Q1 2023 Darling Ingredients Inc Earnings Call
Good morning, and welcome to the Darling Ingredients, Inc Conference call to discuss the company's first quarter 2023 and resolved after the Speakers' prepared remarks, there will be a question and answer period and instructions to ask a question will be given at that time today's call is being recorded I would now like to turn the call.
MS. Joanne Guthrie. Please go ahead.
President ever available in U S specialty operation.
Our first quarter, two 2023 earnings news release and slide presentation are available on the Investor Relations page under events and presentations tab on our corporate web site and will be joined by a transcript of this call. Once the data is available.
During this call we will be making forward looking statements, which are predictions projections and other statements about future events. These statements are based on current expectations and assumptions that are risks that are subject to risks and uncertainties actual results could materially differ because of factors discussed in yesterday's press release and the comments made during.
This conference call and in the risk factors section of our Form 10-K, 10-Q, and other reported filings with the Securities and Exchange Commission, we do not undertake any duty to update any forward looking statements I will now hand, the call over to Randy.
Thanks, Joanne good morning, everybody and thanks for joining us for our first quarter 2023 earnings call.
We have had a very solid start to the year all business units performed as expected in our D. J D system attained full rate during the month of March.
Looking at our segments in detail for the first quarter 2023, we ended the quarter at $418 4 million in combined adjusted EBITDA. The feed ingredients segment ended the quarter at 213.1, our specialty food ingredients segment earned 73.2, while our fuel segment earned 153.
0.6 in EBITDA with approximately 129.3 attributed to Diamond Green diesel.
Turning to the feed ingredients segment in detail globally raw material volumes were up 39% compared to first quarter 2022, while we saw a decline in global fat prices protein prices remained strong around the world.
While lower fat prices will modestly impact this segment it will be more than offset by higher earnings and Diamond Green diesel in future quarters integration of our recent acquisitions remains a key focus I'm pleased to report that once again, we realized sequential gross margin improvements we continue to make improvements in our recently.
We acquired eastern USA plants that will improve reliability and efficiency as well allow us to produce and market higher value finished products. We're pleased with the progress and believe by year end, we will be nearly complete.
Turning to our specialty food ingredients segment, the global collagen and gelatin business remains robust we closed on the Jelinek acquisition on March 31, and integration work has already started together. We believe we have the strongest and most robust collagen system in the world with a pipeline of new products for years to come.
Moving to our fuel segment Diamond Green diesel is running very well and set another sales record in first quarter. We have achieved a milestone with the D. G. D system operating at 1.2 billion gallons annually. It should be noted that March shipments were light with ship loadings moving into Q2 with lower fat prices in inbound logistics running smoothly.
Second quarter is shaping up to be a record for diamond Green diesel now with this I'd like to hand, the call over to Brad to take us through the financials, then I'll come back and discuss my outlook and thoughts on the balance of 2023, Brandon. Okay. Thanks, Randy net income for the first quarter 2023 totaled $185 8 million or $1.
<unk> per diluted share compared to net income of $188 1 million or $1 14 per diluted share for the 2022 first quarter net sales were 1.79 billion for the first quarter 2023, as compared to 1.37 billion for the first.
The $255 8 million for the first quarter of 2023 compared to $232 9 million for the first quarter of 2022, primarily due to a $78 4 million increase in gross margin.
As Randy said, the gross margin continued to sequentially improve for all segments.
Darling share of Diamond Green Diesels earnings increased $23 5 million quarter over quarter, which more than offset depreciation and amortization, increasing $36 8 million SG&A, increasing about $33 4 million.
And four and a half million in additional restructuring costs, primarily related to the Peabody closure.
Total other expenses increased approximately $21 7 million quarter over quarter with an increase in interest expense of 30, $34 7 million, partially offset by an increase in foreign currency gains of $6 1 million and an increase in other income of $6 9 million, which was primarily due to cash.
Casually loss insurance proceeds received for the prior year Tacoma plant fire.
Now turning to income taxes. The company recorded income tax expense of $27 million for the first quarter of 2023 with an effective tax rate for the first quarter of 12, 4%, which differs from the statutory federal statutory rate of 21% due primarily to biofuel tax incentives and the relative <unk>.
Of earnings among jurisdictions with different tax rates. The company also paid $39 million of income taxes in the first quarter for 2023, we are projecting an effective tax rate of 14% and cash taxes of approximately $140 million for the remainder of the year the.
The balance sheet now exceeds 10 billion in assets with the inclusion of gel next since <unk> closed at the very end of the first quarter No earnings activity was recorded.
In Q1, the company's total debt outstanding at first quarter 2023 was $4 7 billion. After the <unk> acquisition as compared to $3 4 billion at fiscal year end 2022 and.
In conjunction with the gel next funding we entered into a three year interest rate swap to fixed 600 million of floating rate debt at an average swap rate of 378% and also entered into a two year cross currency swap by $557 million to hedge the euro intercompany loan, which synthetically converted.
Is that euro debt and reduce the interest rate about 1.2%.
Our bank coverage leverage ratio at the end of the first quarter was $3 one nine times as compared to 2.54 times at fiscal year end 2022, we continue to maintain strong liquidity with $866 million available on our revolving credit facility as of quarter end.
Capital expenditures totaled $111 3 million in the first quarter with $454 million of expenditures anticipated for the remainder of the year.
The company repurchased approximately 773000 shares of its common stock for $43 8 million during the first quarter with that I'll turn it back to you Randy.
Thanks, Brad again Darling is off to a tremendous start for 2023 raw material volumes are in line with expectation integration activities are on target energy prices in Europe have moderated our global collagen and gelatin business is quite strong and diamond Green diesel is expected to perform very well with lower raw.
Prices strong green premiums and robust global demand the earning power of our unique vertically integrated business. We have built will become very evident over the next few quarters. Finally, we remain committed to our financial management policy that we have previously discussed D. J D is now nearly de Levered and dividends should.
Come a reality very soon leverage post our Brazilian acquisition has peaked and we will target a 2.7 leverage ratio by year end along with the goal of investment grade for 2024 other than our previously announced mirror pause bolt on acquisition in Poland, which is expected to close by year end, our M&A activity has.
Been par so we can concentrate on integration value creation and deleveraging I have high expectations for the second quarter and if the operating environment continues we're estimating combined adjusted EBITDA to be in the range of $485 million to $525 million for the year were once again reconfirming our.
Guidance of 1.875 billion combined adjusted EBITDA now with that let's go ahead and open it up to Q&A. Please.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the key to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Yeah.
And our first question will come from Manav Gupta of UBS. Please go ahead.
Hum Congress.
Very good quarter, great to see continuous improvement in the gross margin.
Randy you have got some pushback on your recent M&A deal.
But it looks like things are really falling base now those deals like giving you a peak volume bump.
Exceeds market expectations. My question is with regard to spark demand for your products, which support these higher volumes do you think the demand for Sox bookings and you feel well actually holds up well for the next 12 to 24 months.
Can we ask you do you see an increase in demand.
That's both feed and food in the medium to longer term.
Yeah, Thanks, Manav and John Bullock, I'll kind of tag team. This a little bit of your thoughts here, but yeah, I mean global demand for proteins remain incredibly strong out their pet food demand remains strong pricing premiums or are as expected you know clearly the fats and oils business around the where.
World seems to have come off a little bit with palm oil leading the way in soy following and then waste fats.
I can't tell you.
Other than the C. I premium can attain a a a considerable premium above the two biggest fats and oils in the world.
With that you know demand is good I mean diamond Green diesel is running at capacity and so at the end of the day that's different than a if you will you know the fourth quarter as we were continuing to struggle with logistics down and and Port Arthur So yeah demand is going to continue to be very strong.
Whether it comes from domestic or import it'll depend on the arbitrage, but most importantly, as a management team we want people to understand but you know the.
Except in the strategy that we built diamond Green diesel under the the one.
Piece of information that people just continue to ignore is that Darling doesn't supply 100% of Diamond Green diesel it can't it's too Big you know our system has the ability globally to supply up to about half. If we if we want to if we don't have better markets its not near that today, so what's that mean to the feed.
Segment entered the overall business, it's very simple we have cole shareholders for year that every penny the fat prices move up or down is somewhere around $10 million to $11 million annually in U S. Dollar EBITDA. So fat prices are down I don't know 12, 15 cents, let's call. It you know that that's 100.
$165 million of EBITDA.
So easy math 10 cents a pound.
With the with standard yields and a diamond Green diesel plant for US you know call. It 90 cents, a gallon or potential improvement in margin half of that is 45 cents and so if you just capture half or two thirds, then times 1.2 billion gallons, you've got somewhere between five and 700 million of EBITDA.
The improvement, which we get half up so you know in in the sense of you know basic amateur investment thesis. If if you give somebody a 150 million and they're gonna Union back three or $400 million. That's a pretty good investment. So we want people to focus on the system and that was the system that we built diamond Green.
Diesel it's collective demand drives you know a larger share of earnings for Darling, John anything you want to add to this so yeah.
I think you mentioned in your statement.
Statement there manav the reason, we scaled it because we know what the value of low Ci fats are in the world and with the valley deal and the parser deal we massively scaled our ability to have low Ci fats available for Diamond Green diesel worried they're going to get it in the form of higher fat prices in our car system or we're going to get into Diamond Green diesel.
So the bar is higher margins at Diamond Green diesel so basically we're going to win no matter, how the cards or gals.
Thank you for that detailed response, congrats on a great quarter.
Thank you thanks.
The next question will come from Tom Palmer at J P. Morgan.
Good morning, and thanks for the question I know there's a.
Just walk through a little bit the moving pieces right with feedstock pricing and what that means for both the base business and at Diamond Green diesel, but in the past you provided within your guidance some outlook for EBITDA per gallon. It E. G. D. And then also kind of what Youre thinking in terms of base business earnings I didn't hear that today and again I know there's some moving.
He says, especially with the feedstock pricing, but do you have any kind of rough construct them how that one 875, you bet that outlet splits between the two sides of the business.
Good question, Tom you know that's that's the part that we want people to focus on the system rather than trying to segment down to food feed and fuel.
It's a dynamic situation and as John Bullock said, we win under either scenario. So at the end of the day, you know, that's where we're coming out and saying for 85, so how do I get that get 485, well. That's 1875 minus 418 divided by three last time I checked and then at the end of the day, we bill.
Leave that the lower fat prices will have some opportunity for bigger gallons in diamond Green diesel and in Q2 as I also made my earlier comments you know boat loadings are not always linear and some gallons moved from Q1 to Q2, So that's where we're given the the larger guidance, but we're largely on target.
And as we said it'll move from one side of the ledger to the other side of the ledger as we go forward.
Thanks for that and maybe I could just quickly follow up on the on the gallons comment. So if I look at the last couple of years I last quarter. There was about a $20 million under shipment relative to production and then last year. It was a bit closer to $30 million. So is there inherently.
The business just given it's so much bigger that that kind of accumulated 50 million in inventory as a portion of that just paid going forward theres always going to be a little bit more inventory being held I'm just trying to get a sense of how much when you're kind of talking about this unwind coming in terms of shipment timing, we should be thinking about it is at that $20 million or is there this larger pool club.
Or to 50 that should unwind as the year plays out.
Unloaded you know it doesn't get recognized in our our business. So there's always those pieces in here, but and you know obviously, if I look at the 418 and I look at the Bill of Lading dates here you know maybe it would've added I don't know 15 20 million to the quarter in Q1, so that's about as granular as we can get there.
But no you know inventory is going to build and go as we load rail or we load barge or we load ship here. So nothing there to try to over think.
Okay. Thanks, so much.
And our next question comes from Derrick Whitfield of Stifel.
Okay.
Good morning, all and congrats on a solid start to the year.
Thank you I'm wondering where my.
Well My first question I wanted to focus on EBITDA guidance, and I apologize, Randy, but really wanted to better frame the setup for your business and the value of your business from our perspective every segmented segment is outperforming our model with margins in Q1 and seemingly have tailwind now in nearly every every segment.
Segment, including Gillin exit margin contribution and food daily margin uplift could be in your four to one net net EBITDA gain in D. D. D margins as a result of lower fat prices.
Having said that isn't it reasonable for us to think that your twenties weaker guidance at 1.875 billion.
Is relatively conservative.
My personal opinion is that it is but I want to keep in mind that the marketplace is still inverted on fats proteins around the world as the world expects bigger crops of everything again this year.
Ultimately you know as we've tried to tell people.
Our Diamond Green diesel system has a very significant competitive advantage and I think it's been obvious with the other releases of earnings out there and so you know what we're trying to do is make sure that we believed that the diamond Green system. We're trying to we're trying to forecast I mean, we gave earlier guidance in the ear of what sandy.
About $1 2 billion gallons and $1 25, right now those margins on a spot basis are quite a bit higher why because of higher fee or lower feedstock.
But at the end of the day, we're kind of sitting there doing the in the feed segment clearly are our operations team has done a tremendous job of bringing in that system and getting that aligned with our normal Darling operations, our Brazilian operations are performing very well our gelatin oncology.
Is this around the world is doing very well and where we're about to add another six or seven plants and in the system here.
In the second quarter with gel next being integrated and so and then our green energy business in Europe , So I mean, yeah.
They're a bit of tailwind here, but not really these are just solid operations that are going on now with with proper risk management, John anything you want to add to that yeah, I think what oftentimes when we look at where our margin management company right. There's no doubt about it that as fat prices go up and down that's going to have an impact on our car rendering business well we.
Have an embedded offset.
Inside the system now that actually maybe it often embedded I'll start with a multiplier in lower fat price times.
At the end of the day, we're able to manage our raw material costs around our system and all of our marketplaces and the only place where we've got any type of an embedded tremendous impact or even not a tremendous impact, but an impact on our core rendering businesses the fat segment.
And now we've embedded it offset that insulates us from that so at the end of the day and markets are going to go higher markets are going to go lower but we felt very very good about how we position the company to <unk>.
Have sustainable EBITDA no matter, what the market conditions are out there.
That's terrific and perhaps with my follow up with respect to gel next could.
Could you speak to what you've learned about the asset now that you've integrated it into Darling and be the potential synergies you see between it and reasonable.
Yeah. So this is John Yeah, I spent the last three weeks with the gel next team I can tell you that the gel nice organization is as good an organization as I've ever seen in my life. These are top professionals.
It's well managed excellent excellent group of employees that our plants are tremendous there.
Marketing efforts are tremendous there just a tremendous organization all the way around we cannot be more excited.
Cause brain gel and actually into the Darling family.
Very helpful. Thanks for your time.
And our next question will come from Alan.
Catherine.
Hi team. Thanks for taking my questions. My first one is on the feed segment.
It looks like you'll see in recovering our margins which is good.
I guess my question is how do we think about the pace of recovery I know I know previously you've talked about a thousand day integration.
And could that download be sooner or what's a good you know gross margin to think about for feed segment a normalized margin.
Mitch one of the sharpest Brett.
Say, we we have continuing improvements yet to be still gained in our system.
So yeah, you've noticed I mean, there is a definitely a randy pointed out our operations guys and what's transpired there the last two quarters.
I expect we'll continue so let's say in the mid 20% level.
Level, which is somewhere in the ballpark, where we were back back before Q3 last year.
And this is Randy I mean, clearly you guys wanted to focus on value, but also the Brazilian rendering system down there. We've had to put you know procurement and risk management and spread management systems in place down there as the markets have you know kind of moved around here. So you know that it's going to normalize out.
And in the mid Twenty's as Brad says when it seems to be very manageable right. There, we still got work to do with it in the eastern shore plants as I call them know their margins still have some some opportunity to be expanded there as we learn to make different products and learned to operate plants more reliability and then we've still got some raw.
Cereal agreements that has to be modified in the in the coming year year and a half but for the most part as I said that integration by year end should be very very near complete other than a couple of raw material procurement agreements I mean in Q1 between a fire that we had in Tacoma last summer.
And then in November the fire, we had in Ward South Carolina.
Spec that there was you know somewhere between five maybe up to $10 million of additional expenses flowing through the system there related to transportation and loss of margin. So you know the system is very complex around the world, but overall, it's been I think you're seeing it in the margin management as we move forward being done quite well.
No I definitely see that thank you for that and my second question is in your slides you mentioned, there's going to be a modest improvement we expect a modest improvement in flat prices in the back half the year. So how do we think about D. D margins than it is is <unk> going to be a peak and margins I'm 40, Judy.
You know I you know so I always sit here and I have to be.
I don't know a little bit calm you can't have it both ways you can't tell me all this renewable diesel capacities coming online in fat prices are going to go continue to go down.
And then the other side is you can't tell me fat prices are going to go down and we can earn a better margin a D. G. So it doesn't work that way. So long story short and then I'll defer to sandy here, a little bit as we believe that margins for the balance of the year and D. G. D will remain strong you know, it's kind of hard to always forecast beyond the next.
You know 60 days as we've seen April now so you know, but I wouldn't call them by any means of Pete what would you say sandy yeah.
I I think I would say that you know we don't know what feedstock prices will do but you know as John had mentioned, we have a great system and so if we see feedstock prices go down well benefit and D. J D. If we see feedstock prices go up well benefit in our base business. So at this point in time, I don't know, where they're going to go but I know that we're going to have.
You know an advantage and it's going to be great for us So yeah, and I think the other thing. We would say is is that you know the system.
We have a global system will bring in fats out of Brazil, because it's the best market from our rendering plants, that's helping margins there.
And we're shipping our first boat out of Europe , which should be a wake up call to everybody in Europe . The fat prices have bottomed in Europe now as Diamond Green comes in and pulls away from the.
You know the the H B O or the R&D guys in Europe . So that's the reason we believe fat prices have bottomed and we think margins will remain quite strong and D. G D for the for the balance of the year.
Perfect. Thank you I'll turn it over.
And our next question comes from Ryan Todd of Piper Sandler.
Uh huh.
Great. Thanks, maybe maybe following up on the.
On the feedstock markets within the renewable diesel business.
The markets seem to absorb the addition of D. G D phase III without too much pain, you've got some very large capacity additions either ramping are likely to come online by the end of the year are you seeing any signs of.
Material tightness in the the low Ci feed part of your business improvements on the supply side at all that have helped them with that and any other kind of knock on effects of some of the additional rd capacity in the market that you and do you see within that business.
And Sandy can help me here a little bit from from my seat. The answer is not really I mean, clearly we have shown that by locating port Arthur and St. Charles on the water, we have the ability to originate from everywhere in the world.
And that took some pressure off of the Diamond Green diesel three startup. The second thing was clearly we had some logistical inbound unloading challenges there that have now been remedied and so ultimately if you say well what rate where you're running before and what rate are you running now.
It's it's it's quite a bit higher from where we were in Q4 and and ultimately we're cleaning up the amount of railcars in inbound tonnage that we had so sandy what else do you want to add to that they are in essence D. G. D. Three it's been online and we always worry when we bring a new facility on line you know what that feedstock market.
Gonna look like we haven't had any issues getting feedstock now our mix has maybe changed a little bit we brought in some more international supply some of those are actually Darling supply inspire our pasta entity.
And we've looked throughout the world and found out their suppliers as well. We also were able to obtain more valley supply or supply are valley entity that we bought so we just we've grown as Darling and in turn we're able to better serve D. G D for that.
Are you are you willing to roughly say like how much of the Cid is in this last quarter came from international sources.
Yeah, I don't think that's something that we share no that'll that'll move around from from quarter to quarter month to month I mean, clearly you know I think that the big piece and what Youre seeing like in the margin improvement in the feed segment is the valley proteins material was headed off shore. The majority was before now it has the ability to go there relative to.
Your other question Ryan on the other guys out there we have no visibility to them.
We read we read you guys report and apparently there's a lot of capacity out there that we've never sold a pound too and.
And when we get to see the only thing and then the soybean guys that I'm still close to you know, we're selling a little bit of RV D to them and then they all claim to have pretreatment system. So that's all we see here.
Thanks, Thanks for that maybe are on a on a totally separate note I'll follow up on your you just hadn't quite a bit of this in the in your.
Earlier remarks that as we think about your use of cash in the near term you've got you've got a leverage target by the end of the year that you'd like to hit your you're currently buying back some stock.
As we think about the likelihood of a dividend, which you mentioned.
Do you need to hit that that target before the end of the year before before you anticipate being able to rollout a dividend or how do you look at the.
I guess the priorities over the next over the remainder of this year in terms of that use of excess cash.
Yeah, Ron the spread so we do as our partner said looking at our dividends from the JV, which is in concert obviously with our deleveraging theme by the end of the year. We do are in sync in terms of the outlook here in the near term of.
Possibly looking at cash dividend starting.
Before let's say before Q2s over but certainly here at mid year from the from.
From the JV.
With the margins that we're seeing now we feel very confident in that.
So that's combined with what the base business is looking at I mean, we want to be down in that clearly below three times I mean, if you're looking at investment grade the rating agencies look at that a little bit different than our bank covenants do.
So they add back some of that from some other things into that equation. So we want to be clearly below three times to give us the AR to.
To give us that our leverage in and story what the rating agencies are going into 2024. So I think we would not be looking at the dividend.
I think Randy back to shareholders here in 'twenty three we're gonna be get below three times be sustainable. There then evaluate our options from there.
Clearly, if we're carrying that momentum into 'twenty four it's a different set of opportunities that exist for us.
Great. Thank you.
The next question is from Andrew Charles.
Yeah, No capital markets.
Hey, excuse me good morning, Thanks for taking the questions.
First I wanted to ask on genomics when you close the acquisition you've guided to the contribution for this year.
On the lower end of that $75 million to $100 million that you maybe had originally talked about what would push you to the lower end how should we think about the cadence of the contribution through the year and is there any reason to think we don't exit this year kind of in that 100 $830 million range for 'twenty for that that that's the kind of annualized numbers would've been flat.
Yeah, John can help me here I mean, clearly we didn't in Q2.
Joel Max we've got a you know the way purchase accounting to Mark to market inventory, just like we did with Faas and valley have Adam impact, there's a pretty good impact here as we bring over.
You know a lot of work in progress inventory that's been produced the gel next we closed on it on March 31, so that you're in if you're if you're a student of the balance sheet you will see it out there in the working capital or inventories. So you know I suspect we'll get some earnings in Q2 from from gel next.
We've annualized the rate right now I think conservatively at 75 million, but that's so many fives net of the inventory impact Brad or John If you wanted to add.
No theyre running extremely strong obviously, the fair market value adjustment associated with inventory will have an impact on our on Q2, but the business is running extremely strong and we fully expect to get what we've guided out there in terms of earnings out of the job that such a fabulous operation Fabs.
This organization a fabulous assets in that 75 is it is not an annualized full year. That's that's the remainder of that is the remainder of this year.
Right complete completely understand that thank you for the color on.
Hum.
On the all in guidance EBITDA guidance for the year.
So I understand the math that you did kind of as you've as you've thought about <unk>. It does imply a little bit softer back half is that simply a function of the shift that you talked about the shipments from <unk> to <unk>. It sounds like also job mix than in the back half would be stronger. So I guess any other reason to think that the.
Back half on a quarterly run rate basis would be softer than than.
What youre guiding for <unk>. Thanks.
You know, it's I don't know how to answer that to be honest with you other than the sense that we'd see a we see a really solid Q Q2 coming here.
And then we'll see from there, but we don't have any reason to not believe we won't hit the 1875, whether that's 485 485 485, four or whether that's 525 and you know for you know for 45, you know who knows but we're confident in our and our forward forecast with what we see today, but.
Try to call Q4 today I have no idea.
Okay.
Really understand that I guess I was just trying to make sure I understood. The puts and takes are.
Yeah, but.
If theres anything to keep in mind that that was yeah yeah.
Yeah, No I understand and I guess the answer is no. There's no assumption of shipments shifting from quarter to quarter, it's on its way.
Randy's rendering math.
I like the math, thank you very much.
The next question is from Adam Samuelson Goldman Sachs.
Good morning, everybody. Thank you for taking more time Adam.
This is actually Guillermo stepping in for Adam.
I only have a follow up on the integration efforts so within the food segment.
If you could quantify the synergies realized.
You know that first quarter and your expectation for the rest of the year.
I don't know that we've ever we've never put a synergy number out there that's that business is spread out all over the United States and the four or five different regions. So there there was no expectations. There at the end of the day, we're running at where we thought we would be and we still believe we have some more upside there is.
As I said so ultimately.
We've done a lot of different things in that business from right sizing people are right sizing our raw material procurement contracts are improving them lowering energy costs reliability.
Excess trucking excess wastewater disposal, we're making lots of progress and that that's in the end we're at our target.
That we showed the board were at our business case of where we thought we would be now the rest of this is upside to us.
That's very helpful and if I could ask within another one.
As it regards to the buybacks how should we think about the pace of the buybacks relative to the amount that you did on the first quarter as you are sort of trying to delever the balance sheet.
Yes, the spread again.
So the 44 million in the first quarter, obviously, the softness in the stock price and an early on in the quarter. We just you know as we've done in the last couple of years just remained opportunistic there.
That's not to say, we will remain at that cadence the remainder of the year, we'll just kind of trying to see where the where the stock level is and we're truly opportunistic there just in weighing that versus our deleveraging.
Our strategy here.
That's helpful I'll leave it there thank you.
The next question comes from Sam Margolin Wolfe Research.
Good morning, everybody. Thank you.
Yeah.
You might not want to answer. This question is based on an answer to a previous one but I'll give it a try it it seems like China. China's a story on the low Ci materials supply front and you know Darling has a presence in China I'm not sure a lot of people appreciate that but youre there youre on the ground I think you know you know that the country.
Pretty well and.
It would be great to get a sense of sort of what the addressable market is the untapped market of you go are rendered fat in China, because it seems like it could be pretty meaningful just given the context of oncoming you know our.
City and and imbalances. Thank you.
Okay, I'll, let I'll, let sandy take that and.
The address I mean.
I mean, you guys can see the boats coming in so I mean, there's no secret there yeah.
I'm not exactly sure what the the the volume would be because I think there's more than we ever expected that there would be as prices have gone up you know overtime. That's brought about you know more fats and oils around the world that are available to US you know one of the nice things that we're seeing out of you know Asia is that there.
Lucy I. That's it there are I S. C C fats them and that's a real benefit to us and that's a nice thing as we're trying to look to go to the European market because that's one of the things that they they were searching for.
And so I think that the market is bigger than we ever anticipated, but now you know the exact amount I don't know.
Sure Okay.
Hey, Sam this is Randy one more a little piece there I mean, obviously I highlighted that we're bring in Caf III Fad from Europe into the U S. Now and someone asked ask why would you be bringing cat three fad other than the economics work why do the economics work, because we have Chinese biodiesel now coming into Europe and May.
<unk> fast cheaper there so.
As Sandy said this that the marketplace is far more dynamic than I think probably a year year and a half ago, we probably understood and so its all interconnected now, but I think the key point that we want to say is as the procurement team.
At Diamond Green clearly is looking for low Ci fats around the world Sandy highlighted I FCC certified which is critical to making sure everything's legitimate there and the question is we're not sure how big it is around the world. It continues to grow ultimately if you're if you become an in the commodity business.
High priced island, you magically find lots of extra coconuts available to you.
Alright.
That's really helpful. And then this is just a follow up on valley.
Because it sounds like the integration is going well I think you said it was on plan or are according to plan.
And you know there was some capital associated with it.
Yeah, I guess, taking the facilities that you acquired up to up to the Darling standard and but you are in a good place now as far as margins and earnings power and so the question is you know is a valley integration actually maybe going to be a little bit more capital light than you anticipated you know, which then accrues to the balance sheet and the pace of deleveraging.
No no I think in 2022, we are rebuilt or.
Prove their liability through big equipment replacement in like six plants and then by June one here I think we will have three more done here and then by the end of the year I think with reward being rebuilt that'll be the fourth one so we're a little over from where we thought we would it's not giant money, maybe 10 million this year and then a little.
More next year as we finish out the system, so I wouldn't characterize it as capital light.
I would just say at the end of the day, it's pretty much on target.
As we remind people given the antitrust side of closing this acquisition, while we got the visit the plants. They were they were really pretty quick walk throughs and you you can't really sound or see the inside of some of the equipment.
You know is it a little worse than we thought absolutely and that that was shown in our prior numbers as we struggled to keep the reliability of the system, but the team has done just a tremendous job.
Moving the ball forward here and I you know I think we're set to run now we're feeling really good about it.
Got it thank you so much.
Yes.
Okay.
The next question comes from Paul Okay, I'm, just kind of thing.
Hi, good morning, everyone.
Hum.
Mandate that you you have a good insight in the LBO and Oh, CFS market and happens on a contact them without them. So just curious that just any insight you can share about that how EPA may revise on knocked me buys on the ideal proposal and also housed.
The only kind of pulling their F CFS amount that debt.
Quite the changes that are what do you think they make deal.
And do you want to take that yeah, I'd, probably need a little bit more help on what your sorry, partly related to the RVO and the L. CFS markets here.
You know with regard to the RVO I think that what we saw is it was a little bit disappointing I think that we're hopeful.
There's been a comment period, and where the industry et cetera.
<unk> has provided additional feedback comments information to EPA regarding what actually is out there and so we're hopeful that maybe we'll see a bump up here when it comes out in June 14th.
In terms of curve I think that car visit very positive thing.
As you know they're going through their scoping plan.
And in terms of things for Darling, It's very positive you know as they're looking at increasing their reduction targets from 20 to 25 or 30% in 2030, you know other things that they're doing is they're also looking at proposing and I'll see if the obligation for intrastate flights, but should be in a really great and especially.
He is we're building an S. A F facility are converting our facility to S. A as you know we're really interested in that and then one of the other things that Theyre also doing is theyre looking at an acceleration mechanism and so if the credit bank gets too high and we did see recently, where the credit bank increased did.
There would be an alternative mechanism that increases the stringency, there and we think that those are all positive things for US and then maybe just a little bit back about the RVO you know I think that we've.
We've had a lot of things with regard to like the inflation reduction Act that was a positive step forward and and I think that if we don't get those volumes.
With the RVO and get that stuffed up than what we may see as we may see some stranded assets and that would be unfortunate and we even see that in terms of crushing plants.
Potentially we would also see maybe some missed opportunities in terms of S. A F and so I think it's very important that EPA is listening to it to folks about what the volume should be.
Hum.
And that.
Second question is that I think Sandia and and Randy both of you Havent said.
U S stop seeing a lot of the international OCI speed getting into the U S. So that's not look my Oh availability off the low Ci feedstocks, yes that issue anymore country too maybe just like yeah. It goes out of what we thought and so from that standpoint.
And what will be the.
With that decision, making points that are what we will factor into that that we factor into a weapon that you want to expand D. G D to C. J D full.
Yeah. So this is John Bullock, it's kind of interesting because a year and a half ago.
Everybody on this call is clamoring about the fact that there was somebody else at low Ci fat available in the world and why on the Devil would we make that I'm gonna do sell through rate.
And our answer was you know theres so much fat available at 20 cents, a pound or I guess, the 50 cents a pound you may find it to be a different world because higher prices and set more.
Our reclamation waste fats around the world and that's exactly what we've seen we're very comfortable now with the Diamond one two and three systems, where we are in relationship to the marketplace.
Focus has been on converting part of our processing capacity to assay up because we think that's the higher value.
Higher margin area I should remind everybody, though that we do have the space available in port Arthur to make Diamond Green diesel for them to build diamond going to you. So far we essentially pretty set ourselves. So that we have the ability to expand haven't really gone into that process. At this point in time, but we're certainly capable of doing it and we'll watch the market as it develops forward over.
The next yourself and then make a determination on Huawei out, but we like the size. We're at right now we like our focus on converting to say after the higher value.
And we'll see as this fat market develops going forward, if the stuffs available than the one point that I think we've talked about a lot here that we cannot overemphasize, though the reason this all works for Diamond Green diesel as we have a complete operating plan, we have the supply chain the logistics capability and the pretreatment capability. So as these low.
See I fast become available we can actually take this material and converted into high value renewable diesel. The fact, the matter is the vast majority of our competitors out there you can't do that.
So we know they're building plants, but they aren't building plants that are designed to compete with diamond Green diesel.
No that <unk> put in to sustain and ugly, but it still wont just trying to say that okay, what will be the peak condition or that what trick.
You and for them to decide to go for a D G default.
What is the peak inflation, you're in order for that to happen.
You know, we do a complete analysis anytime we go through this.
Where we will go through the same analysis, we've always gone through which is a tremendous economic analysis, we now understand the engineering and construction extremely well.
We'll just have to take a look at the conditions that you know I don't know that I'm going to necessarily give you a list of the five things that we're gonna look far but the one thing I can tell you as we always say is dialing in for profit operation and so the most important thing is when we can identify returns if we can get on our investment that'll be the number one pre condition on our snacking and investments Yeah, I think Paul.
This is Randy and you know I think it's pretty simple I think the pause and number four for the venture has been let's see the demand develop which make sure it's real.
And at the end of the day, we believe it's real clearly, we're arbitraging or given ourselves optionality in the S. A up as John said, we believe that is the the next new horizon Green pasture and anybody that even starts to talk about adding whether its 1 billion gallons in the year.
The us or a billion and a half or 2 billion.
The promises that have been made in that global I'll say off market, whether it's Europe or here far outweigh any capacity that's been contemplated so at the end of the day. You know this thing is set very nicely for the future and if and if clearly the Saf demand is there, which we believe it will.
Will be that will help US then move forward to that next step of looking at number four you know clearly the the decision before was and I was I was guilty as anybody I told John and Sandy I said I don't want to make sure there's enough feedstock in the world because I was starting to believe you guys were gonna have a feedstock war, we now know.
That's not true and now we're waiting to see the Saf market develops such that we can go larger than that and that would drive clearly number four and potentially I think the most likely would be N. S. A F unit at number one and two in St. Charles would would precede any decision on number four.
Hey, Greg can can I, just I don't think so.
Question for John .
The interest rate swap you guys to exercise.
Did you exercise at the beginning of the quarter you in other words that are we going to see incremental interest expense in the second quarter versus the first.
Yes that was done.
Paul right at the end of the AR at the end of the first quarter with in conjunction with the funding of gel next so I'd say you know what.
From that muscle.
Yeah, I'm sorry, there was no actually mento no interest no interest savings and in Q1 from that.
Right. So what's this second quarter versus the first quarter impact from this Ah they swap.
Our interest expense are there will be a million two savings there, but then obviously we have a debt increase there. So we're still saying for the full year of about 230 million of.
Interest expense I say, okay with you. Thank you.
Yeah.
The next question is from Matthew Blair of Tudor Pickering Holt.
Hey, good morning, Randy Congrats on the strong results I wanted to follow up on your comment that D. G. D. Second quarter is shaping up to be a record with that was that on just total volumes or a total EBITDA contribution.
If it's on the EBITDA it looks like that would translate to EBIT margin of roughly $1 75, maybe $1 80 per gallon so quite a step up from Q1, So I just wanted to.
Yeah, I mean, clearly with the with the system running you know $1 2 billion gallons divided by four or 300 million gallons now you know it should be being produced.
He is a little more and you know being dependent on shipments and timings of boats, but clearly we gave earlier guidance of a buck and a quarter for the year, that's kind of what we saw coming into the year in February .
You know the margins now and are clearly somewhere between a dollar and a half and $2. So what we can capture of that it's a it's too early to say sandy any anything you want to throw there.
The only thing I would say is that you know obviously, we're seeing lower feedstock cost and what we saw in first quarter as Randy and John had mentioned our units are running full so they're running very well and we will continue to push those units as hard as we can to see what they can do so I think it's a combination of those things.
Okay.
Unfortunately, we have lost Mr. Matthias connection so I will move on to Ben <unk> of Baird.
Hey, guys. Thanks for taking my question or questions Randy.
Let's say if I know it's early in the game, but could you just talk about.
Kind of a commercial discussion sales discussions and how do you think that plays out as a long term agreements or is it too early to.
Yeah. So this is the journey, we've been talking to a number of parties and we were talking to a number of parties actually even before we made our investment decision.
You know we continue to do that I don't think that we're ready to set anything in stone and it'll probably be closer to when we're coming online before you know, we we make any agreements.
And in terms of agreements you know, we've always talked about the the inflation reduction act with zero really important and spring us to make the decision to move to SaaS and now you know what we're seeing is we're seeing that the premiums that we thought we would and so that's very positive, but we have no parties in particular right now we continue to just.
Talk to a wide range of folks.
Yeah. Ben This is Randy I mean, clearly you know that market is rapidly developing led by European procurement now.
It'll spill over into the U S. As we move into later 'twenty three early 'twenty four and then the commercial team's gonna have to decide do you do you sell a little bit so a little bit more or sell all of it and then move on to the the decision to build the second plant, but right now that you know clearly there's a lot more promise is out there then that had been realized.
Yet so what we're excited about it.
Sounds good.
So I do some Randy math.
It might be difficult, but if we looked at just margins Q1.
Or however, you want do it what do you think there are for Q2 for Diamond Green diesel and then we translate it to after the blenders tax credit goes into the new.
<unk> program and the IRA, how where would margins shake out for you guys there.
Yeah.
This is sandy I don't think that we know I don't think that we've looked at that I'm quite yet you know, it's gonna change how things look on our P&L, because it's going to be an offset to income tax.
So you know I think that youre going to have to start looking at our P&L, probably a little bit differently and maybe there's a more a focus.
Focus on EPS, rather than EBITDA at that time.
Okay.
Really you talked about maybe stranded would the RVO question of Australia crush facilities.
Crush facilities coming online.
Does that impact you or I guess better for feedstock, but what about the.
The end market the renewable diesel plants don't come on line in the crush facilities do come on line.
But what's the risk is the risk to your core business.
I hope that makes sense.
You know I think while the you can break them completely apart I don't know that they're totally under interdependent on each other I mean, clearly we've never seen what's about to happen in North America on the amount of crushing capacity remember, we're gonna grow just a little bit more not a lot.
Let's see whether it was out of Canada in the form of canola or soybeans out of the U S. We're headed predominantly to China and ultimately the question is gonna be do those meetings get crushed here do they get crushed there do the Chinese buy you know finished protein instead of raw soybeans.
Do they arbitrage to palm oil instead of soybean oil you know theres a lot of unanswered questions. Here you know there, there's probably I don't know.
I don't even know the number so I'll just stay away from it of how much crush capacity is coming online.
It was all built with the belief that there would be renewable diesel demand underneath that and that takes two forms one would be do you have the process to pretreat crude soybean oil or super Degum soybean oil or do you need refined bleach the only refine bleach facility that's been built in the last years.
I don't know if I want to say five years or 10 years has been in Quincy, Illinois by E. D. M. So if the pre treatment business doesn't work for these guys, which we we were skeptical of then you know that soybean oil is going to have to be moved out of the country because there won't be anywhere for it to go or the crush margins will will go collapsed.
The point that then the beans are moving out of the country. John anything you want to add I think that's exactly right. I mean, the fact of matter is every soybean in the world was crashed before we had the tremendous increase in crushing capacity in the United States.
For all of those facilities to be filled up with something in the process, we needed to raise a lot more soybeans around the world and that was always a question about the soybean expansion that was occurring out there from a standpoint of our business model, we should be able to adjust yeah. The other thing is I mean, if like I said and I gotta be.
If you believe all you know all you sell side guys are reports on how much capacity is out there. It will use up all of that soybean oil very very quickly and then some so I mean, it's kind of one or the other here that you got to buy it but these are clearly unchartered waters for.
In international consumer that's been very comfortable buying boatloads of condolence in soybeans in the past.
And just to sneak one in I know, we're doing over and over but just still next biggest college has become a bigger part of the business could.
Could you talk about how you view the growth profile not this year I know the run rate, but you know as.
Go forward book on.
On the top line and then could you talk a little bit about margin.
Expectations there thanks guys.
Yeah, I'll I'll tag team this with John you know what.
You know clearly Joe Maxa met the criteria of the Darling business model was a great business with a great management team with great assets.
And we're 100% comfortable and confident in what we've procured in their run rate supports an accretion that we're more proud of so ultimately as we have four facilities in Brazil, one in Paraguay and in one and and Portage, Indiana those are all gonna be integrate.
Good within this system here over time.
What's interesting is we didn't have a lot of overlap in customers. So theres going to be really some nice growth. There. They are a lower cost operating model than we are and you know wall. That's you know kind of hard for my Rousselot team, sometimes to accept we've done a lot to learn from them and ultimately they look at us from this.
Standpoint in the collagen peptides business, we were the leader in our the leader there and how do we now move their product.
And their customer base to our quality of product and get paid for it clearly as Brad and Saran and I have told people we've been on a three year four year plan of of adjusting our product mix from basically confectionery and pharma gelatin to collagen peptides and they they marginally have a little better margin than what we have in use.
<unk> seen that in the earnings charge that's out in the earnings call Slide probably one of the greatest stories out there and we don't see any slowing of that number one with volume growth number two with margin improvement and number three with the portfolio of college and peptide products that we have ready to launch here in the next one to two years.
John anything you want to add I think you know oftentimes so it's overlooked as we really focus on the products that we sell and is there going to be demand for those and are those going to be high value products that we can obtain good margins on and quite frankly, while we see in the college and space. Both on the gelatin side than on the hydrolyzed collagen side is exactly that same thing we saw.
Renewable diesel when we looked at the low Ci benefits associated with that product. These are high value premium products that have a great natural role in either the food or the full systems and that's going to translate into excellent excellent margins excellent excellent profitability and that segment of the business. We're very excited about the future of collagen.
Okay.
The next question will come from Tony Bancroft.
Gamco investors Inc.
Thanks for taking my question team congratulations on the great quarter.
You've talked about this in the past Randy maybe you could just remind us and maybe potentially update us if anything has changed but you know for 30000 foot view, how much demand is there for diamond Green diesel and I realize a lot of variables, but if you sort of obviously you've sort of talked about what the constraint is at least at year end on capacity and.
Then.
You know if you maintain sort of a whatever you want to call it regulatory growth rate.
And the demand just sort of the overall demand how do you see I mean could it be at Diamond Green diesel or S. A F eight and either using either of those or both of those could you sort of maybe just walk us through how you look at this I mean every one of these had been a home run so I think as an investor you just want to try to understand what the what.
Is there a terminal value as a run rate is there a sweet spot for this maybe you can give some comments on that.
Yeah, and I think that's fair enough you know clearly trying to understand the global potential for global demand has clearly been improving and increasing and becoming more transparent over the last couple of years, San do you want to kind of give some.
Sweet sponsor.
You know I think that there are a number of things going on and as I think about it you know there's no better time to be in Biofuels. So first of all you know and we've talked about it a little bit earlier in this call is carb scoping plan and Theyre looking to increase the stringency of that plan. You know there are also potentially looking to add to that a potential.
Jack mandate them within the state, which would be great. That's just more demand for us we have a number of states that are now looking at L. CFS programs, we have a potential el CFS obligation for jet and British Columbia.
I think that recently, we've seen that now we may have some mandates for S. A F for maritime fuels et cetera, I'm in Europe , and so we think that you know we're seeing more things globally. There and then even within the states on the SaaS side, we're seeing that various tax credits are being passed in these areas.
Like non L. C. S. S type states. So you have one in Illinois, There's one and Washington, that's now been passed and so there's just so much that Ah is creating more demand I'm, adding more dollars to the supply chain et cetera that makes these products possible.
And so I you know I.
I haven't ever seen this much excitement within our industry Yeah, Tony It's it's one of those things Youre looking around the world and their you know we came through a pretty a pretty strong inflation period. We came through some you know headwinds around the world, but yet the one unwavering thing was the commitment to decarbonize.
<unk> that we've seen in the world is not slowing.
I sit there and wonder if our S. A F production actually stays in the U S or it goes to Europe , we don't know yet, but we know the demands out there and Saf demand, whether you're talking you know the L CFS and California markets clearly going to set the tone here at the end of the year by what they do under re scoping and whether they include S AF, but.
Similarly, if you if you take the two and 3% mandates and I know there always seems so small when you say two or 3%, but on 50 billion gallons and you know it really creates a kind of a trajectory for the next three to five years it feels pretty darn good and makes us feel pretty confident as being the first mover.
And with the best assets located in the world to serve that demand.
I guess just a follow up on what you just said there at the end you know.
Is your moat is your moat just too deep I mean, you guys are the best you compete you compete the best on see IEP to get that cost.
Is it you know you put input you name. It is about too deep is or is there something that could be out there as transformational that would cause you to have you do have more less competitive advantage I mean.
How do you have you wake up every day, how do you sort of look at that.
You know I I feel very confident and I was in a sense I always like to be careful with.
Questions that analysis about the unintended or the unknown here I mean, the challenge and this is clearly you know I think we've said years ago, we don't really produce a gallon of fuel we produce a calling of compliance and at the end of the day when you're competing against for potentially one day competing against people that have a choice to either.
Produce or buy an offset in the form of a carbon credit or Iran, or an L. CFS credits you know economics may not always be perfect and in those imperfect world. So you know if.
If you said what keeps me awake at night, it's when people do on economical things and rather than say how profitable they were in their renewable diesel plant. They talked to you about avoiding the avoidance of compliance costs and so that's that's the only thing, but ultimately I see the Saf side.
Offsetting anything of what I'm going to call the generic commodity producers of R&D around the world now.
San Diego do you want to add.
Thank you hadn't Randy I mean, I think we're really excited about S. A C. I know, it's kind of the next step in the progression that we've taken at Diamond Green.
And I think the market is huge.
And I guess lastly, you know with.
You know again, you guys sort of being a leader in this industry and your partnership with Valero.
Long term five years from now 10 years from now how do you see that partnership evolving you talked about a dividend, but every other energy majors essentially bought what you would valero have and Youre still the best in class, but how does lira look it you win in the long term.
This is John we have a tremendous relationship with the folks at Valero obviously.
Relationship with Joe and Lane has been setting on our Diamond Green diesel board for the last several years, we were very excited to see him be named as a replacement for Joe He's a great Guy they are relationship throughout the Valero organization is Fabulous I think that you know the as I've always said the biggest thing that's a miracle of Diamond Green.
Diesel is this is the first time the AG industry in the petroleum industry.
Figured out how to get married and have their marriage last and that's a fabulous marriage and we have with those folks we love the people at Valero really respect them bone deep in terms of how we work with them.
So we see that relationship just moving forward fabulously.
Yep great job. Thank you.
The next question comes from Ben.
Yeah.
Evans.
Hey, Thanks. Good morning, Congratulations just a quick one on the integration on valley, obviously, making solid progress there.
You had really strong pricing realization in the Cid business, even in the backdrop of a you know what.
But it seems like temporarily.
Dipping fats prices one of the things you talked about is increasing.
You know fat realize that value by selling to Diamond Green diesel can you talk about where you are in that process and you know kind of what you.
Contribution there might've been to <unk> and what incremental contribution there there is going forward. Thanks.
Yeah I mean, this is Randy ban I mean, clearly the b.
Eastern Seaboard or valley integration has been a challenging or more challenging that we'd hope.
We were clearly down the road and I think we're past the critical points there, but you know you start looking at reliability and that comes in the form of capital investment in equipment, we're doing that.
You know I would say that we've got so we've let attrition take over and staffing.
I mean, we clearly raised the cost within valley from a people standpoint, because we want a better quality person with and we're going to provide really good health.
Health and wellness benefits to keep those people and that's been underway over the last year as we kind of celebrate our one year anniversary.
You know overall when you look at the business there was a lot of things going on in that business.
It worked you know completely transparent to us on day, one are the <unk>.
System was was running 130 hours, a week and having no time for maintenance.
When you do that you run to fail what do you do when you run to fail well you have to have bigger maintenance departments and those are the most expensive people within the factory. So as you increase reliability. You you don't have to have that you have better uptime and what else happens when you break down now you transport it to the next plant and if the next plant doesn't have capacity.
Do they transported through the next plant and then by the time it gets through the third plan, it's really not very good material and it causes you to have bad wastewater, but then upsets the entire system. So the Domino effect you know I think we have you would have won the battle with the dominoes here and part of that culture part of its investing.
But part of it is just teaching people how to operate properly. So we feel very good and then on the other side we've seen a.
Kind of an interesting move that I've never seen in my career on the feeding of animals, especially in the poultry side, where they've gone to more lysine unless a feed grains, and oilseeds and proteins and fats and ultimately what's that produced it produces the same pounds of meat out the door, but it produces a less.
Yielding product in.
The rendering guy and that's in the form of lower fat yield. So we've had to go back for our agreements and test every raw material supplier in those adjustments were made in March and that's going to start flowing through in second quarter and then ultimately as we looked at the rendering contracts that were put in place we've had to make some.
Adjustments to them to where they provide a fair return for the capital that's being deployed to get that reliability and we've probably on a scale of one to 10, we're about a seven done on that and like we said why the thousand days because there's two more contracts that come due in 'twenty four 'twenty five and then.
It'll be complete so I mean, but as I said earlier in my comments, we're pretty far along and we think we'll be near complete other than a couple of raw material agreements here towards the end of the year.
Okay very good thanks, Randy I'll leave it there in the interest of time I thought thanks.
The next question comes from Jason gave them a P D Kelly.
Yes.
Hey, good morning, Thanks for squeezing me in here I, just wanted to ask about growth, particularly in the core ingredients business.
After you fully integrate valley protein and drill Nixon and Faas are you're still investing in the business. So I'm wondering you know what is the organic growth potential over the next couple of years and you've mentioned there morph. There's there was more feedstock raw materials.
Out there available than what you had previously thought does that does that open up the potential for M&A. Once the balance sheet is back to a target level. Thanks.
Yeah, Jason This is Randy I mean, clearly if we look back at the model that we did when we did the acquisitions in 2014 and 15, we followed up with looking at our global footprint and then you know if you will optimizing the logistics, meaning lower lowering the transportation costs so too.
Things one we have to grow with our suppliers I'm too we have an obligation to make sure that the system remains low cost by have implants in the right place. You know we are in the process of will be starting up I think in August a major expansion and through law, California, We have a second line going into Boise, Idaho, where in the <unk>.
Permitting process of a brand new plant in Nebraska, and we're looking at one or two plants on the eastern seaboard in the U S. We've got a couple of green energy plants going in in Europe , and I think we've got another expansion going on or a potential expansion of another rendering plant in in Brazil today.
With two more in the process of starting up so globally, it's an organic build out now for the next one to two years and from there you know once you said once the balance sheet and once we have visibility in diamond Green diesel and what we're doing there.
No I think our strategy has been very very transparent to the world of <unk>.
How we invest capital we do have to always get through the cycles, but at the end of the day when we make investment decisions. We look at five and 10 year average pricing not the moment in time and so ultimately we're going to continue to build out feedstock to support the diamond Green system and to grow with our customers and that's <unk>.
One thing Valley didn't do on the eastern side was maintain adequate capacity as they were growing as their customers. We're growing so we've got some work to do there, but that's in our capital plan.
Great and just to clarify what what's the total number of plants. You you you kind of discuss them piecemeal, but the total number and any thoughts at EBITDA contribution over the next couple of years from that organic growth. Thanks.
You know I don't know I think I, probably rambled off what six or seven or eight plants I I'd I'd hesitate to give any EBITDA at this time until I see where what time in starting up above them is so we'll get back to you on that.
Alright, thanks for the time.
And next we have William Louis Baldwin of Baldwin Anthony Securities.
Thank you very much just a quick one here I wanted to get a feel if I could oh, but the.
Transit ban and the level of protein exports you know the exports of protein coming out of the U S is that.
How important is that to your protein business, Randy and has that been growing or.
What's the prospects for that.
As far as your export markets.
Yeah. Yeah. This is John so yeah. It is a component of what we do we move a lot of containers were actually one of the larger container shippers in the world with the containers that window. So yeah, we move a lot of proteins are offshore.
We have some very very good markets and some of our specialized proteins offshore too.
Asia. So it's it's a component or to start obviously, a tremendously large volume versus overall volume, but it is a component of BARDA manner, and we really have an excellent excellent network and an excellent reputation in Asia on our products.
Yeah Bill this is Randy I mean, clearly you know the value of the dollar the other currencies.
All tend to play into some years are bigger than other years, but I would tell you. We are clearly seeing increased demand for proteins in Asia predominantly China today, and we're working hard I mean, you know one of the if you say, okay, everybody wants to talk negative about what we bought with the the valley plants. They had a very strong marketing network in Asia.
As you today and that's really been that's been helpful to us as we balanced around you know Europe continues to modify rules around what can be exported versus what has to be destroyed or put into green energy. So very global market for animal byproducts, but as I said earlier.
Clearly China is going to have to wrestle with what happens in the oilseed complex in North America, and I suspect that's going to open up more opportunities to alternative proteins to Asia over the coming years.
Yeah.
Did we find ourselves competitive in the specialized proteins are the value added proteins in the world markets. Despite the where the dollar is.
Oh, just as John absolutely, absolutely the United States as well as Europe , we move a lot of those products out of Europe to but were primary sources for those for the world.
So I guess it could be fairly safe to say then as demand for proteins grows worldwide on a secular basis that this market.
For Darling could continue to grow.
We have a strong focus on the pet food market and a lot of these specialized proteins and the pet food market continues to be extremely resilient through the inflationary period here with very very good demand. So we felt very very good about the demand profile for a lot of our specialized products.
Thank you very much.
This concludes our question and answer session I would like to turn the conference back over to Randall Stuewe for any closing remark.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.