Darling Ingredients (NYSE:DAR) announced strong fourth-quarter 2016 results Tuesday after the market closed, highlighted by strength across all segments, continued debt reduction, and the ongoing execution of its longer-term growth initiatives. Shares of the rendering and biodiesel specialist are up more than 9% in after-hours trading as the market absorbs the news.

Let's take a closer look at what Darling accomplished as 2016 came to a close and what investors should expect from the company going forward.

Hand holding a fuel pump into a white car


Darling Ingredients results: The raw numbers


Q4 2016

Q4 2015

Year-Over-Year Growth


$887.3 million

$809.7 million


Net income/(loss) attributable to Darling

$40.5 million

$84.4 million


Net income per diluted share




DATA SOURCE: Darling Ingredients. 

What happened with Darling Ingredients this quarter?

  • The decline in net income was primarily due to the inclusion of the blenders tax credit in its entirety in the fourth quarter of 2015, where the blenders tax credit was reported as earned for each quarter in 2016.
  • Darling doesn't provide specific quarterly financial guidance. So, for perspective -- and while we don't usually pay close attention to Wall Street expectations -- analysts' consensus estimates predicted lower revenue of $841.5 million, and lower net income of $0.18 per share.
  • Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) climbed 9.9% year over year, to $112.8 million.
  • Feed ingredients segment net sales grew 14.1% year over year, to $538.6 million, and feed segment operating income dropped jumped 152%, to $25.3 million.
    • Operating income growth was driven by higher raw material volumes and finished fat prices.
  • Food ingredients net sales grew 2.9%, to $279.9 million, and food segment operating income declined 49.7%, to $11.7 million.
    • Operating income declines were driven by lower earnings in the gelatin business in North America, South America, and China, as well as depreciation and higher SG&A expenses.
    • Darling saw improvements in its European gelatin, edible fats, and casings businesses.
  • Fuel ingredients net sales -- which exclude contributions from Diamond Green Diesel (DGD) -- grew 5.3%, to $68.8 million. Fuel ingredients operating income declined 15.3% year over year, to $10.5 million.
    • Operating income declines here were driven by the aforementioned timing of the blenders tax credit.
  • Operating revenue at Darling's Darling's Diamond Green Diesel joint venture with Valero (NYSE:VLO) grew 89.8% year over year, to $182 million, while Darling's pro forma share of adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 62.9%, to $36.7 million.
    • Engineering and construction planning continues with long lead time equipment ordered for DGD, which will increase annual production by more than 70%, to 275 million gallons of renewable diesel. Construction is still estimated to be completed by the second quarter of 2018 at a total estimated cost of $190 million.
    • Issued a partner dividend of $25 million each in February 2017.
  • Generated free cash flow of $37.5 million during the quarter.
  • Generated full-year cash flow from operations of $391 million, down from $421 million in 2015.
  • Reduced debt by $169.7 million for the full fiscal year.

What management had to say 

As Darling Ingredients CEO Randall Stuewe stated:

We closed out 2016 with a solid performance across all product lines.  We executed on our strategy of de-levering and growing, paying down $169.7 million in debt while commissioning four new factories and expanding five others.  We carry nice momentum and a larger platform into 2017.

Looking forward

Darling Ingredients is generally at the mercy of the ebbs and flows of the markets in which it operates. But it doesn't take much to remind investors that the company continuously ensures it's positioned to drive significant gains when those conditions are favorable, all while scaling its business and improving its balance sheet. Given Darling's outperformance this quarter relative to investors' expectations, it's no surprise to see shares trading higher right now.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.