Darling Ingredients Inc. (DAR) is a global leader in converting animal by-products and organic waste into high-value ingredients across the feed, food, and fuel segments. As the world's largest independent renderer, the company processes over 12 million metric tons of raw material annually, sourcing waste from slaughterhouses, grocery stores, and restaurants. This scale advantage allows Darling to maintain a dominant market position, particularly in its Feed Ingredients and Fuel Ingredients segments.
Darling Ingredients' History of Sustainable Innovation
Darling Ingredients traces its roots back to 1882, when the company was founded as a rendering operation in Chicago. Over the past 142 years, the company has evolved from its humble beginnings into a vertically integrated global leader in the production of sustainable ingredients. In the 1990s and 2000s, Darling began expanding internationally, establishing operations in Europe, South America, Asia, and Australia.
The company's early focus was on collecting and processing beef, poultry, and pork animal by-products in North America into non-food grade oils and protein meals. As it expanded, Darling diversified its business by adding bakery residuals processing, blood plasma production, hide processing, and organic fertilizer production to its portfolio of offerings.
A significant milestone in Darling's history was the formation of the Diamond Green Diesel (DGD) joint venture with Valero Energy Corporation in 2011. This strategic partnership allowed Darling to capitalize on the growing demand for low-carbon transportation fuels, leveraging its extensive supply of animal fats and used cooking oils as feedstock for renewable diesel fuel production. The DGD joint venture has since grown to include two large production facilities.
Throughout its history, Darling has faced and overcome various challenges. In 2009, the company had to navigate the H1N1 "swine flu" outbreak, which impacted animal by-product volumes. More recently, Darling has had to adapt to changing global regulations around animal feed, emissions, and sustainability. The company has worked diligently to comply with these new rules while also advancing its own environmental, social, and governance practices to position itself for long-term success.
Darling's Robust Financial Profile
Darling's financial performance has been consistently strong, with the company reporting annual revenues of $5.72 billion and net income of $278.9 million for the fiscal year ended December 2024. This represents a decrease from the previous year when the company reported net income of $647.7 million or $3.99 per diluted share. The company's vertically integrated business model and market-leading positions have enabled it to generate robust operating cash flows, although specific figures for operating cash flow and free cash flow were not provided for fiscal 2024.
In the fourth quarter of 2024, Darling reported revenue of $1.42 billion, a 12.2% decrease compared to the same period in 2023. However, net income for the quarter increased by 20.4% to $101.9 million. This mixed performance reflects the company's ability to manage costs and improve profitability despite challenging market conditions.
Liquidity
Darling's balance sheet remains strong, with the company paying down $353.4 million in debt during fiscal 2024 and reducing its leverage ratio to 3.68x. As of September 28, 2024, Darling had a debt-to-equity ratio of 0.97, cash reserves of $114.78 million, and $1.01 billion available under its revolving credit facility. The company's current ratio and quick ratio both stood at 1.41, indicating a healthy short-term liquidity position.
This financial flexibility allows Darling to fund growth initiatives, such as the expansion of its renewable fuel capabilities, while also returning capital to shareholders through a share repurchase program. The company's focus on deleveraging, with a target of reaching a 2.5 times bank leverage ratio in the future, demonstrates its commitment to maintaining a strong financial position.
Operational Excellence Driving Margin Expansion
Darling's focus on operational excellence has been a key driver of its financial performance. In the fourth quarter of 2024, the company's Feed Ingredients segment reported a gross margin of 22.6%, up from 21.5% in the prior quarter, despite lower fat prices. This improvement was attributed to the team's effective margin management and smart capital deployment.
Similarly, the company's Food Ingredients segment saw its gross margin increase from 23.9% in the third quarter to 25.7% in the fourth quarter, as Darling continued to focus on managing its product mix and pricing. The successful launch of the company's Nextiva natural collagen peptide product has also been a promising development, with demand beginning to accelerate.
For the first nine months of fiscal 2024, the Feed Ingredients segment recorded total net sales of $2.75 billion, the Food Ingredients segment recorded $1.13 billion, and the Fuel Ingredients segment recorded $418.62 million. The company's overall gross margin percentage for this period was 22.0%, with the Feed Ingredients segment at 21.1%, the Food Ingredients segment at 24.9%, and the Fuel Ingredients segment at 19.9%. Segment operating income for the first nine months was $143.75 million for Feed Ingredients, $108.94 million for Food Ingredients, and $157.14 million for Fuel Ingredients.
Regulatory Tailwinds and the Potential of 45Z
The recent guidance from the U.S. Department of the Treasury on the 45Z clean fuel production tax credit has provided Darling and its DGD joint venture with a clear path to realize and monetize the value of this incentive. As the largest producer of low-carbon intensity feedstocks, such as animal fats and used cooking oil, Darling is well-positioned to benefit from this credit, which is only available to U.S. biofuel producers.
Moreover, the tightening of the Renewable Fuel Standard (RFS) and low-carbon fuel standards, coupled with the curtailment of domestic biodiesel and renewable diesel capacity, is creating a more favorable supply-demand environment for Darling's products. The company's strategic locations, logistical flexibility, and ability to process a diverse range of feedstocks position it to capitalize on these emerging market dynamics.
Risks and Challenges
While Darling's outlook remains positive, the company is not without its risks and challenges. The volatile nature of commodity prices, particularly for animal fats and used cooking oils, can impact the company's margins. Additionally, Darling is subject to various regulatory changes, both domestically and internationally, which could affect its operations and financial performance.
The company is also exposed to potential supply chain disruptions, labor shortages, and the ongoing geopolitical tensions that have affected global trade and energy markets. Darling's ability to navigate these headwinds will be crucial in maintaining its competitive edge and delivering value to shareholders.
Future Outlook and Guidance
Looking ahead to 2025, Darling has provided guidance of $1.25 billion to $1.3 billion in combined adjusted EBITDA. The company expects 2025 to be stronger than 2024, gaining momentum throughout the year as DGD turnarounds are completed and sustainable aviation fuel (SAF) sales command a larger percentage of their mix. Darling plans to continue driving robust research and development in collagen peptides and exploring expansion opportunities in renewable natural gas markets.
The company is also focusing on ways to convert more renewable diesel into SAF, as their SAF sales book continues to build. This strategic shift aligns with the growing demand for sustainable aviation fuel and could provide a significant growth opportunity for Darling in the coming years.
Conclusion
Darling Ingredients Inc. is a vertically integrated champion in the renewable fuels and animal by-products markets, with a long history of sustainable innovation and operational excellence. The company's robust financial profile, focus on margin expansion, and favorable regulatory tailwinds position it for continued growth and success. While challenges remain, Darling's market-leading positions and diversified business model make it a compelling investment opportunity for those seeking exposure to the rapidly evolving sustainability landscape.
With operations in over 15 countries and a strong presence across its three main segments - Feed Ingredients, Food Ingredients, and Fuel Ingredients - Darling is well-positioned to capitalize on global trends in sustainable resource management and renewable energy production. As the company continues to invest in research and development, expand its product offerings, and optimize its operations, it is poised to maintain its leadership position in the industry and deliver long-term value to its shareholders.