Darling Ingredients, Inc. Positions Itself for a Better Year

Image source: Darling Ingredients.

Darling Ingredients (DAR -1.27%) may have technically reported mixed fourth-quarter 2015 results Tuesday after the market close, but with shares rising more than 30% in Wednesday's early trading, it's obvious that the market is more than happy with the rendering and biodiesel company. Let's take a look at what Darling achieved in its most-recent quarter.

Darling Ingredients results: The raw numbers

Data Source: Darling Ingredients.

What happened with Darling Ingredients this quarter?

• Year-over-year revenue declines were caused by a combination of sustained weakness in global commodity markets and the negative impact of foreign exchange.
• Darling doesn't offer earnings guidance, but net income significantly exceeded Wall Street's consensus for earnings of $0.25 per share.
• Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) fell 5.5% year over year, to $102.7 million, due to currency exchange and lower finished product prices in the USA and Canadian rendering businesses.
• Total debt was reduced by $42.4 million during the quarter, bringing total debt reduction for fiscal 2015 to $118 million.
• Feed Ingredients net sales fell 22.1%, to $472.2 million, and operating income was down 70.2%, to $10 million.
• Declines once again driven by lower finished-product prices for proteins, fats, and used cooking oil, as well as (on the operating income side) start-up costs related to two new wet pet-food plants.
• At food ingredients, net sales declined 15.5%, to $272.2 million, but operating income grew 70.7% over the same period, to $23.3 million.
• Operating income growth driven by improved performance in gelatin business, and normalized margins within European edible fats.
• Fuel ingredients net sales fell 9.5%, to $65.3 million, while operating income climbed 13.2%, to $12.4 million, excluding contributions from Darling's Diamond Green Diesel joint venture with Valero.
• Canadian biofuels saw improved performance with reinstatement of the blenders tax credit in December 2015, while Ecoson, the bio-phosphate operation in Europe, experienced a business interruption due to a fire in Q4. Casualty insurance should mitigate the fire's impact going forward.
• Diamond Green Diesel produced 159 million gallons of renewable diesel in all of fiscal 2015.
• The recent reinstatement of the U.S. Biofuels Tax Extenders package will provide roughly $157 million to DGD's bottom line for the year, bringing total fiscal 2015 DGD EBITDA to $177 million. Darling's share of this total was half, or $88.5 million.

What management had to say 
Darling CEO Randall Stuewe stated,

While challenging conditions persisted through the fourth quarter, we delivered respectable quarterly results and exit 2015 a stronger company, highlighted by lower debt, strong cash flows and strategic investments in new plants and operating efficiencies. During the fourth quarter, our Food and Fuel segments performed well, generating strong EBITDA margins driven primarily by improved pricing and higher volumes, but were partially offset by continued FX challenges. In our Feed segment, we successfully navigated some short-term challenges that negatively affected results, but pricing of these products rebounded nicely in early Q1 2016.

Looking forward 

Darling Ingredients doesn't typically provide specific financial guidance, but Stuewe did elaborate during the subsequent conference call on the feed segment that "prices for fats, proteins, and pet food ingredients have rebounded sharply during the first quarter, and we expect further improvements throughout the year."

Meanwhile, Darling's growing food segment continues to enjoy strong performance and improving margins led by its Rousselot gelatin segment, and its profitable fuel and DGD operations offer a solid hedge for the rest of its core business. In the end, given Darling Ingredient's improving markets and solid financial profile, and with shares still down more than 30% during the past year as of this writing, I think patient investors have every right to celebrate this encouraging quarter.