB the Sustainability Accounting Standards Board. This was clearly and certainly a collaborative effort among our global team and we look forward to building on our momentum as we advance our ongoing corporate sustainability commitment. And finally as always we appreciate all the contributions of our very hardworking Darling team members and thank them for their continued dedication.

So Chuck with that let's go ahead and open it up to Q&A.

Brad Phillips -- Executive Vice President & Chief Financial Officer

Thank you,

Questions and Answers:

Operator

[Operator Instructions] And our first question will come from Heather Jones of Heather Jones Research LLC. Please go ahead,

Heather Lynn Jones -- Heather Jones Research LLC. -- Analyst

Good morning. Thank you for Thank you for the question. So wanted to start with Diamond Green. Randy did you say that in 2020 you should run at full capacity for the entire year?

Randall C. Stuewe -- Chairman & Chief Executive Officer

That would be our goal.

Heather Lynn Jones -- Heather Jones Research LLC. -- Analyst

Okay. So we're -- we shouldn't anticipate a catalyst downtime or whatever like we had in Q3?

Randall C. Stuewe -- Chairman & Chief Executive Officer

No I wouldn't say that there won't be a catalyst change-out next year but we'll -- we're going to say it's 275 million gallons at $1.40. So that will -- that should answer your question.

Heather Lynn Jones -- Heather Jones Research LLC. -- Analyst

Okay. And I know you probably expect me to ask this but on those spot margins so is $1.40 the goal or what you're seeing right now? Because if I look at current diesel pricing in RINs and even assuming not a full capture on the LCFS I get to margins well in excess of $1.40. So I was wondering if you could help me understand that better.

Randall C. Stuewe -- Chairman & Chief Executive Officer

Yes your math is pretty good Heather. The $1.40 I'm throwing out there is simply a benchmark that -- for this moment. Right now the margins that we're seeing anywhere in Q4 to Q1 range from anywhere from $1.50 to $2.10 a gallon. So you always want to set yourself enough. I don't want to have to go out here we've not -- and haven't practice guidance in the past. So we're just throwing $1.40 out and that's just kind of where we think the year could average. But I suspect right now if you said me -- for me to recast it it looks like it'd be a whole lot better for next year.

Heather Lynn Jones -- Heather Jones Research LLC. -- Analyst

Awesome. So my final question is on the Food business you mentioned doing more of the hydrolyzed collagen next year. So I was just wondering I think you all were like a $39 million in EBITDA this quarter. Like how should we be thinking about that run rate in say Q2 of next year once additional capacity has come on in that division?

Randall C. Stuewe -- Chairman & Chief Executive Officer

Yes. The 2 plants -- and there's 3 plants that are under construction right now. And the 2 in Europe will finish up in late Q2 next year to be commissioned in Q2 I want to say. So really any growth of that would be pretty much in Q3 Q4. And then later in the year then the third plant would come online in South America for us. So I think we're finishing out a pretty good year in the Food segment. I could see the Food segment up anywhere 10% next year plus and that would build momentum even very -- pretty rapidly Q3 onwards.

Heather Lynn Jones -- Heather Jones Research LLC. -- Analyst

Okay, awesome. Thank you,

Operator

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

Heather Lynn Jones -- Heather Jones Research LLC. -- Analyst

Yeah. Hey, morning. Thanks, Randy a follow-up on that. Maybe you can expand on the growth trends you're seeing particularly in the collagen peptides market. We've got these 3 plants coming on next year. How are you thinking about raw material availability and spreads there?

Randall C. Stuewe -- Chairman & Chief Executive Officer

Yes. Really if you say are we growing our total production capacity? A little bit. But more or less we're adding different types of finishing capacity on 3 or 4 existing plants. So really no impact on raw material availability from a total demand perspective. The challenges in raw material availability for that business next year are going to be pigskin availability. As I referenced trying to feed a hungry China they will eat all cuts of meat they will make soup from bones they will take pigskin to fry. So at the end of the day we're seeing pigskin move up rapidly in Europe today. We're watching it now start to escalate very rapidly in China. There was a lot of product that was in cold storage there. It's starting to move up pretty rapidly. So naturally we've got to move our pricing up to match that. And so far the industry appears to be able to react fairly well to those escalations in raw material price. So we're very bullish on that segment.

The demand side Chip is one where you're starting -- from the health and nutrition standpoint you're seeing just a real movement to the forefront of collagen and collagen peptides and different -- whether it's health and nutrition or food applications sports nutrition drinks. And while it's pretty much a significantly driven as a U.S. phenomenon we're seeing it move around the world pretty nicely right now. And to be honest most of the capacity out there that we're constructing is committed as we go forward and we're pretty excited about it.

Chip Moore -- Canaccord Genuity Corp. Research Division -- Analyst

And just a follow-up on that Randy. Given those trends how long do you think this expansion serves you? When might we think about the need for more capacity out in the next couple of years?

Randall C. Stuewe -- Chairman & Chief Executive Officer

I think we're -- essentially we've got a plant in France coming on that's going to be making our fish products our fish hydrolyzed collagens. Our Ghent Belgium plant that should start-up second quarter next year. Then down in Brazil another bovine hide plant that will come online. And then we've got a fourth one that should come on probably the start of 2021 which would be in Kaiping China and that's another product. So I think we're going to get these built see where we're at and make sure we've read the market right the demand's there. And we'll go from there.

Chip Moore -- Canaccord Genuity Corp. Research Division -- Analyst

Great, thanks a lot.

Operator

And our next question will come from Craig Irwin of Roth Capital Partners. Please go ahead,

Craig Edward Irwin -- ROTH Capital Partners -- Analyst

Good morning, and thanks for taking my questions. So Randy big picture right? China's lost give or take half their pig herd. I guess it's around 10% of the world's animals. That has an impact on the demand for soymeal. But the world is still protein-short right? There's still a lot of demand out there for meat. And as China and Africa and other economies grow people are going to want to eat more meat. In the next several quarters would you expect the historic relationship between soymeal pricing and rendered products to maybe have a little bit of a modification or adjustment where we see a stronger pricing of some of the rendered products relative to soymeal given the relative scarcity of meat versus soymeal which is obviously in excess?

Randall C. Stuewe -- Chairman & Chief Executive Officer

Yes and I think that was reflected. It's a great question and I think you always have to step back and say that we're at a point in time in the world that I don't know that we've ever experienced that loss of animal production in the world today on 1 continent for 1 set of people. And the unintended consequences or who's going to produce and who's going to feed them? Those supply dynamics are still pretty much in play as you read every day that 23 plants in France were approved yesterday beef in Canada is approved the day before. So it's going to be very interesting to see. But nonetheless those animals are going to be growing. There's a little -- obviously the easiest one to produce by life cycle is poultry big soymeal consumer. They can also consume all the animal proteins. They've got a huge demand for pork but pork's a little longer grow out it's a little more expansion cycle here. Clearly the Chinese are going to reinvest heavily into larger animal production units that are bio-secure. They're going to diversify where they grow. They're going to move it from the north northeast down to the south and maybe a little bit into the west.

And so there's going to be a lot of demand for protein going forward to make up the supply shortage. I think overall Craig you look at the world it's somewhere between a 3- and a 5-year normalization for China to get back to near self-sufficient if that's even possible. But before that the world's going to have to help feed them and that should drive pretty good and pretty solid protein demand. Relative to our products and I think this is something we spend a lot of time we've never seen the discounts of animal-based proteins to soybean meal at this level for this long. So I know that I'm picking a bottom but I think at the end of the day they've got to normalize into feed rations around the world and so we're pretty bullish on them. I think soybean meal clearly $300 $325 a ton this year. And meat and bone meal typically -- and other animal proteins trade $50 under to $50 over so it should come back. Additionally if you take out the crush that was happening in China at the time to feed those animals that oil is going to have to be replaced. The palm oil cycle appears to have started to hit a lower production cycle. You've got growing biofuel demands within those countries growing biofuel demands in South America. So the oil complex starts to feel a little more friendly this year than it did last year. So that's relative to my comment about our global rendering system should feel the positive effects of growing global biofuel demand and improving feeding economics both from a demand and a pricing standpoint.

Craig Edward Irwin -- ROTH Capital Partners -- Analyst

So very happy to see Darling out there actively communicating your position on social responsibility and putting out benchmarks on where you're going to improve from. My understanding is one of these entities that ranks companies on their scores their external scores MSCI screwed up their analysis. And my clients in Europe particularly look very closely at these scores. Can you maybe walk us through what you think people might be missing if they're scoring you badly on water on some of these other things where obviously you're a net producer for the system?

Melissa A. Gaither -- Vice President of Investor Relations & Global Communications

Craig this is Melissa Gaither. And I -- to answer your question on that. Our ratings score within MCSI is that we just did not have our scores reported. So we just reported our first ESG fact sheet in late September and we addressed a lot of the water issues and we also addressed a lot of the environmental greenhouse gas issues. So I think you'll see our score change with MCSI in the near future. So that is our -- next on our goals to work with them to make sure they do see that our reporting is available.

Craig Edward Irwin -- ROTH Capital Partners -- Analyst

Great. Thank you for that and thanks for taking my questions.

Operator

Our next question will come from Adam Samuelson of Goldman Sachs. Please go ahead,

Adam L. Samuelson -- Goldman Sachs Group Inc. Research Division -- Analyst

Yes, thank you. Good morning, everyone. So I have a shorter-term question on the fat market and it dovetails a little bit into a longer-term question as you think about the feedstock availability for Diamond Green phase -- Super Diamond and the potential expansion in Texas. And shorter term just it's been interesting because you've seen the soybean oil market start to strengthen the last -- in the last couple of months you've seen the bio -- the tallow and yellow grease market actually weaken. And you guys Diamond Green is up and running. And I'm wondering is it really just the uncertainty around the small refinery exemptions and the RFS that's putting some pressure on the conventional biodiesel side? Or do you have any color there? And then I have a question about the long-term implications of that.

Randall C. Stuewe -- Chairman & Chief Executive Officer

Yes. I mean let's be clear and we're going to stand up front here. The economics of producing renewable diesel are far superior to biodiesel. Biodiesel at least under today's uncertain environment meaning is there a blenders tax credit is there not a blender's tax credit the economics for the marginal producer have not reacted meaning RINs haven't reacted although they're coming up a little bit right now. So at the end of the day you've got 9 or 10 or 12 I don't know what the number is shuttered mothballed biodiesel plants. If you were going to make biodiesel in the United States today and you have the technology to make it out of waste fats and greases you would be -- you would do that over soybean oil because of the feedstock advantage. Clearly they don't have the technology nor do they have the demand for it nor do they have the working capital. So you've seen some pressure on fat pricing in the U.S. because of the shutdown of the biodiesel industry in this country. You've also seen the ethanol industry continues to run corn oil is available and that's a feed ingredient that's also out there that can either be made into fuel or can go to animal feed. So there's ample supplies of that. And at the end of the day the soybean industry continues to run crush at full rate in the United States so there's plenty of oil there. So it looks like it's a tightening scenario right now but the U.S. historically has been an exporter of corn oil of tallows of waste fats and greases. And that's -- we're kind of being whipsawed right now given the policy issues that are affecting the biodiesel industry. Not the renewable diesel industry we're actually benefiting down there. As I said before the construction of Diamond Green Diesel was done and is integrated into us. It's combined in our results now. Essentially if we could consolidate we would because it is the countercyclical hedge to these supply and demand imbalances that happen in the waste fats and greases both in the short term and long term.

Adam L. Samuelson -- Goldman Sachs Group Inc. Research Division -- Analyst

That's helpful. And as I think about that long term when I think about the feedstock supply for Diamond Green phase -- the Super Diamond and the potential expansion in Texas and some of the other renewable diesel projects that are on the drawing board around country I mean how much waste fats and oil are going to be left for the conventional biodiesel industry when this is all done? Or put another way just how do you frame kind of what that cost curve looks like on biomass-based diesel renewable and conventional 3 to 5 years from now?

John Bullock -- Executive Vice President of Specialty Ingredients & Chief Strategy Officer

This is John. We see a growing supply of waste fats around the world. I think that trend is pretty well established. In addition there's a lot of waste fat that's used in animal feed and that can be substituted out with non -- low CI feedstocks. And then we do have somewhat of a competitive advantage versus biodiesel. But even before we get that there's a growing supply of waste fats around the world and we see that we can utilize some of the waste fats that are currently being used by the feed industry and they can substitute into other fat. So I know that there's always lots of concern you can hire lots of consultants who can give you a million different answers about the future. I can tell you that feedstock supply considerations are primary before we would consider any expansion. We've addressed this to our satisfaction that we're comfortable that we have the supply available.

Having said that we're in a relatively unique position as a primary originator of these waste feedstocks. And I think if you're somebody on the outside just looking at doing this and you're talking about putting as much money as one of these things costs it's a pretty tough decision on whether or not you've got feedstocks available. It's really our vertically integrated platform that gives us the confidence to be able to put these expansions in place and feel comfortable that our supply chain is in place and adequate.

Adam L. Samuelson -- Goldman Sachs Group Inc. Research Division -- Analyst

Okay, I really appreciate that color I'll pass up.

Operator

And our next question will come from Ken Zaslow of Bank of Montreal. Please go ahead,

Kenneth Bryan Zaslow -- BMO Capital Markets Equity Research -- Analyst

Morning, As I think, about as you generate more and more cash particularly from Diamond Green Diesel can you talk about how you're thinking about the capital allocation of the increased cash over the next couple of years? Will you be devoting it more to capex projects from legacy Darling? Will you be giving it back to shareholders through share repurchases? How do you think about deleveraging? All,that. Because it seems like the next couple of years there will be an increase in cash flow opportunities and how do you allocate that?

Randall C. Stuewe -- Chairman & Chief Executive Officer

Can I just give you the simple yes to all your questions there? But I'll give you a little color around them. Now number one we've had a pretty robust capital program here internally as we grow on both some of our specialty businesses. And you think about our specialty businesses that's where we're trying to add additional value to the one-stop shop concept with the slaughterhouse and their supply chain and provide them superior value. And also to control and produce more fat so that's to feed our new Diamond Green Diesel machines here in -- to be built in North America. So you've got the base business we've built 13 14 plants in the last couple of years. We've got 3 or 4 gelatin plants or collagen -- hydrolyzed collagen plants under construction. Really the construction of North American assets is slowing down from that because we've built out what we thought we needed to build. So overall kind of going forward we look at the capex program somewhere between -- around $225 million to maintain our system between trucking and all the plants around the world. And then opportunistically if there's things to develop and grow we would spend on that if it met our return standards. All that said as we go into

Diamond Green Diesel number 2 we anticipate that to be fully funded by the internal cash flows. We get excess cash Ken if the blenders tax credit comes back. But as we're not being vocal about that because we're highly successful and not dependent on it but it'd be a really nice Christmas present to get here. And then as we go into 2021 and Diamond Green Diesel III we have been open to people and we've said we anticipate once this platform's built out with Diamond I and Diamond II and New Orleans and as we go to Port Arthur that Port Arthur would contain third-party financing in order to start to bring back additional cash into the Darling model versus just straight earnings up and operating income which they're going to continue to grow and be larger and larger but from a cash generation perspective. I think we showed you in Q3 that we are willing to step in and buy our stock as we believe deeply in this business model and we thought it was if not the best use of funds to date. We continue -- we still have I think under the current share repurchase program about $180 million left available there. And at the same time Brad was able to pay down another $34 million of debt while we're growing. So for us it feels pretty darn good out here as we look forward.

Kenneth Bryan Zaslow -- BMO Capital Markets Equity Research -- Analyst

The second question you said on the Food business it will increase double -- 10% in 2020. Can you talk about the Feed business and your outlook there?

Randall C. Stuewe -- Chairman & Chief Executive Officer

The Feed business as I've looked at it rolling up right now as we -- remember we just stopped the world and you have to sit there and put in prices for proteins. And where you see fats we're friendly. A little bit of protein improvement and we're friendly more friendly fats next year. And so that would say that Feed should come up a little bit from where it's at today plus we've got a couple of new plants on full-time now around the world. So not as much expansionary growth as you should see timed into the Food segment with those high-value products as in Feed but at the end of the day we feel pretty good that the Feed segment should show robust earnings next year also. Nothing out there says negative right now.

Kenneth Bryan Zaslow -- BMO Capital Markets Equity Research -- Analyst

The appreciate as always,

Operator

And our next question will come from Benjamin Hogan of Inherent Group. Please go ahead,

Benjamin M. Hogan -- inherent Group -- Analyst

Hey, guys, I appreciate the questions, On the rendering side my understanding is historically the fertilizer industry used to be a large end market for meat bone meal. I know you guys have a few fertilizer plants today. Can you talk maybe about the size of that market and what you all might be doing to grow that?

John Bullock -- Executive Vice President of Specialty Ingredients & Chief Strategy Officer

Yes this is John. Actually organic fertilizer and sustainable fertilizer is part of our portfolio and we've been engaged in a growth strategy associated with that now starting a couple of years ago. We recently opened up a new plants in California and Nebraska to service the growing organic and sustainable fertilizer marketplace out there. So we see volumes growing in that area. They will grow fairly substantially from this year to next year basis of the plan that we have in place today. And we look for further opportunities to grow that marketplace as we think that is an excellent outlet especially for some of our products like our mixed meat and bone meal,

Benjamin M. Hogan -- inherent Group -- Analyst

Okay great. On DGD as the low-carbon fuel standard program has evolved in California Canada maybe even New York how challenging in terms of logistics and capital intensity would it be to upgrade renewable diesel to renewable jet fuel? If that's...

John Bullock -- Executive Vice President of Specialty Ingredients & Chief Strategy Officer

This is John. Very -- it's done it's capital and dollars to do it. We haven't done it at this point in time because you just answered I think your own question there. We see extremely large and dynamic growth markets on road fuel. California obviously has their growth plans in place. They are now doing a mapping program to maybe overlay some volumetric requirements associated with diesel that could further drive demand for renewable diesel in California. Oregon is in place. New York has talked about it. There's a consortium in the northeast talking about trying to form a northeastern consortium that would actually make that market much larger than California. Colorado just announced that they're starting a mapping program. With the reelection of Prime Minister Trudeau in Canada we would expect and hope that Canada would move forward with their national program. So quite frankly we see plenty of opportunities to supply road fuel out there. If the jet fuel market develops and if the jet fuel market pays the price that makes it the best product for us to sell rest assured we'll be making it.

Benjamin M. Hogan -- inherent Group -- Analyst

Got it. Okay that's great there. And last we certainly want to commend you on publishing your first ESG fact sheet. Maybe just chat a little bit about kind of early learnings from the process and kind of the top 1 or 2 areas where you see room for improvement.

Randall C. Stuewe -- Chairman & Chief Executive Officer

Yes Ben this is Randy. I mean as we've met in the past the #1 challenge is simply operating on 5 continents with 230 facilities and trying to aggregate the data. This -- most of this operational data is not contained within the enterprise system and so you're capturing it locally. And then my reluctance to publish was not reluctance to publish it was I wanted to make sure it was absolutely accurate. Because once you put a stake in the ground you're expected to improve. And so at the end of the day I feel very good about what we've published out there so far. I would tell you from an internal perspective we refer to it as a living document and much work in progress and going to need a lot of tweaking. Obviously it's the right thing to do. We're also being judged out there by MSCI we're being judged by ISS by Glass Lewis. And so at the end of the day we were -- we want to make sure that we had the right data. The second thing is as the only public company in this space in the world the difficulty at times is telling people either how good you are or not how good you are.

And so we were trying to make sure that we weren't giving any competitive data away that could be in one way or another used against us. So those were the challenges. Now moving forward it's simply the next discussion is setting goals and goals that everybody around the world can buy into. This includes so many multicultural locations that goal-setting needs to be collaborative around the world and that's the discussion. We're hoping in early 2020 to publish goals that would show you 1- 3- 5-year type targets out there in the areas of water in the areas of energy and people and diversity and different things from that level. So very much under discussion. I can promise you we'll be coming back to you for some ideas. You've been really helpful in your leadership role in helping us get the product we got today.

Benjamin M. Hogan -- inherent Group -- Analyst

Great beer guys look forward to that. Thank you.

Operator

Our next question is a follow-up from Ms. Heather Jones of Heather Jones Research LLC. Please go ahead,

Heather Lynn Jones -- Heather Jones Research LLC. -- Analyst

Thanks. Just a couple of follow-ups. First if we get a Phase 1 deal do you think that will help the pet food the premium poultry meal market and help those spreads widen back to levels more commensurate to last year?

Randall C. Stuewe -- Chairman & Chief Executive Officer

John and I are looking across the table at each other on that. I mean clearly what's driving that spread is just the availability of chicken parts and the amount of the heavier or the augmented slaughter right now. So I mean clearly it's a supply driven market versus demand. But we would tell you on the other side demand is very very good. John?

John Bullock -- Executive Vice President of Specialty Ingredients & Chief Strategy Officer

Yes I think it can't be -- it can't hurt and it's only going to be a positive if indeed the trade deal is in place. I would think that that would be an extra demand that would be coming into the marketplace. We'll just have to see how all that plays out. But it's certainly not going to be a negative it's only going to be a positive.

Randall C. Stuewe -- Chairman & Chief Executive Officer

Yes because clearly Heather there was a certain amount of chicken protein which would be low ash whatever you want to call it that goes to the aquaculture business in China. And clearly there's going to be strong aqua demand going forward as a protein substitute for pork as we go forward. So like John says it can only help. It can't hurt.

Heather Lynn Jones -- Heather Jones Research LLC. -- Analyst

Right. And then on the fats part so we've seen a strong rally in palm soy fats markets in other regions of the world are really strong. And so there's this pretty sizable arbitrage between -- or opportunity between the U.S. and the EU or other markets. I mean so when do you -- what needs to happen for those markets to equilibrate and drag up pricing here?

Randall C. Stuewe -- Chairman & Chief Executive Officer

Right. Okay I understand a little bit of that. I can comment a little bit about cat 1 and cat 3 fat in Europe. We've seen cat 3 fat improved. Cat 1 fat is still a premium but it's not wide enough for the freight spread and took -- and overcome currency spread at this time. I don't know. I think the real question here is when will U.S. waste fats and greases narrow their spread to soybean oil? Soybean oil is up at $0.32 and we're back basically at feeding economics against corn. And so I think I tried to answer that a little bit when I said you've lost that marginal biofuel producer in the U.S. that was using that. And until they return to the demand side or we get some export around the world we're going to make a lot of money at DGD because of feedstock.

Heather Lynn Jones -- Heather Jones Research LLC. -- Analyst

So you don't think we can increase our UCO exports or our yellow grease exports and all? You think it has -- if the offtake is going to have to come from biodiesel and/or animal feed rations in the U.S.?

John Bullock -- Executive Vice President of Specialty Ingredients & Chief Strategy Officer

Yes this is John Heather. I don't know that we would be counting on a lot of exports of fat out of the U.S. I think the other thing that obviously has happened here is animal slaughter numbers that are at historic all-time highs and that's the case in poultry that's the case in pig and that's the case in cow right now. And so we have just a whole bunch of animals being slaughtered that means that there's a whole bunch of byproducts from those animals. Our -- as we've noted in our earnings release our volumes continue to move extremely strong in almost every category. Over a period of time as we bring in this additional biomass-based diesel demand on the renewable diesel demand on we'll see more demand for that stuff and we'll start to see that pricing move. And as Randy just mentioned and very important with where our corn prices are today and obviously we have a lot of the corn crop still in the field in the Upper Midwest and it's currently under snow up there.

As these corn prices move a little higher and -- as we think that they will we should be at a price level where there will be excellent feed demand for fats as well. So we do see that -- we never like to call bottoms but we do see that the factors that are in place that you've mentioned plus the price of corn and the increasing renewable diesel demand we do see that there are positive factors out there in that fat market. Now is that going to happen next month or 60 days or 100 days from now? I don't know that we're smart enough to know that. But the factors are all in place to see us -- see the fat prices start to move higher.

Operator

This concludes our question-and-answer session. I will like to turn the conference back over to Randall Stuewe for any closing remarks. Please go ahead sir.

Randall C. Stuewe -- Chairman & Chief Executive Officer

Thank you Chuck. We appreciate everyone's time today. I hope everyone enjoys the upcoming holiday season and we look forward to updating you on our fourth quarter and year-end performance next February/March. Thanks again. Have a great day.

Operator

[Operator Closing Remarks].

Duration: 46 minutes

Call participants:

Melissa A. Gaither -- Vice President of Investor Relations & Global Communications

Randall C. Stuewe -- Chairman & Chief Executive Officer

Brad Phillips -- Executive Vice President & Chief Financial Officer

John Bullock -- Executive Vice President of Specialty Ingredients & Chief Strategy Officer

Heather Lynn Jones -- Heather Jones Research LLC. -- Analyst

Chip Moore -- Canaccord Genuity Corp. Research Division -- Analyst

Craig Edward Irwin -- ROTH Capital Partners -- Analyst

Adam L. Samuelson -- Goldman Sachs Group Inc. Research Division -- Analyst

Kenneth Bryan Zaslow -- BMO Capital Markets Equity Research -- Analyst

Benjamin M. Hogan -- inherent Group -- Analyst

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