Q2 2024 Darling Ingredients Inc Earnings Call
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Yeah.
Speaker Change: Good morning, and welcome to Vic Darling Ingredients, Inc Conference call to discuss the company's second quarter 2024 financial results.
After the Speakers' prepared remarks, there will be a question and answer session period and instructions to ask a question will be given at that time.
Speaker Change: Today's call is being recorded I would now like to turn the call over to MS. Suzanne Guthrie. Please go ahead.
Suann Guthrie: Great. Thank you for joining the Darling ingredients second quarter 2024 earnings call here with me today are Mr. Randall C Stuewe, Chairman and Chief Executive Officer, Mr. Brad Phillips, Chief Financial Officer, Mr. Bob Day, Chief Strategy Officer, and Mr. Matt Jansen, Chief operating officer of North America.
Suann Guthrie: Our second quarter 2024 earnings news release, and slide presentation are available on the Investor page under the events and presentations tab on our corporate web site and will be joined by a transcript of this call. Once it's available. During this call we will be making forward looking statements, which are predictions projections or other statements about future events. These statements.
We do not undertake any duty to update any forward looking statement now I will hand, the call over to Randy.
Randy: Thanks, Sue and good morning, everybody and thanks for joining us for our second quarter earnings call.
Randy: On our last earnings call I mentioned that the team is focused on making the necessary adjustments to adapt to a deflationary and volatile global ingredients Margaret and I renewable diesel market that continues to suffer from perceived overcapacity and an uncertain regulatory environment are challenged the team to accomplish several things during the second.
Speaker Change: Quarter and I'm pleased to report on their successes since the first quarter, we were able to improve gross margins control capital spending without sacrificing operational excellence paydown debt repurchase common stock and most importantly, we received a much anticipated dividend from D. J D.
Randy: For the quarter, our combined EBITDA was $273 6 million, while slightly lower sequentially, our performance reflected a nice improvement in our core ingredients business.
Speaker Change: Turning to the feed ingredients segment global raw material volumes remained strong and we are seeing global fat pricing improve indicating more demand for low carbon intensity feedstocks for renewable diesel our feed business showed sequential improvement in margins as we made adjustments and raw material procurement arrangements and our operational.
Speaker Change: Once in cost cutting programs are beginning to deliver with fat prices on the rise our continued focus on operational excellence and effective cost cutting and spread management I feel confident we should see improved earnings in the feed segment for the back half of the year.
Speaker Change: Turning to our food segment, our Rousselot business continues to benefit from being a supplier of choice in the gelatin and hydrolyzed collagen Margaret while we have seen several quarters of customer Destocking, we're starting to see signs of that beginning to slow as I've mentioned in previous earnings calls we are preparing to launch next tighter.
Speaker Change: G C a natural collagen solution for managing glucose moderation.
Speaker Change: Having a number of conversation with customers and look forward to more discussions that supply side West and food ingredients North America trade show in October turning to our fuel segment Diamond Green diesel continues to prove its the best in class demand for our products remains robust, but margins remain challenged given the lack of <unk>.
Speaker Change: Alrighty and the regulatory markets for Rins and L. CFS.
Speaker Change: Last quarter, we mentioned that cash was rapidly building at Diamond Green diesel and I'm pleased to report on July 18th Darling ingredients received a $77 1 million cash dividend from the joint venture.
Speaker Change: Our sustainable aviation fuel unit continues to move ahead of schedule and on budget with an anticipated startup in the fourth quarter of 2024, we continue to work to build out a strong sales book with both domestic and international supply opportunities now with that I'd like to hand, the call over to Brad to take us through some FID.
Speaker Change: And then I'll come back and discuss my thoughts for the rest of 2024, Brad. Thank you Randy net income for the second quarter 2024 totaled $78 9 million or 49 cents per diluted share compared to net income of $252 four.
Brad: $4 million or $1 55 per diluted share for the second quarter of 2023.
Brad: Net sales were $1 5 billion for the second quarter 2024, as compared to $1 8 billion for the second quarter 2023 for the first six months of 2024 net income was $160 million for 99 cents per diluted share as compared to net income of 438 2 million.
Brad: Or $2 69 per diluted share for the first six months of 2023 net sales for the first six months were $2 9 billion compared to net sales of $3 5 billion for the same period in 2023.
Brad: Operating income decreased $208 2 million to $148 5 million for the second quarter of 2024 compared to $356 7 million for the second quarter of 2023, primarily due to a $168 8 million decline in our share in the equity and net income from Diamond Green.
Brad: So earnings as compared to the same period in 2023. Additionally, the second quarter gross margin declined 71 million as compared to the same period in 2023.
Speaker Change: Operating income decreased $326 9 million to $285 7 million for the six.
Speaker Change: Six months of 2024 compared to $612 5 million for the six months of 2023.
Speaker Change: The decrease was primarily result of $184 7 million decline in our share in the equity and net income from Diamond Green diesel earnings as compared to the same period in 2023, along with a $191 6 million decline in gross margin.
Speaker Change: The company recorded income tax expense of <unk> 8 million for the three months ended June 29, 2024, yielding an effective tax rate of 9%, which differs from the federal statutory rate of 21% due primarily to the relative mix of earnings among jurisdictions with different tax rates.
Speaker Change: Non taxable change in phosphate and contingent consideration certain taxable income inclusion of items in the U S based on foreign earnings and biofuel tax incentives the companys effective tax rate, excluding the impact of the biofuel tax incentives and discrete items was 29% for the three months ended June <unk>.
Speaker Change: Nine 2024, the company also paid $23 million of income taxes in the second quarter for.
Speaker Change: For the six months ended June 29, 2024, the company reported income tax expense of $4 7 million and an effective tax rate of two 8%, excluding the biofuel tax incentives and discrete items. The effective tax rate was 227, 2% for the six months ended June 29 2024.
Speaker Change: The company also has paid $56 million of income taxes year to date as of the end of the second quarter for 2024, we expect the effective tax rate to remain about the same at 3% and cash taxes of approximately $45 million for the remainder of the year.
Speaker Change: Now in the second quarter, we paid down $51 million of debt. The company's total debt outstanding as of June 29, 24 was $4 409 billion compared to $4.4 billion to $7 billion at year end 2023, our bank covenant projected leverage ratio at Q2 2024 was <unk>.
Speaker Change: 4.24 times, and we had $814 4 million available to borrow under our revolving credit facility capital expenditures totaled 98 million in the second quarter and $191 7 million for the first six months, we also repurchased approximately 807000 shares of <unk>.
Speaker Change: Common stock during the second quarter of 24 four.
Randy: Ultimately $29 $2 million as Randy mentioned earlier on June July 18, 2024, we received a $77 1 million cash distribution from D. G D with that Randy I'll turn it back over to you. Thanks, Brad as we expect continued dividends from Diamond Green diesel and global finished product.
Speaker Change: Rice improvement our focus for the balance of the year is to manage capital outflows and pay down additional debt. Additionally, we will continue our focus on operational excellence and widening margins where possible. We remain optimistic because we've seen prices begin to improve in late Q2, which will be reflected in our Q3 and Q4 earnings.
Speaker Change: I remain optimistic that we should be able to deliver one three to $1 4 billion of combined adjusted EBITDA for the year, So with that Cindy Let's go ahead and open it up to Q&A.
Speaker Change: We will now begin the question and answer session.
Speaker Change: To ask a question you May Press Star then one on your Touchtone phone.
Cindy: If you are using a speakerphone please pick up your handset before pressing the keys.
Cindy: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Cindy: Please limit yourself to one question and one follow up question.
Cindy: At this time, we will pause momentarily to assemble our roster.
Cindy: Our first question comes from Heather Jones of Heather Jones Research LLC go ahead. Please.
Heather Lynn Jones: Good morning, Thanks for taking the question.
Cindy:
Heather Lynn Jones: My first question is on SAP I was just wondering if you could give us what your view is.
Cindy: Okay.
Speaker Change: Supply and demand dynamics for that going into 25, you've got the mandate kicking in in U K.
Speaker Change: And then and Amanda kicking into the EU and I would think that may be necessary would shift some of their volumes into the EU and just wondering how youre seeing that shaping up.
Speaker Change: D D D going into 'twenty.
Speaker Change: Yeah. Thanks, Heather this is Bob.
Speaker Change: The SaaS picture is is quickly evolving as you know European regulations really come on line in 2025, I think the interesting thing there is.
Speaker Change: As the <unk>.
Speaker Change: Technically compliance around SaaS is as required later in the in the period, but.
Speaker Change: The tendency of of everyone involved is to not want to get too far behind so it's.
Speaker Change: It's it's a it's a somewhat murky picture, but what we're seeing is this.
Speaker Change: Strong interest to.
Speaker Change: To try to get ahead and.
Speaker Change: And so I think we're going to start to see things come together as we as we move forward here.
Heather Lynn Jones: Yes. This is Randy Heather and I think I'd Echo real quick with Bob I mean, we continue to assemble a sales book, obviously, hopefully we'll have some announcements out soon on it but the demand is building out there right now it's still kind of a little as Bob said murky on what the rules are obviously on both imports and 40.
Speaker Change: <unk> Z and everything and so at the end of the day I think this thing will pick up momentum here as we go into Q3.
Speaker Change: Yeah.
Speaker Change: Okay, and as a follow up to that I mean for the roughly 250 million gallons that D. G. D O how are you.
Speaker Change: Is your anticipation that the majority of that will go domestic or are you expecting a strong export pool for that.
Speaker Change: I think thats yet to be seen I think you'll see a blend of both domestic and export sales and that ranges from the U S to Canada to the continent.
Speaker Change: It'll be driven by the market and the rules I mean, I think everybody saw that stays a production this morning.
Bob: And clearly the market is evolving there as Bob says and ultimately it 250 million gallons may seem like a big number of gallons, but it's really not given the book that we were assembling out there at this time.
Speaker Change: Yeah.
Speaker Change: Okay. Thank you so much.
Speaker Change: Our next question comes from.
Speaker Change: <unk> <unk> of Jefferies go ahead. Please.
Speaker Change: Yeah.
Speaker Change: Good morning, guys. Thanks for taking my questions.
Speaker Change: Just wanted to dive a little bit into the margin guidance for the second half what are some of the puts and takes I know too.
Speaker Change: Excuse.
Speaker Change: Seasonally low, but I mean, if you could share some color on that please.
Speaker Change: Are you talking food.
Speaker Change: Yeah fee, then and Oh food as well please.
Speaker Change: Or better across all segments yeah.
Speaker Change: Sure.
Speaker Change: Yes, Sean this is Brad on food and overall in our core Yeah, you may have noticed our Q.
Speaker Change: Q2 here.
Speaker Change: All three segments had improved slightly over Q1, let's say more or less our expectation the back half of the year.
Speaker Change: With where prices have kind.
Speaker Change: Kind of moved to late in the second quarter.
Speaker Change: And as Randy mentioned in the intro with us with our margin management and cost a concentration that we placed on the segments. We see momentum there for the for the back half of the year and those margins continuing to improve.
Speaker Change: Awesome. Thank you and then.
Speaker Change: Just wanted to get your overall thoughts on on the macro in terms of like 45 Z credits any thoughts on when we expect to hear something or there do you think bdcs would be extended if we don't hear anything on the place I E.
Speaker Change: So I.
Speaker Change: I just want to clarify I understood. The question was.
Shannon: Thank you Shannon.
Speaker Change: Yeah.
Speaker Change: And Matt feel free to jump in but I mean, our our expectation is that you know.
Speaker Change: We will believe we believe that we're going to see 45 Z implemented by January one and really all signs are pointing to that.
Matt: Do you think you want to add Matt I mean, there's obviously a lot of talk around that are with the guidance that this is yet to come out and we're like everyone else anxiously awaiting that but as Bob mentioned, we're at we're still of the view that listen Jan Jan One is the is that they will be our implant Matt.
Speaker Change: On the blenders tax credit that we can knock out here.
Bob: [laughter], yes, there's been a lots and lots of talk about the the blenders tax credit and if that would work would be extended or another version of it at all and and so far our view is that at this point is that no. We still think that the what's in place today in terms of the legislations what's going.
Matt: Forward.
Speaker Change: Great. Thank you.
Speaker Change: The next question comes from.
Speaker Change: <unk> of.
<unk>: Of UBS go ahead please.
Speaker Change: Just wanted to understand.
Speaker Change: Facts prices are moving up UCL prices are moving up the food when prices are moving up so is that the reason you have been able to reaffirm your guidance because of being at the numbers you probably need to hit $360 million for each of the remaining two quarters to get to that guidance. So what are the factors that give you confidence that you can.
Speaker Change: Can get there in the second half.
Speaker Change: Yeah, and what kind of tag team. This is a group I mean, clearly one three to one four has got a range to it and you know what at the end of the day, what we're looking at is in the Q1 and Q2, we sold a lot of fat in North America in the mid 30 cents a pound levels that now is leaving the.
Speaker Change: Plans are in the 40 to 42.
Speaker Change: And much improvement in Europe at the same thing.
Speaker Change: South America has been slow to improve at this time, but as we've always said from an optics perspective every penny is worth about somewhere between 12 and 15 million annually into the really into the earnings stream here. The EBITDA stream and most of that goes to the to the feed segment. So if you say you're up a nickel.
Speaker Change: That 60 60 million right. There, we think there'll be further.
Speaker Change: Appreciation here and ultimately as you look around the horn.
Speaker Change: So youre seeing a lot of.
Speaker Change: What what I call you know you you've seen a lot of shutdowns manav or cancellations or pause as whatever the heck do you Wanna say, you've seen three plants from Chevron biodiesel plant shutdown and he seemed shell's announcement, you've seen BP Cherry point, you've got no pretreatment on yet at that whether it's Martin.
Speaker Change: <unk> or rodeo so at the end of the day. It takes one of those plants and then we will see a pretty nice you know.
Speaker Change: Improvement there you know that the Chinese yuko side that everybody spends a lot of time talking about clearly the tariffs have been proposed on in Europe. Today, There's a comment period that will take some time, but the world's evolving.
Speaker Change: You know right now and so I see I feel pretty optimistic about the the fat pricing here as we go to the back half of the year for <unk> for our business because of our ability to pretreat. The these fats deep.
Speaker Change: <unk> as you know.
Speaker Change: When you look at it you know we had port Arthur down for 28 days and we still you know kicked out some pretty good gallons or 311 million gallons for the quarter. So I think thats part of it and the fact that you've got some people idling capacity out there I tend to believe that the yes, indeed that the sell side had out there had everybody.
Speaker Change: And at full capacity day, one and we've never seen that so it's tightening LCM.
Speaker Change: <unk> you know it is still on target for Jan one I don't know that we would we would take a different peer you know opinion of that today I don't know Bob Matt you guys want to add anything to yeah.
Speaker Change: When you when you I mean, what gets US let's makes us confident is just our ability to leverage the network of assets that we've got.
Speaker Change: Whether it's in the collagen business, we can shift to low cost production areas of the world and really that.
Speaker Change: The gel next acquisition has provided us with that kind of flexibility and the rendering business.
Speaker Change: We continue to have all contracts come up for bid and as we restructure those agreements based on today's construction costs and environment.
Speaker Change: We expect better margins as we go forward. So just more generally speaking.
Speaker Change: We're seeing improvement and we think that the second half of the year is going to continue to get better.
Speaker Change: Perfect. Thank you a quick follow up here is one thing which was working against you was the feedstock price lag in the first half next depressed the captain of the DGB margin now that should reverse at the feedstock going up so she would it be fair to assume that at least in <unk>, you had gasket could be materially higher because that feedstock price lagged with <unk>.
Speaker Change: Strongly work in your favor versus against you.
Speaker Change: I think thats, well said and in terms of the right way to look at it.
Speaker Change: Thank you Sir.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Our next question comes from Adam Samuelson of Goldman Sachs Go ahead. Please.
Adam L. Samuelson: Yeah. Thank you good morning, everyone.
Speaker Change: Good morning, Adam Good morning, So maybe just keeping on that line of questioning if I may.
Adam L. Samuelson: Just thinking about the guidance.
Speaker Change: Get to the low end.
Speaker Change: You've got to improve your quarterly EBITDA by a little less than $100 million versus the first half.
Speaker Change: <unk> the fat price sensitivity that you just gave wood.
Speaker Change: Give you.
Speaker Change: $15 million to $20 million to that to that to that quarterly rate.
Speaker Change:
Speaker Change: What is the.
Speaker Change: Help us bridge kind of some of the other pieces. There I mean, just DVD volume certainly would be stronger in the second half. If there are no turnarounds planned, but can you help dimensionalize kind of how you can how you thought about the DVD margin structure.
Speaker Change: Is there any contribution from SaaS premiums.
Speaker Change: Now contemplated in the fourth quarter and kind of the food business kind of how much step up you're assuming.
Speaker Change: There would be helpful. Thank you.
Speaker Change: Yes, I mean, clearly the first thing as Bob alluded to is.
Speaker Change: We're managing margins globally.
Speaker Change: And what I mean by that and that's really the feed segment adjusting processing fees.
Speaker Change: We're watching the new fab prices flow through remember in the U S. It's pretty transparent.
Speaker Change: And as those prices move through in Canada, Europe, and South America. There are actual visits to slaughter houses that have to be made on timing in order to adjust.
Speaker Change: You are paying for the raw material, we didn't get as much of that is we wanted in in Q2 that would exactly that'd be very specific for the U S. In some cases and absolutely true for South America, Canada did a very nice job and so did the Europe and moving those but very different procurement processes, so that that.
Speaker Change: Will widen out as we go forward. The second thing is we expect D. G D. The system to run full out for the balance of the year and so that's going to that's going to be a big contributor.
Speaker Change: We haven't contemplated any earnings from Saf, I mean that would be frosting on the cake. If we do and I remain kind of hopeful that we will but it's hard for that to be material. It's just really at the end of the day, it's still doing the things that we've been executing on a little bit of price improvement and then running D. G D fallout and.
Speaker Change: I don't know you guys got anything on the others.
Speaker Change: Like like you said, it's just running our business I mean, obviously, we can do the math, we know what it takes to get to a to the guidance.
Speaker Change: I would say, though typically I wouldn't imagine or expect that it's automatically going to be 50% in Q3 and 50% in Q4 Q3, typically we have a lot of oh challenges operational through the through the business. Although we're absolutely ready for those challenges, but I wouldn't just don't want to convey the message that it's gonna be a.
Speaker Change: A 50 50 split automatic for the next two quarters right.
Speaker Change: That's helpful color and if I could just had to ask a second question as we think about that transition from the BTC to the to the 45 Z at the start of the year.
Speaker Change: Are you kind of.
Speaker Change: Framing kind of the risks and opportunities presented by that in terms of Alaska.
Speaker Change: Surge of biodiesel imports.
Speaker Change: Or are brought on production domestically for biodiesel guys before the credit goes away, which would be good for your feedstock.
Speaker Change: Good for feedstock demand potentially create some more in and then calendar flips and use the.
Speaker Change: The volume of renewable fuels coming into the U S food should slow pretty dramatically, but also kind of the margin structure for conventional biodiesel was a user of fats and oils would come.
Speaker Change: Come under a lot of stress pretty quickly and you would think and how are you thinking about the push pull between the feedstock demand shifts and the credit generation that shifts that could that could happened before and after the calendar turns.
Speaker Change: Yes. This is a this is a pretty important point I think.
Speaker Change: The short answer to your question as.
Speaker Change: We can approach this whole event with lower risk than than the rest of the market.
Speaker Change: As Youre aware a lot of the RIN generation, 25% or so of the RIN generation default RIN generation has come from imported biofuel RIN.
Speaker Change: Global diesel biodiesel without a BTC and current margin structure.
Speaker Change: It doesn't make sense for them to run their businesses on paper and so.
Speaker Change: They're going to have a lot more risk as we approach those deadlines.
Speaker Change: We would anticipate that they're going to play that a little more conservatively as we get to the end and not want to risk our logistical delays and things like that so you know all of that should point to better our renewable diesel margins as we near the end of the calendar year.
Speaker Change: From our standpoint, you know implementation of the PTC, we've seen delays in the past with BTC, but again.
Speaker Change: We're positioned so that we can manage that risk better we're very confident in the implementation of that 45 Z and what that's I don't know, how that's going to play out so.
Speaker Change: Because of all those things, we should be able to run fall going into the end of the year.
Speaker Change: And really we should see margins improve as we get to the end of 2024.
Speaker Change: I appreciate that color I'll pass it on thank you.
Speaker Change: Our next question comes from Matthew Blair of Tudor Pickering Holt go ahead. Please.
Matthew Robert Lovseth Blair: Good morning, Thanks for taking my question here I was wondering.
Matthew Robert Lovseth Blair: If you have a view on when the changes for the California I'll see if that's a program will be implemented or are you confident that that will be a 2025 startup date or do you see a risk that might slip into 2026.
Matthew Robert Lovseth Blair: Our view at this point Ben is that it's it's still something for 25.
Ben: Not necessarily January one of 25, but we do believe that this will be something tour through the probably Q2 of 'twenty five.
Ben: Got it got it and then maybe circling back to the to the biodiesel comments.
Ben: You mentioned that.
Speaker Change: Next year, you'll probably get tougher for the for.
Speaker Change: For the bedroom based biodiesel producers, but what about this year have you been surprised that the utilization rates for some of these biodiesel plants.
Speaker Change: You know several of you argue competitors reporting negative EBITDA, even if they're running low Ci feeds.
Speaker Change: I guess, we would have thought that the biodiesel utilization would be even lower this year that you'd see more closures like what chevron announced earlier this year.
Speaker Change: So is that that's surprising to you to see the relative strength of biodiesel utilization rates.
Speaker Change: This year.
Speaker Change: So I'll take that.
Speaker Change: Really no I think when you look at who the biodiesel players are you know these are largely AG companies that are extremely efficient effective it.
Speaker Change: At managing margin risk and they take advantage of.
Speaker Change: Price fluctuations and the opportunity to lock in a margin in the future there.
Speaker Change: We're also looking at an integrated oilseed crush margin all the way through to biodiesel. So.
Speaker Change: For their businesses there there are at least above the line above the earning of contribution margin and they're going to continue to do that as long as they can lock those margins in.
Speaker Change: So not really surprised with the run rates, we've seen in biodiesel as we get into 2025 that just gets a lot more difficult than in the.
Speaker Change: The amount of gas.
Speaker Change: GAAP that they have to overcome is probably too big to continue to run at the rates that they have that.
Speaker Change: Yeah.
Speaker Change: That's helpful. Thank you.
Speaker Change #101: The next question comes from Thomas Palmer of Citi Go ahead. Please.
Thomas Hinsdale Palmer: Good morning, and thanks for the question maybe.
Thomas Hinsdale Palmer: Maybe I could just start off clarifying on the expected inflection here in the second half.
Thomas Hinsdale Palmer: Do you think the current pricing environment supports at least $1 3 billion EBITDA for the year I know you talk about reasons why pricing could continue to improve I just wanted to kind of clarify the piece of where we sit today versus.
Speaker Change #102: As it progresses.
Speaker Change #100: I mean.
Speaker Change #112: I think so the current pricing I think there's a couple of messages here and one is that the in the current pricing environment. There are things that we expect to do in the second half of the year that will allow us to improve margins.
Speaker Change: You know I mean, Randy talked about it kind of leveraging our infrastructure and in some of the changes that are underway and just extracting more value from what we have that's that's a big part of it.
Thomas: Thomas with you Tom you got you know P 66 out there, claiming their run and 50000 barrels a day, but we've never seen them.
Speaker Change #105: Number two there we were watching them by animal fats around the world now so evidently they've got their confidence and their pretreatment system.
Thomas: And so you know it.
Thomas: The SNB of this product is just.
Thomas: Our feedstocks in the world.
Thomas: Not infinite and so we just believe that if any of these guys are successful you add mass they come out today and say well, we're going to be at full capacity at Martinez by the end of the year. They reaffirm that again I mean, so you know you're talking of converting over whatever that number is 70000 barrels a day 80.
Thomas: In barrels a day to quote waste fats.
Thomas: I get pretty bullish when I hear that number so that's where we're at on it and you know the risk out here as we always say is if they don't run it will be a P 66, as largest supplier of R&D and will be their largest customer of of resale animal fats.
Speaker Change #104: Understood. Thanks for all the color on that maybe I can just follow up quickly on the food side.
Speaker Change #103: You noted for <unk> some of the Destocking I think the messaging on the go forward was with more constructive just wanted to clarify I mean is this.
Speaker Change #107: The expectation on a sequential basis, we start to see.
Speaker Change #108: The improvement in terms of the profitability of that business.
Speaker Change #115: Yes, I mean, clearly you know that.
Speaker Change #108: The food segment really is the anchor is the there's the gelatin hydrolyzed collagen business within that segment.
Speaker Change #109: We've seen some challenges in the different continental businesses that we have there with customer demand, but it towards the end of June here, we started to see customer demand pick up again.
Speaker Change #109: Whether it's confectionery, whether it's pharma.
Speaker Change #109: So ultimately we feel pretty good about the back half of the year I think when you when you see the financials released once again, you'll see the decline in revenue in this segment and really what I would tell you to focus on is the margin because we've been able to once again lower what we pay for bone scans and hides to maintain them.
Speaker Change #109: Margins, we had and we think that we'll get some pricing improvement.
Speaker Change #103: <unk> half of the year as we go forward here.
Speaker Change #103: Thank you.
Speaker Change #106: Our next question comes from Ryan Todd of Piper Sandler go ahead. Please.
Speaker Change #103: Sure.
Ryan M. Todd: Great. Thanks.
Speaker Change #103: Maybe.
Speaker Change #121: One on the political side within it was is difficult, but as you as you look ahead over the next over the next six plus months.
Speaker Change #103: We've had a number of moving pieces can you talk to maybe.
Speaker Change #114: Any impacts you see a risk that you see from things like the you know the ruling on the Chevron doctrine.
Speaker Change #103: Or from the election coming up later this year and what you see you know it could be.
Speaker Change #103: Either positives or risks in either direction.
Speaker Change #119: Yeah. Thanks.
Speaker Change #111: I think technically either.
Speaker Change #117: These risks exist in.
Speaker Change #118: But when we when we dive into it what we really look for our.
Speaker Change #113: What's going to motivate.
Speaker Change #111: The different politicians in their jurisdictions.
Speaker Change #111: As it relates to 45 Z in this case or any policy for that matter and.
Speaker Change #111: What we see as biodiesel renewable diesel sustainable aviation fuel really isn't it becomes a nonpartisan.
Speaker Change #111: Issue at the end of the day because of just the broad based representation of both sides of the aisle and AG states. So the.
Speaker Change #111: The risks like I said technically the risks are there that policies could change, but practically speaking, where we're pretty comfortable with where things stand and what how it's likely to play out.
Speaker Change #111: I would add Ryan I think the thing that the people have to keep their eyes wide open on right. Now is American agriculture is under extreme pressure right now given $10 beans, and sub $4 corn and the politicians are going to have to pay attention to the southern farm states.
Speaker Change #116: I mean, clearly we would be having lots more fun on this conversation if the EPA had set the RVO to reflect both the capacity and the production of the soy crushing industry. The EPA failed and so now of the politicians are going to have to it's bipartisan come forward here and.
Speaker Change #116: To push this thing forward I mean, you know.
Speaker Change #130: It's not climate change, it's not energy policy, It's AG policy and that's true around the world today. So end of the day. The farmer once again prove that if you get prices, where they're at make fertilizer available and capital available they will produce more and that's where we're at right now in the cycle and so on.
Speaker Change #127: Ultimately what the you know as we're transitioning to a P. T C. It's very favorable to Darling is very favorable to cash flows. The darling it's favorable to our system. If you will globally. So end of the day, we feel pretty good where we're positioned here, but I don't see you know it's hard for me to.
Speaker Change #116: See that whoever you want to put in the in the Oval office if.
Speaker Change #116: It can trump get his magic pencil out and screw this thing up not really it takes you know it takes congress to get involved and I don't think I don't think there's anybody willing to step forward on that today, given where American agriculture is.
Speaker Change #116: Great. That's helpful. Thank you and then maybe just.
Speaker Change #124: One quick follow up any thoughts on the outlook for dividends from D. G. DS, we expect that to continue to be a.
Speaker Change #122: Is there kind of a steady dividend.
Speaker Change #120: Payer from here or how should we think about those dynamics.
Speaker Change #120: Yes, Ron you see you know the balance sheet of D. G D.
Speaker Change #126: Therefore that we posted out there that obviously was was way down. Therefore, we received a distribution here in the mid in the Middle of July having said that I think our outlook is we're optimistic for additional distributions the back half of the year from D. T D.
Speaker Change #120: With that.
Speaker Change #120: Our really our outlook for Q3 is additional debt reduction probably accelerating from where we were in Q2s, which gives.
Speaker Change #120: It gives us a chance to be kind of in the ballpark, depending on where margins our cash flows.
Speaker Change #120: Half of the year to have that that kind of down in that.
Speaker Change #120: Closer to that $4 billion number than where we're at and obviously the distributions from Diamond Green is a is a significant part of that so we're optimistic about that yes, and Brad comment a little bit about working capital here.
Brad: <unk> is not the only source of debt reduction in this company. Yes. We've said we've got to focus on on on working capital improvement, obviously, the balance sheets not not out there yet, but we have momentum there.
Brad: In Q2, so you'll see that shortly and rest.
Brad: Rest assured you will see continued improvements.
Brad: So on the core.
Speaker Change #123: We're <unk>.
Speaker Change #123: Really generate cash there as well.
Speaker Change #123: And if I could I would just remind everyone that the D. G D dividend that that's a formula that's calculated every day or every every last day of the month and the numbers. So there's really not any subjectivity to that that's just a matter of.
Speaker Change #123: The calculation that the dividend is what it is right.
Speaker Change #128: Great. Thank you.
Speaker Change #123: Okay.
Speaker Change #123: Your next question comes from John.
John: Of Jpmorgan go ahead please.
John: Hi, good morning, Thanks for taking my question.
John: So my first question is on capital allocation, you talked about Delevering as the primary focus right now and I think you just mentioned.
Speaker Change #123: Accelerating the debt pay down in the second half.
Speaker Change #151: You did buy back some stock in Q2 should we.
Speaker Change #125: Should we characterize that as being kind of opportunistic when the stock is trading down and then how do you generally think of a decision between the balance sheet and the share buyback when you view the shares are attractive.
Speaker Change #125: Yeah, John this is Randy.
John: You've answered a lot of your own questions there.
Speaker Change #131: Debt repayment for us has been priority clearly.
Speaker Change #135: Level of the different shareholders.
Speaker Change #179: It had been in and out of the stock its a clear message to us to get to 4 billion or below three ways to get there you know generate cash of D. G D repatriate it too.
Speaker Change #131: <unk> run our business widen our margins and three is to you know manage our manage the capex outflows and you know we set out the year with a $565 million plan or a $500 million and were shooting to be under 400 for the year. So that's priority what we did in Q U.
Speaker Change #131: No Q2 here was an opportunistic we wanted to buy back you know our dilution within the management programs and we continue to look at share buybacks as an opportunity, but right now as we.
Speaker Change #131: Look forward to the right capital structure for the business long term ultimately we want to get the debt down here and that that would be priority one.
Speaker Change #125: Priority two would be buybacks and priority three would be any type of growth capital, which we're not really putting in play. This year. We took a took a holiday as we've said on that.
Speaker Change #150: Great. Thank you that's very helpful and then.
Speaker Change #140: I have to apologize I have another question on the full year EBITDA Guide I know you've got several already but.
Speaker Change #145: Mine is just trying to dig in a little bit on the D. D D side.
Speaker Change #138: Got an assumption of seven.
Speaker Change #133: <unk> 75 per gallon for the full year I think so perfectly with that.
Speaker Change #142: So the right number to be thinking about.
Speaker Change #137: And secondly, you have to do is my simple math is right I think you'll have to do about 90 or so in the second half to get to those kinds of levels.
Speaker Change #160: We can talk through some of the moving pieces there I know you're talking about the wagon feedstocks them.
Speaker Change #132: Coming up a bit but no movement on the LCM Pepsico next year, just just trying to understand how we could get to that number.
Speaker Change #153: I think youre asking to clarify I think youre asking what is our assumption on.
Speaker Change #146: EBIT per gallon on D J D.
Speaker Change #139: Yes, I'm sorry, I think you said 75 then.
Speaker Change #139: <unk> to get to about 1 billion of EBITDA.
Speaker Change #157: Confirming if that's still the number and if so kind of the math to get there in the second half.
Speaker Change #134: Got it.
Speaker Change #134: Yes.
Speaker Change #134: I think that we may be talking about investment economics are back to back when the original investment we came out of the year, Matt and we we we kind of guided that we thought we'd run it closer to 75 cents and we were we beat that in Q1, and we lowered in Q2 and so at the end of the year, it's kind of hard to say.
Speaker Change #134: How this thing plays out as we go forward, but clearly that's built in our 1314 expectation, but I'm not going to throw a number on that today.
Speaker Change #154: Okay fair enough. Thank you.
Andrew Strelzik: The next question comes from Andrew's Stronach.
Speaker Change #144: I'm sorry, <unk> of BMO go ahead. Please.
Andrew Stronach: Hey, good morning, Thanks for taking the questions.
Andrew Stronach: The first one is on some of the internal initiatives, obviously sounding very confident and optimistic about.
Andrew Stronach: But what that can look like is there a way to frame what kind of contribution that could that could.
Speaker Change #147: Create for you know or kind of how you're thinking about that with respect to the outlook.
Speaker Change #136: Look for the back half of the year above and beyond maybe what you're expecting from fat prices.
Speaker Change #141: Most of them in the valley assets or is it broader than that.
Speaker Change #158: Yes. It is.
Speaker Change #152: It's a hard question to answer because you know how do we frame that I think you know the what you're alluding to is.
Speaker Change #152: As we have you know of.
Speaker Change #155: A lot of our supply contracts are multiyear contracts and when they come up for renewal, we reprice those based on the current market environment, which is significantly different today than it was just a couple of years ago, when construction costs were significantly lower and.
Speaker Change #143: Rendering options just you know we're lowering costs than they are today it's.
Speaker Change #143: It's hard to frame whats the whats the potential are expected impact that's going to have in the second half of the year I think.
Speaker Change #143: It's easier to anticipate what that might look like over a couple year period, but what I think we can say is that we do have some you know we've had some pretty significant contracts come up for renewal.
Speaker Change #156: A very rapid and then really beneficial changes in procurement, Canada has a similar market to the table to do that does have commodity exposure. There. So they're getting lift now South America. You know we had our challenges in Q2 I think for many of you know, we we've not quantified them, but because they're very difficult.
Speaker Change #156: But the flooding in the South Brazil, where it was you know at us down for a little bit down there and clearly that's going to improve and in Q3.
Speaker Change #143: And then North America or the U S. Any maps got challenges cut out not only operationally does hot weather always makes it difficult to render but we've still got work to do and ultimately as I said the U S. You know much as much as were investors in and Diamond Green diesel and we're one of the largest importers of fat in the <unk>.
Speaker Change #143: World.
Speaker Change #161: It impacted our domestic business here now imports are more expensive than domestic and we're going to get that benefit back into the domestic system. So it's a little bit of everything everywhere as we look around the horn today anything you want to add I would just along those same lines. I mean, we we have an action item list by location of steps that.
Speaker Change #162: That we can and Nintendo and intend to take.
Speaker Change #143: Those lists are different depending on where you were where you look some of those are low hanging fruit others take more time and a little more of a challenge to implement but it's really a drill down to by location and the actions and the steps that we need to proactively take to help strengthen and fortify the business.
Speaker Change #167: Great. That's super helpful. I appreciate it and then my other question.
Speaker Change #159: Maybe if we could go back to the food segment and unpack, what's going on there a little bit you guys had been running pretty consistently in the $85 million to $90 million kind of EBITDA range. Since the acquisition. If you back out the inventory adjustment last quarter now you're at $73 million. So I guess, what caused that decline this quarter, specifically I mean, you really talked.
Speaker Change #165: About the destock slowing, but but I'm curious about the EBITDA deceleration there and then whether or not that's the right kind of run rate for the balance of the year to think about things.
Speaker Change #159: Yeah.
Speaker Change #159: This is Randy I mean, clearly there's about three or four things going on globally. The number one issue was just really customer demand.
Speaker Change #159: We finally felt as we came into 2024 here the deflationary pressures around the world and ultimately we've you know we've seen prices of just what I'm going to call just generic or commodity gelatin fall pretty rapidly and you say well how does that happen well it happens.
Speaker Change #159: Because we that business are we we've created a very nice business out there and ultimately attracted a couple large.
Speaker Change #159: South American competitors that tried to bring on way too much capacity in a in a micro market.
Speaker Change #159: And so if you're if you call the market somewhere around a half a million tons and somebody brings on 30 40000 tons of capacity. The first thing you don't do is walk into your boss and say I can't find a customer yet. The first thing you do is you cut the price and sell it in and time that it was a bad investment idea that he adds but ultimately that's what we're seeing.
Speaker Change #159: Pressure on pricing out there that's reflected in the top line.
Speaker Change #183: Seeing a little bit of margin pressure in the commodity gelatin, but but you know obviously our positioning in hydrolyzed collagen.
Speaker Change #159: And with our gel next assets being the lowest cost most efficient in the world now it Insulates us a little bit, but you know ultimately where we see some pretty strong demand picking up the back half of the year and I think you know we're still optimistic of the Rus low model for the balance of the year here.
Speaker Change #190: Great. Thank you very much.
Speaker Change #164: Our next question comes from Ben <unk> of Baird go ahead. Please.
Benjamin Shelton Bienvenu: Good morning, guys. Thanks for taking the medicine.
Benjamin Shelton Bienvenu: Good morning, So first thing just on shaping in the back half.
Speaker Change #180: You noted the hot weather for Q3, so that's not good for for feed.
Speaker Change #178: But then.
Speaker Change #175: Is there a tie in in Q4 to the staff plan. So just maybe if you could just tell us like what quarters could be heavy.
Speaker Change #166: You are lighter in terms of EBITDA.
Speaker Change #186: And then I have a follow on.
Matt: I mean, if I, you know and as Matt said earlier, you know I don't think I wouldn't wait this thing divide by 2% or 50% and 50% it'll be stronger in Q4 than it is in Q3, Ben and we've not put anything in there for <unk>.
Matthew J. Jansen: And that's the rabbit in the hat here that pushes us closer to the one four then the one three number so Bob Matt anything you guys want to add to that that's right. Okay.
Speaker Change #171: Clarification on the already has their downtime of the plant when you hook up S. A F or they're completely batch so it doesn't matter.
Speaker Change #176: Now that was completed here when we add port Arthur down. So you know we're in the instrumentation and electrical phase now and everything is set and you know.
Speaker Change #176: And then it'll be ready to run hopefully sometime in Q4 here so far.
Speaker Change #176: The weather has a has worked pretty well, but it's a pretty wet down there right now.
Speaker Change #176: Alright, and then.
Speaker Change #187: There was a report of KKR you bought a stake in the Italian company I just wanted to get your thoughts on it.
Matthew J. Jansen: Yeah.
Speaker Change #182: Waikiki yard would do that.
Speaker Change #174: How it impacts you.
Speaker Change #168: Are there big band, there's a blank looks around the table give us a little more detail.
Speaker Change #170: Any live.
Matthew J. Jansen: A.
Eddie: Subsidiary of Eddie it's they have a renewable diesel production.
Matthew J. Jansen: <unk> offered.
Matthew J. Jansen: The $3 3 billion euros for a 25% stake in the renewable diesel production.
Speaker Change #185: All I can tell you is that makes darling severely undervalued then [laughter].
Matthew J. Jansen: Alright.
Matthew J. Jansen: Then just maybe on the final one.
Matthew J. Jansen:
Speaker Change #169: Do we read into the dividend. The Capex is primarily done for the Saf and then maybe any color on your thoughts around.
Speaker Change #184: If you go into another Scf play out.
Speaker Change #169: <unk>.
Speaker Change #177: Yeah, I mean spending is spending is clearly winding down.
Speaker Change #177: On the SaaS side. We're also you know another thing of Oh, we didn't spend a lot of time talking about we we've got a pretty significant import terminal for imported fats being constructed at port Arthur.
Speaker Change #177: That's in our capital numbers, that's been flowing through so that spending will wind down to as we go forward here.
Matthew J. Jansen: So you have to.
Lane Riggs: My colleague at Valero Lane, Riggs and I are sitting here, saying sell out number one and bring us the contracts for four more gallons and we will commit to you to build Saf too it's engineered its cost it ounce plus or minus 10% ready to go.
Lane Riggs: But are there any further investment decision is on hold until we see the.
Lane Riggs: See the lights of the the demand here.
Matthew J. Jansen: Great. Thanks, guys.
Matthew J. Jansen: Yep.
Matthew J. Jansen: This concludes our question and answer session I would like to turn the conference back over to Randy Stuewe for any closing remarks go ahead. Please.
Randall C. Stuewe: Thanks, Andy Thank you for all your questions today as always if you have additional questions reach out to Suzanne stay safe have a great day, and we look forward to talking to you in the future.
Speaker Change #189: The conference has now concluded thank you for attending today's presentation.
Speaker Change #188: You may now disconnect.