8-K: Darling Ingredients Reports Mixed Q4 Results Amidst Renewable Diesel Downturn, Yet Achieves Record Annual Growth

Darling Ingredients reported a decrease in fourth-quarter net income due to lower earnings from its Diamond Green Diesel joint venture, despite achieving record annual growth in volumes and adjusted EBITDA.

Summary

• Darling Ingredients reported a net income of $84.5 million, or $0.52 per diluted share, for the fourth quarter of 2023, a decrease compared to $156.6 million, or $0.96 per diluted share, in the same period of 2022.
• The decrease in net income was primarily due to reduced earnings from the Diamond Green Diesel (DGD) joint venture.
• Net sales for the fourth quarter of 2023 were $1.6 billion, down from $1.8 billion in the fourth quarter of 2022.
• For the full fiscal year 2023, net sales reached $6.8 billion, an increase from $6.5 billion in 2022.
• Full-year net income was $647.7 million, or $3.99 per diluted share, compared to $737.7 million, or $4.49 per diluted share, in 2022.
• The company achieved its sixth consecutive year of record growth in volumes and combined adjusted EBITDA.
• Combined adjusted EBITDA for the fourth quarter of 2023 was $350.9 million, down from $413.0 million in the same period of 2022.
• Combined adjusted EBITDA for the full year 2023 was $1.61 billion, up from $1.54 billion in 2022.
• Diamond Green Diesel sold 336.6 million gallons of renewable diesel in the fourth quarter of 2023 at an average of $0.23 per gallon EBITDA.
• In 2023, DGD sold 1.2 billion gallons of renewable diesel at an average of $0.81 per gallon EBITDA.
• Darling Ingredients received $163.6 million in cash dividends from the DGD joint venture in 2023.
• As of December 30, 2023, the company had $126.5 million in cash and cash equivalents, and $832.5 million available under its revolving credit agreement.
• Total debt outstanding was $4.4 billion, with a leverage ratio of 3.26X as of December 30, 2023.
• Capital expenditures were $174.9 million for the fourth quarter and $555.5 million for the full year 2023.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative. While the company achieved record annual growth, the significant decrease in Q4 earnings and the reliance on the volatile renewable diesel market temper the positive aspects. The company's forward-looking statements are optimistic, but the current results show a mixed picture.

Positives

• Darling Ingredients achieved its sixth consecutive year of record growth in volumes and combined adjusted EBITDA.
• Full-year net sales increased to $6.8 billion from $6.5 billion in the previous year.
• Full-year combined adjusted EBITDA reached $1.61 billion, up from $1.54 billion in 2022.
• The company received $163.6 million in cash dividends from the Diamond Green Diesel joint venture in 2023.
• Darling Ingredients has a strong cash position with $126.5 million in cash and cash equivalents and $832.5 million available under its credit agreement.

Negatives

• Net income for the fourth quarter of 2023 decreased to $84.5 million, or $0.52 per diluted share, compared to $156.6 million, or $0.96 per diluted share, in the same period of 2022.
• The decrease in net income was primarily due to reduced earnings from the Diamond Green Diesel (DGD) joint venture.
• Net sales for the fourth quarter of 2023 were $1.6 billion, down from $1.8 billion in the fourth quarter of 2022.
• Combined adjusted EBITDA for the fourth quarter of 2023 was $350.9 million, down from $413.0 million in the same period of 2022.
• Diamond Green Diesel's Q4 renewable diesel sales had an average EBITDA of $0.23 per gallon, significantly lower than the full-year average of $0.81 per gallon.

Risks

• The company's performance is heavily influenced by the Diamond Green Diesel joint venture, and a decline in DGD earnings significantly impacts overall profitability.
• Commodity price volatility, particularly in the renewable fuels market, poses a risk to the company's earnings.
• Changes in government policies related to renewable fuels and greenhouse gas emissions could adversely affect the company's business.
• The company faces risks related to international sales and operations, including tariffs and trade barriers.
• The company is exposed to risks associated with possible product recalls and diseases associated with animal origin.
• The company's debt level of $4.4 billion could pose a risk if not managed effectively.

Future Outlook

Darling Ingredients remains optimistic about a strong performance in 2024, driven by its vertically integrated business model.

Management Comments

• Darling Ingredients had another great year with its 6th record year of growth in volumes and combined adjusted EBITDA, said Randall C. Stuewe, Darling Ingredients Chairman and Chief Executive Officer.
• Our vertically integrated business continues to demonstrate that Darling Ingredients can deliver strong earnings that offsets commodity volatility.
• Darling Ingredients is committed to continuing to drive shareholder results.
• We have built a strong business and remain optimistic on a strong performance in 2024, Stuewe said.

Industry Context

The results reflect the broader trends in the renewable fuels market, where volatility in commodity prices and government policies can significantly impact earnings. The company's performance is also tied to the animal agriculture and food industries, which provide the raw materials for its operations.

Comparison to Industry Standards

• Darling Ingredients' performance in the renewable diesel sector is closely tied to the performance of its joint venture, Diamond Green Diesel, which is a major player in the renewable diesel market.
• The company's adjusted EBITDA of $1.61 billion for the year is a key metric, and its performance can be compared to other companies in the rendering and renewable fuels industries, such as Neste and Renewable Energy Group (now part of Chevron).
• The average EBITDA per gallon for DGD at $0.81 for the year is a key metric to compare against other renewable diesel producers.
• The company's leverage ratio of 3.26X is a key metric to compare against other companies in the sector, with a higher ratio indicating higher financial risk.
• The company's capital expenditures of $555.5 million for the year is a key metric to compare against other companies in the sector, with higher capital expenditures indicating higher investment in growth.

Related Party Transactions

• The document mentions accounts receivable due from related party Diamond Green Diesel.

Stakeholder Impact

• Shareholders may be concerned about the decrease in Q4 net income and the volatility in the renewable diesel market.
• Employees may be impacted by any changes in the company's performance or strategy.
• Customers and suppliers may be affected by any changes in the company's operations or supply chain.
• Creditors may be concerned about the company's debt level and leverage ratio.

Next Steps

• Darling Ingredients will host a conference call on February 28, 2024, to discuss the financial results.
• The company will participate in several investor conferences in February and March 2024.

Key Dates

Keywords

Darling Ingredients, Diamond Green Diesel, Renewable Diesel, EBITDA, Net Income, Net Sales, Biofuels, Animal By-Products, Collagen, Renewable Energy