Darling Ingredients Inc. (NYSE: DAR) is a global leader in the development and production of sustainable natural ingredients from edible and inedible bio-nutrients. The company's diverse portfolio of products and services caters to a wide range of industries, including pharmaceutical, food, pet food, feed, industrial, fuel, bioenergy, and fertilizer. With a strong presence across five continents, Darling Ingredients has established itself as a key player in the evolving ingredients landscape.
Financials
Darling Ingredients reported annual net income of $647.7 million, annual revenue of $6.75 billion, annual operating cash flow of $899.3 million, and annual free cash flow of $342.3 million in its most recent fiscal year. In the latest quarter, the company generated net sales of $1.46 billion, a year-over-year decline of 17.2%, and EPS of $0.49, compared to $1.55 in the prior-year period.
Segmental Performance
Darling Ingredients operates within three industry segments: Feed Ingredients, Food Ingredients, and Fuel Ingredients.
Feed Ingredients: This segment includes the company's global activities related to the collection and processing of animal by-products, used cooking oil, and bakery residuals. In the latest quarter, net sales for the Feed Ingredients segment were $934.15 million, down 18.2% year-over-year, reflecting lower finished product prices.
Food Ingredients: The Food Ingredients segment encompasses the company's global activities in the collagen, natural casings, and specialty products businesses. Net sales for this segment were $378.84 million in the latest quarter, a decrease of 20.4% compared to the prior-year period, primarily due to lower collagen and fat prices.
Fuel Ingredients: The Fuel Ingredients segment includes the company's investment in the Diamond Green Diesel (DGD) joint venture and the bioenergy business. Net sales for this segment were $142.30 million in the latest quarter, up 1.7% year-over-year.
Recent Developments
Darling Ingredients has been focused on making the necessary adjustments to adapt to the current deflationary and volatile global ingredients market, as well as the uncertain regulatory environment surrounding the renewable diesel industry. The company has successfully improved gross margins, controlled capital spending, paid down debt, and repurchased common stock during the latest quarter.
Outlook
Looking ahead, the company remains optimistic about the prospects for its business. The company's specialty ingredients business showed sequential improvement as it made the necessary changes to improve margins and earnings. DGD had a good quarter, while the Port Arthur facility completed a major turnaround as the company prepares to produce sustainable aviation fuel later this year.
Darling Ingredients reaffirmed its guidance for fiscal year 2024, which remains at $1.3 – $1.4 billion in combined adjusted EBITDA. The company's focus for the remainder of the year is to manage capital outflows, pay down additional debt, and continue its focus on operational excellence and margin expansion.
Geographical Diversification
Darling Ingredients operates in over 15 countries, providing the company with a geographically diverse revenue stream. In the latest quarter, the company's net sales were distributed as follows: North America (54.8%), Europe (28.3%), China (4.6%), South America (8.9%), and Other (3.4%).
Revenue Breakdown and Trends
Darling Ingredients' revenue is primarily generated from the sale of fats, proteins, used cooking oil, bakery residuals, collagen, and bioenergy products. In the latest quarter, the company's revenue breakdown was as follows:
- Fats: $349.5 million (-34.7% year-over-year)
- Used cooking oil: $75.8 million (-44.9%)
- Proteins: $367.6 million (-17.8%)
- Bakery: $44.9 million (-40.0%)
- Other rendering: $76.7 million (+10.0%)
- Food ingredients: $331.0 million (+3.7%)
- Bioenergy: $139.2 million (+1.7%)
- Other: $35.6 million (-28.5%)
The decline in revenue across several categories was primarily due to lower finished product prices, which the company is working to address through operational improvements and margin management initiatives.
Liquidity
As of the latest quarter, Darling Ingredients had $121.6 million in cash and cash equivalents, and $814.4 million available under its committed revolving credit agreement. Total debt outstanding as of June 29, 2024, was $4.4 billion, with a projected leverage ratio of 4.24x as measured by the company's bank covenant.
The company's capital expenditures were $98.0 million for the second quarter of 2024 and $191.7 million for the first six months of the year. Darling Ingredients has reaffirmed its guidance for fiscal year 2024, which remains at $1.3 – $1.4 billion in combined adjusted EBITDA.
Risks and Challenges
Darling Ingredients faces several risks and challenges, including:
- Volatility in commodity prices and energy costs
- Regulatory changes related to renewable fuels and greenhouse gas emissions
- Disruptions in global supply chains and trade policies
- Potential product recalls or quality issues
- Exposure to disease outbreaks and pandemics
- Compliance with environmental regulations
- Integration and optimization of acquired businesses
The company's management team is actively monitoring these risks and implementing strategies to mitigate their potential impact on the business.
Conclusion
Darling Ingredients is a resilient player in the evolving ingredients landscape, leveraging its global footprint, diversified product portfolio, and operational excellence to navigate the current challenges. The company's focus on debt reduction, margin expansion, and strategic investments in sustainable technologies, such as the Diamond Green Diesel joint venture and the upcoming sustainable aviation fuel project, position it well for long-term growth and value creation. As Darling Ingredients continues to adapt to the changing market dynamics, investors should closely monitor the company's progress in executing its strategic initiatives and delivering on its financial targets.