Darling Ingredients (NYSE: DAR) announced mixed fourth-quarter 2018 results on Wednesday after the market closed, highlighting continued challenges stemming from global trade tensions, tax changes, and generally difficult market conditions. But the rendering and biodiesel leader also demonstrated the relative resilience of its diversified business, as well as progress in its ambitious plans to expand its Diamond Green Diesel (DGD) joint venture with Valero .
With shares down modestly in after-hours trading as of this writing, let's take a closer look at how Darling ended the year.
Darling Ingredients results: The raw numbers
|Metric||Q4 2018||Q4 2017||Year-Over-Year Growth (Decline)|
|Net sales||$853.1 million||$952.5 million||(10.4%)|
|Net income (loss) attributable to Darling||$40.6 million||$105.7 million||(61.6%)|
|Net income per diluted share||$0.24||$0.63||(61.9%)|
Data source: Darling Ingredients.
What happened with Darling Ingredients this quarter?
- Darling's lower net income was primarily driven by the contrast between income tax expenses this quarter and an income tax benefit in last year's fourth-quarter-related tax changes under both the U.S. Tax Cuts and Jobs Act and European tax reform.
- Darling does not provide specific quarterly guidance. So for perspective, and though we don't usually pay close attention to Wall Street's demands, most analysts were modeling higher revenue of $913.8 million and lower earnings of $0.22 per share.
- Adjusted EBITDA fell 6.9% year over year to $108.9 million.
- By segment:
- Feed ingredients net sales declined 13.7% to $485.2 million, driven by weaker fat pricing, high global slaughter volumes, trade disruptions, and large palm oil supplies. Segment operating income fell 55% to $12 million.
- Food ingredients net sales declined 7% to $291.7 million, driven by the closure of Darling's collagen plant in Argentina and weakness in the European collagen market. Segment operating income fell 11% to $14.6 million.
- Fuel ingredients net sales (excluding DGD) fell 0.8% to $76.3 million, with contributions from Darling's Belgium digester operations helping to offset a $12.6 million blenders tax credit reinstatement in the same year-ago period. Fuel segment operating income climbed 6.3% to $8.6 million, helped by higher earnings from Ecoson, bioenergy in Europe, and Rendac disposal rendering in Europe.
- Diamond Green Diesel achieved fourth-quarter EBITDA of $1.67 per gallon without the blenders tax credit for 2018. The joint venture distributed a partner dividend of $40 million this quarter (bringing partner dividends to $65 million for the year), and closed 2018 debt-free.
- DGD has also approved its phase 3 expansion to 675 million gallons with an additional 50 million to 60 million renewable naphtha gallons for green gasoline markets, with estimated expansion costs of $1.1 billion and an expected start-up in late 2021.
What management had to say
"Our fourth quarter truly showed the diversity and consistency of our global ingredients platform and the potential DGD has to transform Darling," stated Darling CEO Randall Stuewe. "During the year, we made strong advancements executing our world of growth strategy to create a sustainable portfolio of value-added and specialty ingredients through multiple, completed construction projects, expansions and bolt on acquisitions."
Here again, Darling opted not to offer a specific financial outlook. But given the persistent macroeconomic challenges the company detailed in its difficult third-quarter report in November , this report offered no real negative developments of which investors weren't already aware. Rather, Darling persisted in strengthening its industry leadership and moving forward with plans to further expand its operations. And I think patient shareholders should be more than pleased with those ends.
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