Darling Ingredients (DAR 0.34%) released second-quarter 2019 results on Wednesday after the market closed, highlighting a modest (but expected) revenue decline while swinging back to profitability when compared to the same strategically busy period a year ago.
Perhaps most encouraging, the relative strength of Darling's global reach and diversified operations are evident considering the various macro headwinds it continues to face. Let's have a closer look at how Darling fared as it finished the first half.
IMAGE SOURCE: GETTY IMAGES.
Darling Ingredients results: The raw numbers
| Metric |
Q2 2019 |
Q2 2018 |
Change |
|---|---|---|---|
|
Net sales |
$827.3 million |
$846.6 million |
(2.3%) |
|
Net income (loss) attributable to Darling |
$26.3 million |
($30.4 million) |
N/A |
|
Net income (loss) per diluted share |
$0.16 |
($0.18) |
N/A |
Data source: Darling Ingredients.
What happened with Darling Ingredients this quarter?
- Recall that Darling's net loss a year ago stemmed from a number of strategic moves, including debt extinguishment costs to refinance its eurobond, a loss recognized through its divestment of Terra Renewal Services, and restructuring and impairment charges related to a gelatin plant closure.
- Adjusted EBITDA grew 0.4% year over year to $115.5 million.
- By segment:
- Feed ingredients net sales declined 2.3% to $487.4 million, driven by "substantially lower protein meal markets, due to abundant global supplies." Feed segment operating income declined 57.5% to $15.8 million, driven by a combination of higher operating costs from the addition of new facilities, lower protein finished product sales prices, and lower spreads in poultry pet-grade products.
- Food ingredients net sales fell 0.7% to $274.8 million, a significant improvement after adjusting for the Argentina gelatin facility closure a year ago, thanks to higher margin and volume in the global collagen market. Food ingredients operating income swung to positive $30.5 million from a $5.7 million operating loss a year ago, in part reflecting a $13.2 million gain from the sale of a dormant Rousselot property in China.
- Fuel ingredients net sales (excluding Diamond Green Diesel) fell 8.5% to $65 million, in line with expectations as the Rendac disposal rendering and disease mitigation operation was hurt by decreased livestock and slaughter volumes. Fuel segment operating income decreased to roughly $3 million from $5 million in last year's second quarter -- remaining profitable despite the absence of this year's blender's tax credit -- driven by lower Rendac volumes and lower sales values at Ecoson.
- At the Diamond Green Diesel joint venture with Valero:
- Entity-level EBITDA was in line with expectations at $1.25 per gallon.
- Early this quarter, Darling received two partner dividends totaling $55.5 million. It recognized $17.7 million of that dividend in April and will record the remaining $37.8 million in the third quarter.
- Darling's 400-million-gallon expansion product (which will bring total capacity to 675 million gallons), plus another 50 million to 60 million gallons of renewable naptha for green gasoline markets, remains on track to start up at the end of 2021. This project's $1.1 billion cost is expected to be "substantially" funded by DGD's cash flow.
What management had to say
Chairman and CEO Randall Stuewe stated:
Operationally, our global rendering business faced negative market conditions on our finished product pricing due to unresolved trade agreements with China and continued fallout from the African Swine Fever epidemic. Our food segment showed strong performance again bolstered by volume growth from new product launches, primarily related to our growing global collagen business. Our Fuel segment delivered consistently without the Blender's Tax Credit (BTC). Diamond Green Diesel, our 50/50 joint venture with Valero, performed well and met expected entity level EBITDA of $1.25 per gallon. We continue to successfully overcome headwinds from the current macro environment. This is an ongoing demonstration that our diverse global platform and our integrated supply chain provide Darling a competitive advantage to achieve our mission of driving sustainable solutions for feeding and fueling our growing world, while at the same time driving value for our shareholders and our team members.
Looking forward
Darling doesn't provide specific financial guidance. However, even with a bevy of industry and macro headwinds pushing back, this quarter was as strong as what any patient, long-term shareholder could have hoped for. With shares up only modestly so far in 2019, it shouldn't be surprising to see Darling stock rising right now as the market digests the news.
