Darling Ingredients (DAR 1.11%) announced second-quarter 2018 results on Wednesday after the market closed. The global rendering and biodiesel leader highlighted strong raw material volume growth, the ongoing expansion of its Diamond Green Diesel (DGD) joint venture with Valero, and the strategic exits and restructuring of a number of non-core business segments.
Let's take a closer look, then, at what Darling accomplished over the past few months, and what we can expect to see in the coming quarters.
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Darling Ingredients results: The raw numbers
| Metric |
Q2 2018 |
Q2 2017 |
Year-Over-Year Growth |
|---|---|---|---|
|
Net sales |
$846.6 million |
$894.9 million |
(5.4%) |
|
Net income (loss) attributable to Darling |
$30.4 million |
$9.1 million |
N/A |
|
Net income (loss) per diluted share |
$0.18 |
$0.05 |
N/A |
Data source: Darling Ingredients.
What happened with Darling Ingredients this quarter?
- Darling's revenue decline was largely driven by the reclassification of billed freight under new ASC 606 accounting standards adopted at the start of the year. Global raw material volumes grew 4%.
- Darling made a number of strategic moves during the quarter, including:
- Selling a majority stake in the Best Hides business, which it originally inherited as part of its $2.17 billion acquisition of VION Ingredients in early 2014.
- Selling the Terra Renewal Services (TRS) industrial residuals business to American Residuals Group, but retaining its used cooking oil (UCO) business.
- Closing its gelatin operation in Argentina because of ongoing macroeconomic headwinds, and then relocating production of profitable sales volumes to other gelatin locations.
- Adjusted EBITDA grew 3.5% year over year to $115.1 million.
- The company paid down $44 million of debt during the quarter.
- Darling's net loss stemmed from a combination of $23.5 million in debt extinguishment costs related to refinancing its Euro bond, a $15.5 million loss from the TRS subsidiary sale, and $15 million in restructuring and impairment charges related to the gelatin plant closure.
- Adjusted for those items, Darling's net income would have been $17.7 million, or $0.11 per share, in line with consensus estimates.
- By segment:
- Feed ingredients net sales declined 9.2% year over year to $498.8 million, driven by the Best Hides divestment, the reclassification of billed freight under new accounting standards, and lower fats pricing given higher slaughter volumes. Still, the segment delivered solid operating margins across all major markets, as operating income declined a a more modest 6% to $37.3 million.
- Food ingredients net sales declined 0.6% to $276.7 million, also driven by the reclassification for billed freight under new accounting standards. The segment incurred an operating loss of $5.7 million, as strength in the China and North America gelatin markets was offset by restructuring and impairment charges from the Argentina gelatin plant shutdown.
- Fuel ingredient net sales (excluding DGD) grew 5.5% to $71.1 million, driven by higher low sulfur diesel pricing, strong biodiesel industry demand, improved performance at Ecoson, and steady results from Rendac. Segment operating income more than doubled to $5 million.
- At Diamond Green Diesel:
- EBITDA came in at $1.05 per gallon without the benefit of the Blenders Tax Credit.
- Darling received a $25 million dividend during the quarter for its share of the joint venture.
- DGD's facility expansion from 160 million gallons to 275 million gallons is expected to be online with saleable product later this month.
What management had to say
Darling Ingredients chairman and CEO Randall Stuewe stated:
Operationally we had a solid second quarter. Performance improved sequentially and year over year, and we took several strategic actions to strengthen our portfolio and position the company for future growth. Strong slaughter activity drove global tonnage up 4%, and our expansion projects and recent acquisitions contributed as expected.
Regarding DGD's planned expansion, Stuewe added, "Spot margins remain attractive, and we look forward to the significant contribution this facility is expected to bring Darling."
Looking forward
As a reminder, Darling doesn't provide specific forward financial guidance. But after digging through the noise created by its accounting changes, debt payments, strategic sales, and the gelatin plant shutdown, this was as strong a quarter as investors could have hoped for. And given the impending commissioning of its ambitious DGD expansion, I think shareholders have every reason to be pleased with Darling's position today.
