Release Date: October 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Darling Ingredients Inc (DAR, Financial) reduced its debt by approximately $192 million during the third quarter.
- The company received $111.2 million in cash dividends from its joint venture, Diamond Green Diesel.
- Darling Ingredients Inc (DAR) is optimistic about the regulatory landscape for 2025, expecting clarity on California's low-carbon fuel standard and federal tax credits.
- The company's sustainable aviation fuel unit is mechanically complete and in the process of commissioning.
- Darling Ingredients Inc (DAR) is launching new collagen-based products, which are expected to drive growth in its specialty ingredients business.
Negative Points
- Net income for the third quarter of 2024 was significantly lower at $16.9 million compared to $125 million in the same period of 2023.
- Total net sales decreased to $1.4 billion for the third quarter of 2024 from $1.6 billion in the third quarter of 2023.
- Operating income fell by $118.3 million due to a decline in gross margin and reduced earnings from Diamond Green Diesel.
- The company faced challenges in the renewable diesel market, with margins remaining pressured.
- Darling Ingredients Inc (DAR) experienced lower volumes in its Food segment due to softer demand in China and customer destocking.
Q & A Highlights
Q: Could you touch on the implied outlook for the fourth quarter and what items are driving the expected improvement?
A: Randall Stuewe, CEO, explained that several factors contribute to the anticipated improvement, including operational challenges typically seen in Q3, modest fat price improvements, and a better performance in the collagen business. Additionally, Diamond Green Diesel (DGD) is expected to perform well, although no sustainable aviation fuel (SAF) shipments are assumed in the current projections.
Q: Regarding the Food segment, are the issues seen in Q3 transitory, and how do you see the competitive environment evolving?
A: Robert Day, Chief Strategy Officer, noted that while there is increased capacity and pressure on gelatin margins, the situation is expected to stabilize in 2025. The introduction of new products like Nextida GC, which offers higher margins, is expected to offset competitive pressures and support stable results.
Q: What is the capital expenditure outlook for 2025, and how are cost reductions progressing?
A: Brad Phillips, CFO, stated that 2025 capital expenditures are projected to be in the $450 million to $500 million range, similar to current levels. Cost reductions are ongoing and part of the company's culture, with efforts to simplify the organization and improve efficiencies.
Q: Can you provide an update on the SAF sales book and any targets for contracted versus spot sales?
A: Matt Jansen, COO of North America, mentioned that while some SAF contracts have been announced, not all are disclosed for competitive reasons. The company is optimistic about future sales and intends to focus on longer-term contracts rather than spot sales.
Q: What are your expectations for debt targets, especially with upcoming maturities in 2026?
A: Brad Phillips, CFO, indicated that the company aims to reduce leverage to below 3x by the back half of 2025, with a long-term target of 2.5x. The transition to the 45Z tax credit is expected to improve cash flow and support deleveraging efforts.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
