Darling Ingredients Ends 2017 on a High Note

Darling Ingredients (DAR 2.84%) announced fourth-quarter 2017 results on Tuesday after the market closed, highlighting solid showings from its core food and feed ingredients segments, continued balance sheet improvements, and progress on the enormous expansion of its Diamond Green Diesel joint venture with Valero.

Let's take a closer look at what Darling accomplished over the past few months, as well as what investors can expect from the rendering and biodiesel specialist in the coming quarters.

Image source: Getty Images.

Darling Ingredients results: The raw numbers

Data source: Darling Ingredients.

What happened with Darling Ingredients this quarter?

• Adjusting for $0.53 per share in tax benefits related to recent tax reform in both the U.S. and Europe, Darling's earnings were $0.10 per share.
• Darling doesn't provide quarterly financial guidance. But these results were comfortably ahead of investors' expectations for adjusted earnings of $0.09 per share on revenue of $896.9 million.
• This quarter does not include the positive impact of the blenders tax credit, which was reinstated retroactively for 2017 earlier this month. Darling's first-quarter 2018 results will include income of $12.6 million from the credit.
• Adjusted EBITDA increased 2.6% to $115.8 million.
• By segment:
  • Feed ingredients net sales grew 4.4% year over year to $562.2 million, while segment operating income grew 3.8% to $26.2 million. Growth was driven by higher sales volume, higher finished fat and protein products, and higher raw material volume.
  • Food ingredients net sales grew 12.6% to $313.5 million, while segment operating income grew 38.6% to $16.3 million. Growth was driven higher earnings in the natural casings and gelatin businesses, as well as higher edible fats prices in Europe.
  • Fuel ingredients revenue -- which excludes Diamond Green Diesel -- grew 11.8% to $76.9 million, while segment operating income declined 23.2% to roughly $8 million. The latter change came as improvements at Ecoson were more than offset by lower earnings in the disposal rendering business in Europe and the absence of the blenders tax credit in the U.S.
• Diamond Green Diesel delivered EBITDA of $0.54 per gallon even without the blenders tax credit, up from $0.49 per gallon last quarter.
• Diamond Green Diesel's ambitious expansion (from 160 million to 275 million gallons annually) is "progressing well" and remains on track for completion late in the second quarter of 2018.
  • Recall that last quarter, Darling revealed that both it and Valero are exploring doubling DGD's annual capacity again to 550 million gallons by the end of 2021.

What management had to say 

Darling Ingredients chairman and CEO Randall Stuewe stated:

We are pleased to report a strong finish to 2017, with improved fourth-quarter results driven by streamlined operations across our global platform. ... During the year, our global capital growth plan included multiple new construction projects, expansions and bolt-on acquisitions to maximize our world of growth strategy, and engineering of our product mix to meet the needs of changing global diets. Our strong balance sheet combined with improved working capital deployment enabled further deleveraging of $112.5 million, exceeding our stated goal of $100 million in 2017. We continue to execute well, diversify our global platform, and deploy prudent growth capital investments to drive meaningful growth and profitability in the future.

Looking forward

There were no big surprises in Darling Ingredients' latest results. The DGD joint venture performed admirably even without recognizing the since-reinstated blenders tax credit. Darling also continues to confidently weather the ebbs and flows of the global ingredient marketplaces it occupies, while steadily deleveraging its balance sheet as promised.

In the end, considering Darling's modest outperformance relative to expectations, it's no surprise to see the stock surging in response today.