Darling Ingredients (NYSE:DAR) released third-quarter 2019 results on Wednesday after the markets closed. Though its headline numbers didn't exactly look stellar at first glance, with earnings technically arriving below Wall Street's expectations, shares soared nearly 9% on Thursday as investors cheered the news. 

When you dig deeper, however, Darling's quarterly update yields a number of encouraging developments from the rendering and biodiesel specialist -- among them a return to top-line growth, improved profitability, and plans to further expand its already lucrative Diamond Green Diesel (DGD) joint venture with Valero (NYSE:VLO).

Let's take a closer look at Darling's latest quarter, starting with how revenue and net income fared relative to the prior-year period:

Metric

Q3 2019

Q3 2018

Change (YOY)

Net sales

$842 million

$812.6 million

(36.2%)

Net income (loss) attributable to Darling

$25.7 million

($6.0 million)

N/A

Net income (loss) per diluted share

$0.15

($0.04)

N/A

Data source: Darling Ingredients. YOY = year over year.

Darling doesn't provide specific quarterly guidance. But for perspective, analysts' consensus estimates called for lower revenue of $834 million and higher earnings of $0.17 per share.

Hand holding biodiesel pump in car fueling.

Image source: Getty Images.

Investors should also remember that in last year's third quarter, earnings were negatively impacted by a combination of extended turnaround downtime at DGD, as well as a $7.2 million writedown of inventory at its feed ingredients segment due to an African swine fever outbreak in China.

Speaking of which, feed ingredients segment sales climbed a modest 2.9% year over year to $497 million (swinging back to positive growth after a 2.3% decline last quarter), translating into an 85.7% increase in operating income to $22.1 million. Meanwhile, food ingredients segment net sales rose 4.2% to $276.5 million, resulting in a 50% increase in operating income to $19.5 million. And fuel ingredients sales (which now includes DGD) grew 6.2% to $68.6 million, leading to operating income of $33.3 million (versus $1.8 million a year earlier). Relatedly, Darling revealed that DGD has achieved a healthy $1.26 in EBITDA per gallon so far in 2019.

Chairman and CEO Randall Stuewe stated:

We reported solid third quarter results, underscored by the strength of our vertically integrated supply chain and excellent execution amid continued trade uncertainty and escalating disease disruption due to African Swine Fever. Overall, our operating segments delivered exceptional results with improved earnings in our Feed Segment as we navigated volatile global markets. Led by our Rousselot Functional Ingredients and Health & Nutrition platform, our Food Segment is solidly positioned to capture growing global demand for collagen ingredients. In the Fuel Segment, higher sales volumes supported solid performance across operations despite the lack of the Blenders Tax Credit (BTC).

To be clear, Darling and its biodiesel industry peers continue to anticipate the BTC will be approved and retroactively applied some time in the coming quarters.

Stuewe also confirmed Darling's planned expansion to bring DGD's annual production capacity to 675 million gallons remains on track to be completed by 2021. Recall this project's $1.1 billion cost is expected to be primarily funded by DGD's existing cash flows.

Another massive (potential) expansion

But even more exciting, Stuewe announced Darling is expanding its relationship with Valero by exploring engineering and development costs for a potential new renewable diesel plant at Valero's refinery in Port Arthur, Texas. Assuming the result of that exploration is favorable, construction on this new project could begin in 2021, and -- upon commencing operations in approximately 2024 -- would expand DGD's production capacity to an incredible 1.1 billion gallons annually.

Here again, Darling Ingredients isn't in the habit of offering financial guidance to better gauge its quarterly financial performance. But given that previously struggling segments saw much-needed stabilization and the company has an ambitious multiyear plan to further grow DGD, I think investors are right to be excited about Darling Ingredients' prospects.