Q4 2024 Darling Ingredients Inc Earnings Call
Good morning, and welcome to the Darling ingredients incorporated conference call to discuss the company's fourth quarter 2024, and fiscal year 2024 financial results.
After the Speakers' prepared remarks, there will be a question and answer period.
To ask a question press star followed by the number one on your telephone keypad.
If you would like to withdraw your question press the star followed by two on your telephone keypad.
Today's call is being recorded.
Speaker Change: I would now like to turn the call over to MS. Sue and Godfrey. Please go ahead.
Speaker Change: Thank you for joining the Darling ingredients fourth quarter, 'twenty 'twenty, four and fiscal year 2024 earnings call here with me today are Mr. Randall C Stuewe, Chairman and Chief Executive Officer, Mr. Brad Phillips retiring Chief Financial Officer, Mr. Bob Day, our new Chief.
Speaker Change: Officer and Mr. Matt Chapman, Chief operating officer in North America.
Speaker Change: Our fourth quarter 2024, and fiscal year 2024 earnings news release and slide presentation are available on the Investor page of our corporate website.
Speaker Change: They'll be joined by a transcript of this call once it is available.
Speaker Change: During this call we will be making forward looking statements, which are predictions projections or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties.
Speaker Change: Actual results could materially differ because of factors discussed in today'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.
Speaker Change: Do not undertake any duty to update any forward looking statements now I will hand, the call over to Randy. Thanks, Suzanne Good morning, everyone and thanks for joining us for our fourth quarter 2024, and fiscal year 2024 earnings call.
Speaker Change: Previously announced Rob Phillips, who will be retiring after 36 incredible years of Darling ingredients. After the 10-K is filed at the end of this month, Bob day will assume the CFO position.
Speaker Change: This will be Brad's last earnings call I want to thank Brad for his many years of service. The memories are numerous as Brad and I have done many of these calls with you and I think I speak for everyone. In this room and on the call that we will truly Miss you. As you proceed to the next chapter of your life, Congratulations and best wishes to you.
Speaker Change: And your family stay healthy my friend, you will be dearly missed but it's time for the next chapter of Dar history, and we welcomed Bob day into that exciting role.
Bob Day: Now turning to the quarter and the year Darling ingredients delivered its strongest quarter of the year in 2024, and one of its top years in its 142 year history, while global markets were incredibly volatile we focused on what we can truly control through effective margin management and Capex stewardship, we paid down.
Bob Day: $353 million in debt, reducing our financial leverage ratio to 368 times, we received $179 8 million in dividends from Diamond Green diesel and successfully started up the largest sustainable aviation fuel unit in the world under budget and ahead of us.
Bob Day: Schedule.
Bob Day: For the fourth quarter, our combined adjusted EBITDA was $289 5 million, which was net of a $59 million lower cost or market adjustment noted in last week's press release for our share of the joint venture ownership in Diamond Green diesel.
The company continued its focus on operational excellence, which resulted in gross margin improvement in the fourth quarter of 2024 compared to the third quarter of 2024, despite lower fat prices. We also want to point out that we delivered a significantly improved global safety record frankly, an all time record for our global.
Bob Day: Team.
Bob Day: Turning to the feed ingredients segment global rendering volumes remained as expected and continues from the regulatory environment is improving and clarity has arrived with the recent notice from the U S Department of Treasury on the 40 fives, the clean fuel production tax credit and the update agreed model, we believe what we have.
Bob Day: And what we need to begin calculating and monetizing the credit as noted in our press release waste fats have been steadily improving and should provide a nice tailwind for darling ingredients into 2025.
Bob Day: Once again, our focus on spread management smart Capex deployment and operational excellence resulted in nice gross margin improvement in the feed segment. We went from 21, 5% in third quarter to 22, 6% in the fourth quarter I want to thank our global operations teams for the bold and aggressive.
Bob Day: <unk> delivered.
Bob Day: Now turning to our food segment, we saw a slight improvement in sales in the fourth quarter compared to the third quarter as industry conditions improve the company is continuing to focus on margin management, which resulted in a nice improvement in gross margin from 23, 9% in third quarter to 25, 7% in fourth quarter.
Bob Day: Our first sales of next hired a revolutionary natural glucose moderation collagen peptides have hit the market and the demand is beginning to accelerate we're excited to have several more of these products now in the pipeline.
Okay, turning to our fuel segment Darling ingredients received a cash dividend from Diamond Green diesel of $68 6 million in the fourth quarter of 24, and $179 8 million in cash dividends for the full fiscal year subsequent to the quarter close we have now received another cash dividend of $86 four.
Bob Day: $4 million in January of 2025.
Bob Day: <unk> continues to outperform its peers on many metrics and continues to be the best in class producer. We have thoroughly reviewed the 40 fives the clean fuels production credit guidance with third party auditors and are aligned in determining that it provides a clear safe harbor for the company's accounting treatment of the tax credit.
Bob Day: As a result, we are confident in our ability to book the credit and fully realize its value. While there are a few details to iron out regarding feedstock options and certification byproduct and destination D. J D strategic locations logistical flexibility and capability to process a diverse range of feedstock.
Bob Day: <unk> positions us well to maximize the value of this credit with that I'd like to turn it over to Brad to take us through some financials and then I'll come back with my thoughts on 2025.
Bob Day: Brett Okay. Thanks, Randy net income for the fourth quarter 2024 totaled $101 9 million or <unk> 63 cents per diluted share compared to net income of $84 5 million or <unk> 52 per diluted share for the fourth quarter of 2023.
Speaker Change: Total net sales were $1 4 billion for the fourth quarter of 2024 as compared to $1 6 billion for the fourth quarter 2023, operating income decreased $36 4 million to $122 4 million for the fourth quarter of 2024 compared to $158 8 million for the fourth quarter of 2012.
Speaker Change: Q3, primarily due to a lower gross margin from significantly lower fat prices, which were substantially offset by lower SG&A.
Speaker Change: Earnings from D. G D lower restructuring and asset impairment charges, a favorable change in fair value of contingent consideration and lower depreciation and amortization expense.
Speaker Change: Total other expenses decreased $18 7 million in the fourth quarter 2024, as compared to the same period in 2023, primarily due to lower interest expense as well as increased property insurance recoveries related to prior property casualty losses for.
Speaker Change: For fiscal year 2024, net income was $278 9 million or $1 73 per diluted share as compared to net income of $647 7 million or $3.99 per diluted share for fiscal 2023.
Speaker Change: Net sales for fiscal year, 2024 were $5 7 billion compared to net sales of $6 8 billion for the same period of 2023 operating income decreased $481 5 million to $468 2 million for fiscal 2024 compared to 900.
Speaker Change: $49 7 million for fiscal year 2023.
Speaker Change: The decrease was primarily the result of a lower gross margin in global ingredients and lower earnings from D. G D somewhat offset by lower SG&A, lower restructuring and asset impairment charges and a favorable change in fair value of contingent consideration.
Speaker Change: Total other expenses decreased $2 1 million for fiscal year 2024 from $234 8 million to $232 7 million as compared to fiscal year 2023, primarily due to lower interest expense and increased property insurance recoveries related to prior property casualty losses.
Speaker Change: That were substantially offset by foreign currency losses for the three months ended December 28, 2024. The company recorded an income tax benefit of $25 5 million, primarily due to the biofuel tax incentive the company also paid $23 million of income taxes during the quarter.
Speaker Change: For the 12 months ended December 28, 2024, the company recorded an income tax benefit of $38 $3 million. The company's effective tax rate for the year is a negative 15, 5%, excluding the biofuel tax incentives and a change in valuation allowance related to deferred tax as.
Speaker Change: The effective tax rate is 23, 6%.
Speaker Change: The company paid $102 7 million of income taxes in 2024.
Speaker Change: As you know the clean fuel production tax credit as a transferable income tax credit, replacing the blenders tax credit beginning in 2025 as previously indicated we believe the guidance released by Treasury last month provides a line of sight to realize and monetize. These credits we are vigorously working through the details with our <unk>.
Speaker Change: <unk> partners, we look forward to providing an update soon in the fourth quarter 2024, we paid down approximately $162 9 million of debt and as Randy previously said $353 4 million of debt was paid down for fiscal year 2024, the combination of effective working capital management cash.
Speaker Change: Opex stewardship and solid receipts of dividends from the Diamond Green diesel joint venture assisted in the company's ability to delever, while also purchasing about $34 $3 million.
Speaker Change: Or about 1 million shares of our common stock.
Speaker Change: The company's total debt outstanding as of December 28, 2024 was 4 billion compared to $4 4 billion at year end 2023, our bank covenant preliminary leverage ratio at Q4 2024 was $3.
Speaker Change: Nine three times, and we had approximately $1 $2 billion available to borrow under our revolving credit facility.
Speaker Change: Capital expenditures totaled $73 3 million in the fourth quarter and $332 5 million for fiscal year 2024.
Speaker Change: As Randy mentioned earlier, we received $68 $6 million in cash dividends from <unk> during the quarter and $179 8 million for fiscal year 2024, with an additional $86 4 million that was distributed in January 2025.
Speaker Change: While the 2025 operating plan calls for a slight increase of capital expenditures to approximately $400 million. It will be judiciously managed based on market conditions.
Speaker Change: Now I'll turn the call back over to you Randy Thanks, Brad well done.
Speaker Change: We are optimistic about 2025, we have begun the year with strong momentum and expect that to continue to build throughout the year global raw material volumes remain robust and stronger fat prices in the first quarter should provide a lift as pending tariffs and clean fuel production credit provide even greater certainty to the value of.
Speaker Change: Stick feedstocks.
Speaker Change: This is very advantageous for our core ingredients business as Darling ingredients is the largest producer of waste fats in the world.
Speaker Change: And the only truly vertically integrated renewable producer with regulatory clarity on U S biofuel policies, such as 45 Z.
Speaker Change: And California's low carbon fuel standard we believe the market is stabilizing a sharp decline in foreign biofuel imports and early signs of capacity rationalization in the domestic biodiesel and renewable diesel production indicate a more balanced supply and demand environment for 2025. These dynamics combined.
Speaker Change: With our strategic positioning and operational expertise uniquely position us to capitalize on the market and drive growth.
Speaker Change: As the market continues to work through the details on the clean fuel production tax credit I expect our ingredient prices and room to adjust and solidify throughout the year. Our priorities for 2025 are very clear we are staying focused on disciplined capital deployment.
Speaker Change: Working capital management operational excellence and margin management. Our goal is to maintain a strong financial policy with a focus on deleveraging aiming for a two five times bank leverage ratio in the future. We will continue to drive robust research and development in the collagen peptides space.
Speaker Change: Delivering a powerful portfolio of natural collagen solutions with holistic and targeted health benefits. We will also continue to explore expansion opportunities in the renewable natural gas as those markets evolve in the United States and Europe.
Speaker Change: And as our sales.
Speaker Change: Sales book continues to build nicely, we are looking at ways to convert more renewable diesel into SA.
Speaker Change: We expect 2025 to be stronger than 2024, gaining momentum throughout the year as D. G. D. Turnarounds are completed and SaaS sales command, a larger percentage of our mix given the fourth quarter 2024 run rate and with only one period into the new year I am providing guidance of one to five.
Speaker Change: <unk> to $1 3 billion combined adjusted EBITDA for 2025, and we will provide updates as the year progresses.
Speaker Change: With that I'd like to go back to Q&A now.
Speaker Change: We will now begin the question and answer session.
Speaker Change: At this time I would like to remind everyone in order to ask a question press star followed by the number one on your telephone keypad.
Speaker Change: Please limit yourself to one question and one follow up question.
Speaker Change: We'll pause for just a moment to compile the Q&A roster.
Speaker Change: Our first question comes from the line of Manav Gupta of UBS go ahead. Please.
Manav Gupta: Good morning, Randy and congrats drag.
Speaker Change: You've been very helpful over the years.
Speaker Change: My question relates to fortify the like when we look at 45, okay.
Speaker Change: It seems like a plus custom created far dog almost like one of the senior management remembers broke into the room, where it was being written and rotate part of them.
Speaker Change: That is critically important IV no. One argued from important can you call <unk> is getting a much bigger it could have been benign no clinic canola all of these things should die for help us understand all of these and reached 45 <unk> dot relatively not in this space.
Speaker Change: Okay.
Speaker Change: Yeah look this is Bob I'll, Thanks, Manav I'll I'll go first.
Speaker Change: I think Randy stated it very clearly in his opening remarks about how we feel about 45 Z, but I'll, just reiterate and say that <unk>.
Speaker Change: 45 Z as law.
Speaker Change: The due diligence and advice that we've gotten.
Speaker Change: Make us confident that the current notice provides safe harbor, the ability to realize the credit value unless or until a new notices provided so.
Speaker Change: We're very pleased with what's out there today and what we're able to do with that you pointed out in your question.
Speaker Change: This is a ci score adjusted tax credit and it's only eligible to U S biofuel producers.
Speaker Change: That's for reasons that have nothing to do with darlings influence, but it has more to do with just the environment that we're in and what's good.
Speaker Change: Good for policy.
Speaker Change: It is very positive for Darling.
Speaker Change: The primary reason for that is being a CIA adjusted.
Speaker Change: Tax credit Darling produces the lowest Ci score feedstocks.
Speaker Change: Our eligible for this credit global animal fats and used cooking oil we are the largest producer of those two things and then it's also extremely positive for Diamond Green diesel.
Speaker Change: They also are able to benefit from low Ci score feedstocks and if those feedstocks earn a higher margin than producing biofuel.
Speaker Change: Diamond Green diesel is well placed to process to pretreat and process those feedstocks better than anyone else has proven to be able to do and eliminating foreign biofuels from eligibility of the PCC. It certainly plays to <unk> strengths given the amount of U S production that they have.
Speaker Change: Perfect guys I'll ask a fake quick follow up Andy in your opening comments you did see looking to meet more SaaS versus oddity can you just elaborate on that a loser.
Speaker Change: Okay.
Matt: Hey, good morning, Matt Good morning, Manav This is Matt.
Matt: Yes, So we've mentioned in the past once we.
Matt: <unk> got the our first SaaS line up and up and running that we would be looking to for other opportunities next eventual steps in.
Matt: Adding additional SaaS capacity and that's exactly what we're doing and so as you know only about half of our production that <unk> three is channeled towards the DCF line and so whether whether we actually go in and invest too.
Matt: Add to capacity there in port Arthur or if we do something in norco, but these are all things that I think will transpire over the coming months.
Matt: Looking at now that we have one of the big hurdles Buzz. Okay. This is new for us So we want to get and be able to build the plant be processed and make spec and <unk> sell it and so we've accomplished all of those at this point and so that's what's giving us the confidence to work towards our next plan.
Matt: <unk>.
Speaker Change: Thank you.
Speaker Change: Our next question is from the line of Vishal and Lonnie with Jefferies. Please go ahead.
Speaker Change: Yes.
Speaker Change: Good morning, guys. Thank you for taking my question, Brad It was a pleasure working with you and Bob Congrats on the new role.
Speaker Change: Thank you Mike My first question is on the LCM adjustment.
Speaker Change: Maybe you could oh, so could you share more about what that like more about what the actual adjustment because it truly noncash and then.
Speaker Change: Maybe thinking about Duane 25, the guide that you've given for 125 to one three.
Speaker Change: As of today does that exclude any impact from LCM adjustments.
Jeff: Jeff do you want to take the.
Jeff: The guide question.
Speaker Change: Sean This is Randy I'll take the guide question obviously the.
Speaker Change: CT ingredient business in Q4 set a much higher run rate than.
Speaker Change: And then 2024 were.
Speaker Change: We're coming out conservative a D G D, but basically equivalent to the per gallon run rate that we had last year at this time.
Speaker Change: And no. It doesn't include any LCM pickup.
Speaker Change: It's not hard to see <unk> doing much better than the combination of 900 or a $1 billion in the core ingredients and $2 50 or $3 50 within within the combined.
Speaker Change: Adjusted there, we're just trying to take a conservative view at this moment clearly theres been a lot of questions on what you can monetize.
Speaker Change: I think Bob did a really nice job I mean, one more time to reiterate it and so we don't have to answer it. Another six times today is 45 Z as law, we know how to calculate our advisors and tax counsels are comfortable with how we're calculating and we believe it can be monetized and will be recognized so we're.
Speaker Change: We're operating the business with that view right now, we fundamentally view that and we will talk about this and maybe Bob can comment a little bit on it.
Speaker Change: We will talk about the tightening of the RIN SMB in the curtailing of capacity.
Speaker Change: And so Bob do you want to go to LCM that then yes, Brad feel free to jump in but.
Speaker Change: Trying to explain the LCM it would be and how it works it would be impossible on this call, but it is a noncash expense.
Speaker Change: We recognize it it's for those that want to just pull it out it's relatively easy to do so.
Speaker Change: And as part of a of an accounting system that is pretty typical for for the oil and gas industry.
Speaker Change: The only thing I would add on LCM to Sean is obviously.
Speaker Change: D G DS financials, which will be attached audited financials, which will be attached as an exhibit to our 10-K in a couple of weeks in that audit. The LCM is called out that's the way. It is audited recorded and we followed that our.
Speaker Change: Our partner has different opportunities there and we understand the analysts for the most part backup back it out, but we will continue to.
Speaker Change: So are recorded as the audited number our share of that LCM back.
Bob Day: Back to you Bob.
Speaker Change: Or anything else that's perfect.
Speaker Change: Perfect. Thank you guys appreciate that and then maybe just the next one on next diet could you check in on more details on what the ramp looks like in 2025, and then maybe if possible could you quantify what how much of the food sales was the next data in <unk>.
Speaker Change: Well I think we don't we don't disclose what our what sales were in the fourth quarter, but what we can say is that we are working with.
Speaker Change: With a number of.
Speaker Change: CPG companies to help them.
Speaker Change: Help them determine what they can say about the product its efficacy.
Speaker Change: And really support the rollout of different brands of getting this as an ingredient in there and what we're seeing is as you know.
Speaker Change: Some interesting traction there. This is the kind of product that requires consumer education, and so our CPG customers are investing a lot to educate customers on how to use the product and we're just really confident that we're going to continue to see traction. This is this is a hot topic in our in our environment today and a lot of people are trying to figure out.
Speaker Change: What do they do after they're done using the pharmaceutical products and this is a great solution to that problem.
Speaker Change: Thank you.
Speaker Change: Our next question is from the line of Derrick Whitfield with Texas Capital go ahead. Please.
Speaker Change: Good morning, all and thanks for taking my questions also congrats to both Pat Brad and Bob on your respective announcements.
Speaker Change: With my welcome back welcome back Derek.
Speaker Change: Happy to be back guys happy to be back.
Speaker Change: With my first question I wanted to lean in on 45 from a macro perspective as I know you guys are consistently calculating real time spreads for the sector. While I agree 45 Z was exceptionally positive for your business for both the upstream and downstream segments. The margin on <unk> Rd, operator has taken a hit here.
Speaker Change: <unk> per gallon hit and that has been partially offset with lower spo costs, but from here. It seems to us that either the RIN has to improve our spo has to go lower to further offset that loss, assuming we still need those volumes after backing out R&D and biodiesel imports.
Speaker Change: Can you guys look at your Crystal ball say on how this market will firm.
Speaker Change: Yeah look this.
Bob Day: This is Bob.
Speaker Change: I think.
Speaker Change: So.
Speaker Change: What I would add to your.
Speaker Change: To your question is not only.
Speaker Change: Just 45, so you kind of lay these things out and make it challenging from a ci score standpoint for some others, but theres a lot of complexity inside 40 fives in terms of how to comply certifications required different mix of feedstocks for different products.
Speaker Change: Diamond Green is really well positioned to understand that upfront and and prepare for that and be agile as it works through that we think that a lot of companies are going to struggle.
Speaker Change: With that in addition to just general eligibility and so all of that really points towards a lower production of biofuels fewer imports of Biofuels, which decreases RIN production and increases the value of Rins NL CFS credits and so we're seeing it already it's just that rents don't trades like a.
Speaker Change: Like a mature futures market would trade, where you've got a lot of speculative.
Speaker Change: Quiddity in the market and its valuing products and the forward book, we need to see the tightness in the near term supply and demand before we see price reaction, but we're starting to see that in our Crystal ball says that we're going to continue to see more of that as the year goes on.
Speaker Change: Terrific and maybe focusing on the upstream aspect of 45.
Speaker Change: As you guys commented on backing out <unk> imports and removing canola certainly increases the value of spo and it should also increase the relative value of your domestic facts are you guys seeing greater non PGD demand to start the year, meaning are your competitors getting better at running leasebacks.
Matt: Hey, Good morning. This is Matt again, I would say that yes, we are although I would say it's still early in the game. There's been just so much time and energy spent on digesting the 45 Z and what that means and how that all plays and there was also a lot of call. It logistical preparation going into the transition from 20% to 25.
Matt: So, yes, we have but it's a little bit slower to play out and what you might imagine, but we fully expect that to continue.
Speaker Change: Thank you.
Speaker Change: Our next question is from the line of Lauren <unk> Sharma with Stephens. Please go ahead.
Speaker Change: Okay. Thanks for the question.
Speaker Change: I wanted to start off and just kind of dig into the to the dividend.
Speaker Change: On the release you mentioned the Jv's debt free so.
Speaker Change: Yeah.
Speaker Change: An uplift.
Speaker Change: To the distributions.
Speaker Change: Then the January figure was pretty large so just wanted to get your thoughts on how to think about that dividend for the year.
Speaker Change: Is.
Speaker Change: Is January is there something in there that made that number larger just any color around that would be helpful.
Brad Phillips: Yes. This is Brad.
Brad Phillips: We've mentioned before but I'll repeat it it's a monthly distribution calculation on a given day.
Brad Phillips: So why do I say that it's good question I mean, the 86 million. Obviously was a was a calculation off the very end of 2024.
Brad Phillips: There is a third party revolver as you've mentioned.
The jv's debt free wanted to distribution is made.
Brad Phillips: Because it's on a given day.
Brad Phillips: With some forward looking are forecasting involved it'll be you know kind of up and down but as we look at 25 and moving into the PTC.
Brad Phillips: So the number was for the full year 'twenty four.
Brad Phillips: What I would say out there.
Brad Phillips: Where we see things right now, we see distributions and obviously with the with a solid start there being greater than 24.
Brad Phillips: Is there going to be a distribution every month.
Brad Phillips: You never know it just depends on.
Brad Phillips: On that day, but we see obviously, a great momentum going into 'twenty, five and probably see a larger distributions in total and the way that works is going to be as you may recall PTC coming back through the JV outside the distribution policy. The PTC credits that are sold.
Brad Phillips: As we monetize them those will come back to diamond or to Darling via Diamond and then that combined with dividends that we would foresee out of there. The combination of those two we would see being somewhat larger than this past year.
Brad Phillips: I would just add on to that debt other than our two ongoing catalyst.
Brad Phillips: Turnarounds in Q1.
Brad Phillips: Looking forward do not see anything in terms of significant capex beyond what would be just normal run rate capex.
Brad Phillips: Got it appreciate that color and I guess just as a.
Brad Phillips: Follow up here wanted to dig into the SaaS opportunity a little bit more from the operational side.
Brad Phillips: I think you guys had mentioned that the.
Brad Phillips: Production incremental production costs are lower for lower cost operators like yourselves. So just wanted to.
Brad Phillips: Get some color around that and then secondly, if you could maybe just talk about maybe the progress you've been making on the commercial side you've made some announcements.
Brad Phillips: It.
Brad Phillips: Within the past month, but just wondering if you could kind of give us.
Brad Phillips: State of the Union on that.
Brad Phillips: Sure. This is Matt again, I would say that from a from a cost standpoint, yes, we believe that we are.
Brad Phillips: Favored or in a strong position in terms of our cost to operate.
Brad Phillips: The SAP production and then you're right. We have made some announcements on some of the <unk>.
Brad Phillips: Commercial contracts that we've made.
Brad Phillips: Point out that not all of these contracts come out to a public release for competitive reasons in many cases, the our customer chooses not to make a public release, but we see strong demand continued through 'twenty five 'twenty six.
Brad Phillips: Not only in the U S. But also in Europe.
Speaker Change: Thank you.
Speaker Change: Next question is from the line of Heather Jones of Heather Jones Research. Please go ahead.
Heather Jones: Good morning, and congratulations on the retirement, Brad spin off great working with you for many many years.
Speaker Change:
Speaker Change: So my question was.
Speaker Change: On <unk> pricing.
Speaker Change: So I think.
Speaker Change: Matt you mentioned that the catalyst is still the catalyst change is still ongoing at diamond Green, but I mean, we've seen it.
Speaker Change: Very strong news and start pricing over the past.
Speaker Change: Few weeks here in the U S and then European sites and just.
Speaker Change: Taken off so.
Speaker Change: In the U S market is that just simply a function of.
Speaker Change: Sure.
Speaker Change: Sean off us.
Speaker Change: Feedstock imports.
Speaker Change: Commission and our Geismar expansion, just what do you see driving that giving you all are in the catalyst change and.
Speaker Change: The uncertainty around 45 C. There's been some pull back in.
Speaker Change: What do you expect demands I just would love to see me here, we all have seen in that market.
Speaker Change: Sure first of all keep in mind that we are catalyst changes not across all of D. G. III. So while we have had a in the month and the month of January a catalyst change in D. G D too and then D. G D. One and through the course of this month, but we still have been able to run at a.
Speaker Change: Let's say unexpected ranked.
Speaker Change: On the plants that we have not had the changes on so in other words D. D. D. One ran and in January and <unk> three is running continuously so we have continued to.
Speaker Change: Procure and originate fats.
Speaker Change: On an ongoing basis I would say that starting probably in early December we saw a slowdown of imports.
Speaker Change: And that was I think largely related to just the transition from the BTC to the PTC people were managing the inventories around around that and so that's picking up so we're trying to get back to what the market is trying to get back to a standard run rate and Thats refilling. The pipeline I think in many cases and Youre right we have.
Speaker Change: <unk> seen a significant bump in fat prices.
Speaker Change: But it's something that obviously market driven.
And.
Speaker Change: Not only are as DVD contained to buy but the other the other producers in the market and are also buying as well.
Bob Day: I would just add Heather this is Bob two.
Speaker Change: 2025, as you know, let's say, it's kind of the first year, where we've got substantial SaaS.
Bob Day: Demand from a volume standpoint.
Bob Day: What we're seeing is as we sort of move into 2025, the availability broadly in the market Assaf is it's not quite where a lot of a lot of others suggested it would be and so we're just seeing a tightness of the sandy and prices are falling.
Bob Day: And following up on that and the European piece, I mean, <unk> been getting stronger.
Bob Day: All through late 'twenty, four and continues to be strong, but the animal fats or taken off.
Speaker Change: Is that related to the new SaaS mandates there and haven't do you can't use vegetable oil for those.
Speaker Change: What do you all see driving that business.
Speaker Change: I think first of all.
Speaker Change: Animal I mean, if you look at 45 Z, that's very supportive to global animal fat.
Speaker Change: So that's probably we're driving that's what's driving a lot of that.
Speaker Change: SaaS Europeans have demand as well as going to support that so I think really it's all those things combine that.
Speaker Change: Moving us in that direction.
Speaker Change: Thank you.
Andrew <unk>: Our next question is from the line of Andrew <unk> with BMO capital markets go ahead. Please.
Speaker Change: Hey, good morning, Thanks for taking the questions. My first one I wanted to ask about the focus on operational excellence.
Speaker Change: Which obviously you've talked about in prior quarters as well, but can you talk about anything incremental that happened on that front in the fourth quarter and maybe even into 2025, given kind of the the decoupling of the trends in <unk> and your margins is there a way to frame the contribution from that in the quarter.
Speaker Change: Yeah.
Speaker Change: I understand.
Speaker Change: Don't know that I would call call something out specifically other than just what I would say is this is an ongoing effort.
Speaker Change: And we're starting to see the dividends that we've done over the last two years, especially in the U S. In the eastern shore, where we've done a lot of a lot of work to streamline and to add capacity and reliability and.
Speaker Change: And decrease cost to the system and that's showing now through the numbers and I would say, Andrew I mean globally.
Speaker Change: When you get into a deflationary market, which we were in <unk>.
Speaker Change: Really the winter of 'twenty, three and most of 'twenty four it just takes a while to make a lot of adjustments out there on the procurement side each each contract each supplier each geography is a little bit different same goes for the rousselot business and it.
Speaker Change: We're now starting to see the fruits of our labor.
Speaker Change: That starting to flow through the P&L here.
Speaker Change: There's been a lot of we've always tried to operate as a low cost operator out there not mounting giant cost cutting initiatives because you shouldnt be in a position any way our biggest piece is simply in the procurement side and making sure that we get compensated for the risk, we're taking kind of the replacement cost.
Speaker Change: The equipment out there has skyrocketed.
Speaker Change: And ultimately it just takes a little while I don't know that we made a lot of friends in a lot of abattoir slaughterhouses and integrated providers around the world, but they also recognize that our reliability has to be incentive and paid for and I think I'm very proud of what the team did.
Okay.
Speaker Change: Okay.
Speaker Change: Okay. That's helpful color and then I wanted to ask about it also.
Speaker Change: The food segment, where the EBITDA had a nice sequential step up quarter over quarter or is there seasonality in that business that would have helped that or are you seeing.
Speaker Change: Underlying improvements maybe you could talk about what youre seeing in terms of destocking of demand and competitive dynamics that you've addressed in the past couple of quarters. Thanks.
Speaker Change: Yes.
Speaker Change: I don't think there is.
Speaker Change: A tremendous amount of seasonality in the business, but I think you touched on something that's important and we had been in a market that was.
Speaker Change: The relatively high and inventories has been Destocking and we're we're starting to see.
Speaker Change: You're kind of nearing the end of that and some improvements so.
Speaker Change: Sales are good and margins are stable.
Speaker Change: Thank you.
Speaker Change: Our next question is from the line of Matthew Blair with PVH. Please go ahead.
Matthew Blair: Thank you and good morning, and Brad Congrats on your long and successful tenure and wishing you the best on your future endeavors.
Speaker Change: Thank you.
Speaker Change: Circling back to the 2025 guide if I heard correctly it sounds like.
Speaker Change: The core business would be around 902 billion.
Speaker Change: That's included in that guide.
Speaker Change: Realized Q4, I think we're looking around 40, but Q4 does tend to have some seasonal tailwind in feed so could you talk about what's what's the incremental upside.
Speaker Change: 2025 is that simply higher fats pricing from 45 C. It's boosting seed and are there any other growth initiatives or what else is helping push the numbers up for your core business in 2025.
Speaker Change: Yeah.
Speaker Change: Well this is Randy Matt I mean, when I say $2 33, and multiply times four I get $9 32.
Speaker Change: That's before fat prices started to go up here, we've seen fat prices were relatively flat in the January results as we saw.
Speaker Change: But they've accelerated on four to five a pound in the February period here and that will start to flow through so clearly procurement improvements that we referenced in the last question improving fat prices and demand for low Ci feedstocks, both from D. G D and other processor.
Speaker Change: Protein demand around the world feels pretty darn strong I think that's been referenced by the soybean guys. Other theres strong demand for protein out there. So we feel pretty good about what's going on there the rousselot business is doing quite well.
Bob Day: And Bob anything you want to add.
Bob Day: We covered on the last question you know demand has been solid and margins are stable and we've got some new products on the market. So.
Speaker Change: Sounds good and then you were aiming to pay down about $400 million of debt in 2024. It looks like you almost hit that target could you discuss any targets for debt reduction in 2025 or 2026.
Speaker Change: Yeah, Matthew this breadth in 2025.
Speaker Change: Where we see things right now.
Speaker Change: And you guys have been talking about kind of the environment right now that's recently showing some move up we.
Speaker Change: We see debt reduction outside anything abnormal anywhere from $350 million to $500 million.
Speaker Change: This coming year, Randy said earlier, you know obviously are.
Speaker Change: Where we're headed is two five times on leverage I think by the end of this year, we're going to be.
Speaker Change: Very far along that path.
Speaker Change: With that debt reduction.
Speaker Change: Yes, we were about a year behind but.
Speaker Change: Due to market conditions.
Speaker Change: That hit Us about 15 months ago.
Speaker Change: But that's kind of the outlook that we see right now yeah, and I mean, it's not hard to do the math you're at $4 billion now if you pay down $400 million to $500 million next year, you can take it to three six.
Speaker Change: You get to 135 out of 1.40 and Youre at the two five times.
Speaker Change: Great. Thank you.
Speaker Change: Thank you. The next question is from the line of Tom Palmer with Citigroup. Please go ahead.
Speaker Change: Yeah.
Speaker Change: Tom Your line is on Muni.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Tom Please ensure your line is on mute to ask your question.
Speaker Change: Yes.
Speaker Change: Hearing no response, we will take the next question from the line of David Sunderland with Baird. Please go ahead.
David Sunderland: Hey, good morning, guys. Thank you for the time appreciate you taking the question I just want to start by adding my congratulations to Brad and Bob. Thank you for all the help Brett.
David Sunderland: Most of my questions have already been answered if I could just circle back to one about SaaS Randy I think you talked earlier in 2024 about contracting in the process through the SaaS contracts taking longer than you guys had initially planned just due to many different suppliers in the supply chain and moving pieces in the market and obviously it just being a.
David Sunderland: New products and I just wondered is there any.
David Sunderland: Now that some deals are out there and theres a template for how to do these deals.
David Sunderland: Maybe any kind of acceleration with new deals that youre seeing now having moved into 2025 or how do we think about that market developing from from you guys just contracting perspective.
David Sunderland: This is this is Matt I'll take that one I would say that we continue to contract on SaaS for the for one two and three years going forward, mostly front end loaded and I think there was just a.
David Sunderland: Call It a digestibility era and acceptability too Ken can <unk> come to market with these with this app in a reliable way and we are now have proven that we can and the confidence so we're actually seeing a pickup in interest.
David Sunderland: Going forward. Despite the fact that we'd already had a pretty healthy sales book already developed.
Speaker Change: Great I'll take the rest offline thanks guys.
David Sunderland: Thank you.
Speaker Change: The next question is from the line of Betty Jang with Scotiabank. Please go ahead.
David Sunderland: Okay.
Betty Jang: Hi, Thanks, Good morning, Thanks for taking my question.
David Sunderland: For my first question I wanted to ask about R&D.
David Sunderland: What kinds of opportunities are you guys looking at and specifically what types of feedstocks.
David Sunderland: And how do you see your competitive advantage translating into the R&D space.
Speaker Change: Hey, this is Bob I'll take that one.
Speaker Change: So at first I would just start by saying that we have a large.
Speaker Change: Cut R&D R&D to electricity business in Europe today. So it is a it is a capability that darling has and understands quite well.
Speaker Change: What we've seen more recently is.
Speaker Change: A lot of interest in voluntary demand for renewable natural gas that would support investments in the United States.
Speaker Change: We started by forming an agreement with a group called Green gas, where we're covering our wastewater treatment plants.
Speaker Change: And converting biomethane into renewable natural gas that way.
Speaker Change: We are looking at opportunities to scale that up and Darling with our position in the United States our access to freight.
Speaker Change: Animal waste streams, and food waste streams, we're really well positioned to pull that together and take advantage of what we see as an improved market and so we're continuing to evaluate that opportunity and we really think the United States is a very interesting region to see that develop.
That's helpful. Thank you.
Speaker Change: For my second question I wanted to ask about Capex.
Speaker Change: I think first of all thanks, Laura came in a bit lower than what we were expecting.
Speaker Change: Kind of at the beginning of the year.
Speaker Change: And also youre seeing maybe a small step up to around 420025.
Speaker Change: You could maybe just walk us through the moving pieces there.
Speaker Change: Yes, Barry this is Randy Yeah, $3 33 was the number for 2024 and right now 400 has a little bit of growth Capex and debottlenecking of different factories and also some greenfield construction of some.
Speaker Change: New assets. So we're working on out there right now.
Speaker Change: As we've explained to our team as we build momentum during the year that number will move around but right now 400 feels like a good number I think the thing that's most important for me and the team is as good.
Speaker Change: The number that we delivered last year did not capital deprived the assets out there and so there's I don't want it to be part of as makeup capital because it wasn't we just delayed some growth projects a year, while we de Levered a little bit here. So 400 is a good number.
Speaker Change: Now as Brad said in his comments judiciously manage it if were wrong with something here and continue to put the company in good position for the future.
Speaker Change: Thank you.
Speaker Change: The next question is from the line of Jason <unk> with TD Cowen go ahead. Please.
Speaker Change: Yeah, Hey.
Jason: Thanks for taking my questions and Brad can congrats on retirement it was great working with you.
Jason: Yes. Thank you. The first question, yes. The first question is kind of a broad policy one.
Jason: <unk>.
Jason: Right now you're selling SaaS into Europe.
Jason: And.
Speaker Change: Europe, obviously is anti dumping duties for renewable diesel and biodiesel not for SaaS then.
Speaker Change: Do you see that as a as a potential risk for your SaaS sales into the region.
Speaker Change: That happens.
Speaker Change: Are you are you evil either able to get grandfathered in because of your contracts or our move volumes while.
Speaker Change: <unk> the margin and then kind of a broader part of that do you see any other regulatory risk out there. Besides of course, the <unk> 45.
Matt: Hi, Jason Good morning. This is Matt I would say Theres a lot of hypothetical question.
Matt: Question in terms of the ways, we would deal with that would be if and when there is something that.
Matt: That comes down the pipe, but today, we don't see that on the horizon.
Matt: Yeah.
Matt: Regulatory yes, I'd, just say you know look I think with with respect to sales to Europe.
Matt: Yeah.
Matt: Yeah.
Matt: We are selling based on you know we sell a price that is.
Matt: Offer a price and our customers are going to deal with certain regulatory.
Matt: Hurdles, if they need to get through those.
Matt: Not only sell into Europe, we're selling a lot of the United States as well and so I think diamond Green is well balanced as far as the regulatory environment in 45 Z I think it's a it's a good point because.
Matt: We've gotten this notice and we're working with this notice and could that noticed change or could a new notice b b.
Matt: That's certainly possible, but what we see is really broad bipartisan support for U S. Biofuel policy, maybe not all environmental policy, but biofuel policy in.
Speaker Change: And so however that shakes out we're confident given sort of the global network that we have an integration between Darling and Diamond Green diesel and Valero that that we'd be able to adapt to whatever regulation unfolds, yes, and I think just following up on that I know you did a nice job of explaining at the end of the day, our customers don't fill the app or share that risk right now.
Speaker Change: It's optional origin, when they pick up out of the Gulf, where they're going with the product whether it's the west coast, whether it's up north or whether it's onto Europe.
Speaker Change: Got it great. Thanks for that color and my follow up is on the.
Speaker Change: The <unk> program I think there was some hope with the new amendment that al CFS prices would start to move higher they've clearly come off lows, but maybe not at the triple digit levels that some at hub does hoping you can reflect on kind of why you think <unk> prices have not rebounded maybe to the.
Speaker Change: <unk> that some have had and and and euro assumption for al CFS prices for 2025 within your guidance.
Bob Day: Yeah. So I think this is Bob.
Bob Day: The the amendments that car passed.
Bob Day: Would be effective April one.
Bob Day: And we're just continuing to wait for.
Bob Day: Wait for confirmation of those amendments I think if the market sees that we'll start to see.
Bob Day: We will start to see that change, but similar to rins.
Bob Day: CFS credits, they don't trade like a mature futures market does and so we are we are coming into this year with a lot of credits a big bank.
Bob Day: The market really needs to eat through that bank before we start to see credit values increase and so specifically without CFS credits, that's probably something that happens slowly throughout the course of the year.
Bob Day: Okay.
Bob Day: Thank you.
Bob Day: This concludes our question and answer session I would like to turn the conference back over to Randall Stuewe for any closing comments.
Randall Stuewe: Thanks to everybody great questions today really appreciate it.
Speaker Change: Well done by our team describing the situation Brad we wanted to say thank you for everything you've done for 36 years, you will truly be missed and as always if you have additional questions feel free to follow up with the <unk> stay safe, we'll see many of you in the conferences over the next coming couple of months here. Thank you.
Speaker Change: The conference is now concluded. Thank you for attending today's presentation you may now disconnect.