OK, so I was pretty hot on the prospect of this funky, messy little company called Darling International
That's all gone now. Business, to be blunt, stinks as bad as cow flop. While I'm not one to quote press releases, the company's recent earnings announcement pretty much summed it all up: "Adverse operating conditions, including a further decline in raw material volumes, lower finished product prices, and continued high relative prices for diesel fuel and natural gas, made for a very challenging first quarter."
In other words, there aren't enough aging cows to slaughter, the prices being paid for its end products are weak, and high fuel prices are hurting the bottom line. The company also cited poor weather as the reason for a decline in its restaurant-servicing segment. All of these problems are beyond the company's control, which also means there's no telling when things will pick up again. That's one of the downsides of being in a commodity-driven business.
Take a look at this chart comparing the financials from last November to today:
|Free Cash Flow (in $ Million)||$35.60||-$10.08|
|Return on Equity||39.85%||17.66%|
Needless to say, decreasing sales, lower margins, and negative free cash flow are not promising signs. All the conditions the company needs to grow -- nice weather, low fuel prices, and favorable cattle "demographics" -- have not come to pass. That doesn't mean they won't, and if they do, things could turn around very quickly for Darling. It also doesn't look as if the company will be going bankrupt, either. But for now . well, I just don't see as compelling a case to buy as I once did. Maybe it's time to switch to chicken over at Sanderson Farms
To check out more beefed-up discussion about Darling:
Fool contributor Lawrence Meyers is not the only Fool on the lookout for small companies with enormous potential. Co-founding Fool Tom Gardner brings you his best recommendations each and every month in his Motley Fool Hidden Gems newsletter.
Lawrence Meyers owns none of the stocks mentioned in this article and, as you can see, can easily make mistakes when evaluating stocks -- so supplement his thoughts with your own research!
More from The Motley Fool
Fitbit's 6 Biggest Blunders
Why is the world’s top wearables maker trading 70% below its IPO price?
The Taxation of Social Security Benefits Has Created Quite the Dilemma
This archaic tax has the potential to both help and hurt the Social Security program.
The Safest Marijuana Stocks to Buy in 2018
Though plenty of risks exist while investing in cannabis, these pot stocks could have investors sleeping soundly at night.