8-K: Darling Ingredients Reports Steep Profit Decline in Q2 2025 Amidst DGD Weakness, Adjusts Full-Year Outlook

Darling Ingredients Inc. announced a significant drop in second-quarter net income to $12.7 million, or $0.08 per diluted share, primarily due to lower earnings from its Diamond Green Diesel joint venture, leading to a downward adjustment of its 2025 Combined Adjusted EBITDA outlook.

Summary

• Net income for the second quarter of 2025 was $12.7 million, or $0.08 per GAAP diluted share, a substantial decrease from $78.9 million, or $0.49 per diluted share, in Q2 2024.
• Total net sales for Q2 2025 remained consistent at $1.5 billion compared to the same period in 2024.
• Combined Adjusted EBITDA for Q2 2025 was $249.5 million, down from $273.6 million in Q2 2024.
• For the first six months of 2025, Darling Ingredients reported a net loss of $13.5 million, or ($0.09) per diluted share, compared to net income of $160.0 million, or $0.99 per diluted share, for the first six months of 2024.
• Diamond Green Diesel (DGD) sold 248.6 million gallons of renewable fuel in Q2 2025 at an average of $0.36 per gallon EBITDA, contributing to lower overall earnings.
• DGD's Adjusted EBITDA (Darling's Share) was $42.648 million in Q2 2025, a decrease from $76.642 million in Q2 2024.
• The Feed Ingredients segment reported an increase in Adjusted EBITDA to $135.9 million in Q2 2025 from $122.1 million in Q2 2024.
• The Food Ingredients segment's Adjusted EBITDA decreased slightly to $69.9 million in Q2 2025 from $73.2 million in Q2 2024.
• The company refinanced its long-term debt, enhancing financial flexibility and locking in borrowing costs.
• A non-binding term sheet was signed to form Nextida, a new collagen and gelatin company, in a joint venture with Tessenderlo Group.
• As of June 28, 2025, cash and cash equivalents stood at $95.0 million, with $1.27 billion available under its revolving credit agreement.
• Total debt outstanding was $3.98 billion, and the preliminary leverage ratio was 3.34X as of June 28, 2025, down from 3.93X at December 28, 2024.
• Capital expenditures were $71.0 million for Q2 2025 and $133.9 million for the first six months of 2025.
• The 2025 outlook for Combined Adjusted EBITDA has been adjusted to $1.05-$1.10 billion due to uncertainty concerning small refinery exemptions in the renewable fuel standard and delayed reaction from RIN pricing.

Sentiment

Score: 3

Explanation: The sentiment is negative due to a substantial decline in net income and EPS, a net loss year-to-date, and a downward adjustment to the full-year EBITDA outlook. While there are positive strategic developments and some segment improvements, the overall financial performance is significantly weaker than the prior year, primarily driven by the underperformance of the Diamond Green Diesel joint venture.

Positives

• Refinanced long-term debt, enhancing financial flexibility and locking in borrowing costs for years to come.
• Signed a non-binding term sheet to form Nextida, a new joint venture for collagen and gelatin, aiming to unlock value and accelerate growth in health and wellness markets.
• Feed Ingredients segment showed strong performance with Adjusted EBITDA increasing by 11.3% quarter-over-quarter.
• Improving market dynamics were observed, with strengthening fat prices expected to continue into Q3.
• Recent regulatory announcements for biofuels are supportive and anticipated to create an improving environment for the renewables business.
• The preliminary leverage ratio improved to 3.34X as of June 28, 2025, from 3.93X at December 28, 2024.

Negatives

• Net income for Q2 2025 significantly decreased by 83.9% to $12.7 million from $78.9 million in Q2 2024.
• Diluted EPS fell by 83.7% to $0.08 in Q2 2025 from $0.49 in Q2 2024.
• The company reported a net loss of $13.5 million for the first six months of 2025, a sharp decline from a net income of $160.0 million in the same period of 2024.
• Combined Adjusted EBITDA for Q2 2025 decreased by 8.8% to $249.5 million from $273.6 million in Q2 2024.
• Lower earnings at Diamond Green Diesel (DGD) were the primary driver for the overall decline in net income.
• The 2025 outlook for Combined Adjusted EBITDA was adjusted downwards to $1.05-$1.10 billion due to market uncertainties and delayed RIN pricing reaction.

Risks

• Existing and unknown future limitations on the ability of direct and indirect subsidiaries to make cash flow available to the company.
• Reduced demands or prices for biofuels, biogases, or renewable electricity.
• Volatility in global demands for grain and oilseed commodities impacting feed costs and product selling prices.
• Reductions in raw material volumes due to weak meat production margins, reduced consumer demand, government regulations, or reduced volume from food service establishments.
• Reduced demand for animal feed.
• Reduced finished product prices, including a decline in fat, used cooking oil, protein, or collagen prices.
• Changes to government policies relating to renewable fuels and greenhouse gas emissions that adversely affect prices, margins, or markets, including tax credits.
• Climate-related adverse results, including with respect to the company's climate goals, targets, or commitments.
• Possible product recall resulting from unauthorized adulterations to food or food additives or products not meeting specifications.
• Occurrence of animal diseases such as H1N1 flu, avian influenza, BSE, PED, or African Swine Fever.
• Occurrence of pandemics, epidemics, or disease outbreaks, such as COVID-19.
• Unanticipated costs and/or reductions in raw material volumes related to compliance with existing or unforeseen new U.S. or foreign regulations.
• Risks associated with the DGD Joint Venture, including possible unanticipated operating disruptions and a decline in margins.
• Risks and uncertainties relating to international sales and operations, including imposition of tariffs, quotas, trade barriers, and other trade protections by foreign countries.
• Tax changes, such as global minimum tax measures, or issues related to administration, guidance, and/or regulations associated with biofuel policies.
• Difficulties or significant disruptions (including cyber-attacks) in information systems, networks, or data integrity.
• Possible third-party claims of intellectual property infringement.
• Increased contributions to pension and benefit plans.
• Bad debt write-offs.
• Loss of or failure to obtain necessary permits and registrations.
• Continued or escalated conflict in the Middle East, North Korea, Ukraine, or elsewhere.
• Uncertainty regarding the exit of the U.K. from the European Union.
• Uncertainty regarding any administration changes in the U.S. or elsewhere around the world, including impacts to trade, tariffs, and/or policies.
• Unfavorable export or import markets.
• Volatile prices for natural gas and diesel fuel, inflation rates, climate conditions, currency exchange fluctuations, general performance of economies, and disturbances in financial markets.
• Competition from companies that may have substantially greater resources.
• The company's announced share repurchase program may be suspended or discontinued at any time.

Future Outlook

The company adjusted its 2025 outlook for Combined Adjusted EBITDA to $1.05-$1.10 billion, citing uncertainty regarding small refinery exemptions in the renewable fuel standard and delayed reaction from RIN pricing. Management anticipates continued improvement in the third quarter for the core ingredients business, driven by strengthening fat prices. The California Low Carbon Fuel Standard (LCFS) is expected to strengthen and support margin recovery over time, and the proposed Renewable Volume Obligation (RVO) framework is seen as a major tailwind for the renewables market and RINs, reinforcing long-term demand and supporting a healthy margin environment.

Management Comments

• "Our second quarter displayed improving market dynamics, building momentum through the quarter and beyond."
• "The recent regulatory announcements for biofuels are supportive and should create an improving environment for our renewables business."
• "We delivered positive earnings, maintained strict capital discipline and enhanced our financial flexibility through a successful refinancing that locks our borrowing costs for years to come."
• "We also advanced our strategic agenda with the launch of Nextida, a new joint venture that should position us to unlock value and accelerate growth for our global collagen business in the high-potential health and wellness markets."
• "We anticipate continued improvement in the third quarter for our core ingredients business, led by strengthening fat prices."
• "Global tariffs continue to present supply chain disruptions and uncertainty; however, our global footprint provides flexibility to arbitrage to the most profitable markets."

Industry Context

The announcement reflects a mixed environment for Darling Ingredients. While the core Feed Ingredients business shows strength driven by rising fat prices and attractive slaughter margins, the Fuel Ingredients segment, particularly the Diamond Green Diesel joint venture, faced significant headwinds due to market dynamics, regulatory uncertainty around small refinery exemptions, and delayed RIN pricing. The strategic move to form Nextida aligns with the growing global demand for collagen in health and wellness, indicating a diversification and focus on high-potential value-added products within the food ingredients sector. Regulatory support for biofuels, despite current uncertainties, is viewed as a long-term positive for the renewables market.

Related Party Transactions

• Net sales to related party Diamond Green Diesel were $291.530 million for the three months ended June 28, 2025, and $509.482 million for the six months ended June 28, 2025.

Stakeholder Impact

• Shareholders are negatively impacted by the significant decline in net income and earnings per share, as well as the lowered full-year outlook.
• Investment professionals and analysts will need to re-evaluate their models based on the adjusted EBITDA guidance and the performance of the DGD joint venture.
• The formation of Nextida could positively impact future growth and value for shareholders in the long term.

Next Steps

• Hold a conference call and webcast on July 24, 2025, to discuss the financial results.
• Continue scientific validation for Nextida GC Glucose Control, with additional studies nearing completion.
• Monitor and adapt to global tariffs and supply chain disruptions.
• Anticipate continued improvement in the third quarter for the core ingredients business, led by strengthening fat prices.
• Observe the strengthening of California LCFS and its support for margin recovery over time.
• Monitor the proposed RVO framework for its impact on the renewables market and RINs.

Key Dates

Recommendation

The stock is a 'hold' for a seasoned investor. While the significant decline in net income and the downward revision of the full-year EBITDA outlook are clear negatives, the company is actively pursuing strategic initiatives like the Nextida joint venture, which could unlock long-term value in the high-growth collagen market. The core Feed Ingredients business is showing strength with improving fat prices, and management anticipates overall improvement in Q3. The refinancing of long-term debt also enhances financial flexibility. The current underperformance is largely attributed to the Diamond Green Diesel joint venture and external regulatory uncertainties, which may be temporary. Investors should monitor the execution of the Nextida venture and the recovery in the renewables market, as these factors could drive future performance, but the immediate financial results warrant caution rather than a 'buy' or 'sell' action.

Keywords

Renewable Diesel, Biofuels, Collagen, Gelatin, Rendering, Animal By-products, Food Ingredients, Feed Ingredients, Sustainability, Circular Economy, Diamond Green Diesel, Nextida, EBITDA, SEC Filing, Financial Results