Darling Ingredients (DAR 2.99%) just cooked up mixed first-quarter 2015 results. After climbing around 1% in Thursday's regular session, shares of the rendering and biodiesel specialist are down a modest 1.6% as of this writing in after-hours trading.
Quarterly net sales fell 8.2% year over year to $874.7 million, hurt by a combination of lower finished product prices and foreign currency headwinds. On a more encouraging note, however, Darling's global raw material volumes were stronger on a year-over-year basis. That translated to a 20.3% year-over-year decrease in pro forma adjusted earnings before interest, taxes, depreciation, and amortization to $103.5 million, and a 59.1% decline in adjusted earnings per diluted share to $0.09.
Even so, analysts were anticipating even lower adjusted earnings of $0.07 per share, but on higher revenue of $900.3 million.
Digging deeper
Primarily driving Darling's results was a 6.6% year-over-year decline in revenue from its core Feed Ingredients segment to $547.5 million, hurt by the aforementioned foreign exchange headwinds and lower fat and corn prices. That resulted in a 5.6% decline in segment operating income to $35.4 million. But this also includes a $12.7 million non-cash inventory step-up associated with Darling's early 2014 acquisition of VION Ingredients, excluding which Feed Ingredients operating income was technically $14.8 million lower.
Next, revenue from Darling's Food Ingredients segment -- which came entirely from the VION purchase -- declined 7.9% year over year to $270.2 million. Here, business was bolstered by strong demand from the gelatin business, higher volumes, as well as increased demand, and lower raw material prices in China. But that strength was more than offset by the continued closure of the Russian trade border.
Finally is Darling's Fuel Ingredients segment, which notably includes its Diamond Green Diesel joint venture with Valero. In all, Fuel Ingredients net sales fell 14.5% year over year to just over $57 million, and translated to a $0.2 million increase in operating income to $2.5 million excluding the DGD joint venture. Curiously, Darling's DGD joint venture generated a quarterly loss of $2.2 million, compared to a $4.7 million profit this time last year. For that, Darling blames lower RIN values stemming from "an uncertain regulatory environment with respect to the [renewable volume obligation] requirements for 2015." At the same time, both Darling's Rendac disposal rendering business and Ecoson operations in Europe remained steady during the quarter.
Darling CEO Randall Stuewe insisted "The Diamond Green Diesel joint venture continued its strong operational performance in the first quarter of 2015 producing over 37 million gallons of renewable diesel. While Congress has yet to act, we still anticipate the blenders tax credit to be retroactive later this year and look forward to the release by the EPA on the mandate levels for 2015-2017."
For perspective, this is eerily similar to Darling's situation last year, when results were hurt by similar regulatory uncertainties. But when the the biodiesel blender's tax credit was retroactively reinstated toward the end of 2014, Darling's Fuel Ingredients operating income skyrocketed to $70 million last quarter as a result.
To be fair...
Keep in mind Darling Ingredients doesn't generally provide specific financial guidance with its quarterly reports, making it a little more difficult for Wall Street to accurately predict its results. But as per usual, Darling management will likely offer some additional color on its results and direction during their scheduled call with analysts on Friday.
In the meantime, however -- and despite what the headlines might say about its "mixed" results -- it seems safe to say Darling Ingredients' business is much stronger than it first appears.
