8-K: Darling Ingredients Reports Lower Q3 2024 Earnings Amidst Market Headwinds

Darling Ingredients experienced a significant decrease in net income for the third quarter of 2024, primarily due to lower fat prices and reduced earnings from Diamond Green Diesel.

Summary

• Darling Ingredients reported a net income of $16.9 million, or $0.11 per diluted share, for the third quarter of 2024, a significant decrease compared to $125.0 million, or $0.77 per diluted share, in the same period of 2023.
• Total net sales for Q3 2024 were $1.4 billion, down from $1.6 billion in Q3 2023, reflecting lower finished product pricing.
• The company's combined adjusted EBITDA for Q3 2024 was $236.7 million, compared to $334.3 million in Q3 2023.
• For the first nine months of 2024, net sales totaled $4.3 billion, down from $5.2 billion in the same period of 2023, and net income was $177.0 million, or $1.10 per diluted share, compared to $563.2 million, or $3.47 per diluted share, in 2023.
• Diamond Green Diesel (DGD) sold 316.6 million gallons of renewable diesel in Q3 2024 at an average of $0.25 per gallon EBITDA, and Darling received $111.2 million in cash dividends from DGD.
• Year-to-date, DGD has sold 959.5 million gallons at an average of $0.48 per gallon EBITDA.
• Capital expenditures were $67.4 million for Q3 2024 and $259.1 million for the first nine months of 2024.
• Darling Ingredients expects full fiscal year 2024 combined adjusted EBITDA to be between $1.15 billion and $1.175 billion.

Sentiment

Score: 4

Explanation: The sentiment is moderately negative due to the significant decrease in net income and EBITDA, although the company is taking steps to improve its future outlook. The reduction in debt is a positive sign, but the overall financial results are concerning.

Positives

• The company reduced debt by approximately $192 million during the third quarter.
• Darling Ingredients received $111.2 million in cash dividends from Diamond Green Diesel during the third quarter.
• The company's sustainable aviation fuel plant is in the process of commissioning.
• The regulatory landscape is increasingly supportive of using waste fats and oils as feedstocks in renewable fuels.
• The company anticipates improved performance in 2025.

Negatives

• Net income significantly decreased in Q3 2024 compared to Q3 2023.
• Total net sales decreased in Q3 2024 compared to Q3 2023.
• Combined adjusted EBITDA decreased in Q3 2024 compared to Q3 2023.
• The decrease in net income was primarily due to a sharp year-over-year decline in fat prices and lower earnings within Diamond Green Diesel.
• The company is navigating challenging markets.

Risks

• The company faces volatile global commodity markets.
• There is uncertainty regarding regulatory programs.
• The company is exposed to fluctuations in fat prices.
• The company is exposed to fluctuations in renewable fuel markets.
• The company is exposed to fluctuations in the price of competing products such as soybean oil and corn.
• The company is exposed to risks associated with the DGD Joint Venture, including possible unanticipated operating disruptions.

Future Outlook

The company anticipates improved performance in 2025, with the sustainable aviation fuel plant commissioning and a supportive regulatory landscape for waste fats and oils in renewable fuels. Full year 2024 combined adjusted EBITDA is expected to be between $1.15 billion and $1.175 billion.

Management Comments

• Randall C. Stuewe, Chairman and Chief Executive Officer, stated that even with challenging markets, core ingredients cash flows and dividends from DGD allowed the company to reduce debt by about $192 million.
• Management believes the environment for 2025 is shaping up nicely.

Industry Context

The results reflect the challenges in the renewable fuels and animal by-products industries, with lower fat prices and reduced earnings from DGD impacting overall performance. The company is positioning itself to benefit from the growing demand for sustainable aviation fuel and renewable fuels.

Comparison to Industry Standards

• Darling Ingredients' Q3 2024 results show a significant decline in net income and EBITDA compared to the same period last year, indicating a challenging quarter.
• The decrease in fat prices and lower earnings from Diamond Green Diesel are key factors impacting the results, suggesting that the company's performance is closely tied to these market conditions.
• Compared to other companies in the renewable fuels sector, Darling's performance may be seen as weaker due to the significant drop in profitability, however, the company is still generating positive cash flow and reducing debt.
• Companies like Neste and Renewable Energy Group (REG) are also facing similar challenges in the renewable fuels market, but Darling's reliance on fat prices and DGD makes it particularly vulnerable to these fluctuations.
• The company's focus on sustainable aviation fuel and the use of waste fats and oils as feedstocks aligns with industry trends, but the commissioning of the SAF plant and the regulatory landscape will be critical for future performance.

Stakeholder Impact

• Shareholders will be concerned about the significant decrease in net income and EBITDA.
• Employees may be affected by the company's performance and future outlook.
• Customers may be impacted by changes in product pricing and availability.
• Suppliers may be affected by changes in raw material demand and pricing.
• Creditors may be concerned about the company's debt levels and leverage ratio.

Next Steps

• The company will hold a conference call and webcast on October 24, 2024, to discuss the financial results.
• The company anticipates improved performance in 2025 and will comment more broadly on the drivers during its earnings call.

Key Dates

Keywords

Darling Ingredients, Diamond Green Diesel, renewable diesel, EBITDA, net income, net sales, fat prices, renewable fuels, sustainable aviation fuel, feedstock, adjusted EBITDA