Personal Finance

Darling Ingredients Positions Itself for the Future

Three green diesel pump nozzles at a fuel station.

Darling Ingredients (NYSE: DAR) announced second-quarter 2018 results on Wednesday after the market closed. The global rendering and biodiesel leader highlighted strong raw material volume growth, the ongoing expansion of its Diamond Green Diesel (DGD) joint venture with Valero , and the strategic exits and restructuring of a number of non-core business segments.

Let's take a closer look, then, at what Darling accomplished over the past few months, and what we can expect to see in the coming quarters.

Three green diesel pump nozzles at a fuel station.

Image source: Getty Images.

Darling Ingredients results: The raw numbers

Metric Q2 2018 Q2 2017 Year-Over-Year Growth
Net sales $846.6 million $894.9 million (5.4%)
Net income (loss) attributable to Darling $30.4 million $9.1 million N/A
Net income (loss) per diluted share $0.18 $0.05 N/A

Data source: Darling Ingredients.

What happened with Darling Ingredients this quarter?

  • Darling's revenue decline was largely driven by the reclassification of billed freight under new ASC 606 accounting standards adopted at the start of the year. Global raw material volumes grew 4%.
  • Darling made a number of strategic moves during the quarter, including:
    • Selling a majority stake in the Best Hides business, which it originally inherited as part of its $2.17 billion acquisition of VION Ingredients in early 2014.
    • Selling the Terra Renewal Services (TRS) industrial residuals business to American Residuals Group, but retaining its used cooking oil (UCO) business.
    • Closing its gelatin operation in Argentina because of ongoing macroeconomic headwinds, and then relocating production of profitable sales volumes to other gelatin locations.

  • Adjusted EBITDA grew 3.5% year over year to $115.1 million.
  • The company paid down $44 million of debt during the quarter.
  • Darling's net loss stemmed from a combination of $23.5 million in debt extinguishment costs related to refinancing its Euro bond, a $15.5 million loss from the TRS subsidiary sale, and $15 million in restructuring and impairment charges related to the gelatin plant closure.
  • Adjusted for those items, Darling's net income would have been $17.7 million, or $0.11 per share, in line with consensus estimates.
  • By segment:
    • Feed ingredients net sales declined 9.2% year over year to $498.8 million, driven by the Best Hides divestment, the reclassification of billed freight under new accounting standards, and lower fats pricing given higher slaughter volumes. Still, the segment delivered solid operating margins across all major markets, as operating income declined a a more modest 6% to $37.3 million.
    • Food ingredients net sales declined 0.6% to $276.7 million, also driven by the reclassification for billed freight under new accounting standards. The segment incurred an operating loss of $5.7 million, as strength in the China and North America gelatin markets was offset by restructuring and impairment charges from the Argentina gelatin plant shutdown.
    • Fuel ingredient net sales (excluding DGD) grew 5.5% to $71.1 million, driven by higher low sulfur diesel pricing, strong biodiesel industry demand, improved performance at Ecoson, and steady results from Rendac. Segment operating income more than doubled to $5 million.

  • At Diamond Green Diesel:

What management had to say

Darling Ingredients chairman and CEO Randall Stuewe stated:

Operationally we had a solid second quarter. Performance improved sequentially and year over year, and we took several strategic actions to strengthen our portfolio and position the company for future growth. Strong slaughter activity drove global tonnage up 4%, and our expansion projects and recent acquisitions contributed as expected.

Regarding DGD's planned expansion, Stuewe added, "Spot margins remain attractive, and we look forward to the significant contribution this facility is expected to bring Darling."

Looking forward

As a reminder, Darling doesn't provide specific forward financial guidance. But after digging through the noise created by its accounting changes, debt payments, strategic sales, and the gelatin plant shutdown, this was as strong a quarter as investors could have hoped for. And given the impending commissioning of its ambitious DGD expansion, I think shareholders have every reason to be pleased with Darling's position today.

10 stocks we like better than Darling Ingredients

When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor , has quadrupled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Darling Ingredients wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of August 6, 2018

Steve Symington has no position in any of the stocks mentioned. The Motley Fool recommends Darling Ingredients. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story


Other Topics


Latest Personal Finance Videos

    The Motley Fool

    Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

    Learn More