Q1 2025 Darling Ingredients Inc Earnings Call
[inaudible]
Good morning and welcome to the Darling Ingredients Inc conference call to discuss the company's first quarter, 2025 financial results. All speakers prepared remarks. After the speakers prepared remarks, there will be a question and answer period and instructions to ask a question will be given at that time.
Speaker Change: Thank you for joining the Darling Ingredients First Quarter 2025 earnings call. Here with me today are Mr. Randall Stuewe, Chairman and Chief Executive Officer, Mr. Bob Day, Chief Financial Officer, and Mr. Matt Jensen, Chief Operating Officer North America.
Speaker Change: Our first quarter, 2025 earnings news release and slide presentation are available on the investor page of our corporate website and will 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.
Speaker Change: These statements are based on current expectations and assumptions that are subject to risks and uncertainties.
Speaker Change: Our actual results could materially differ because the factors we've dealt in today's press release and the comments made during this conference call and in the risk factor section of our form 10K, 10Q, and other reported bylings with the Securities and Exchange Commission.
Speaker Change: We do not undertake any duty to update any forward-looking statement. Now I will hand the call over to Randy.
Randy: Good morning. Thanks, Suann, and thanks for joining us for our first quarter 2025 earnings call. As a reminder, Darling Ingredients is a global ingredients company that operates in 23 countries and repurposes over 15% of the world's meat production and food waste.
Randy: Although tariffs challenged various supply chains, at this time we expect them to remain immaterial to our portfolio, and frankly support increased prices of waste fats.
Randy: In first quarter, 2025, Darling's business performed very well, with results accelerating throughout the quarter. This resulted in overall positive cash flow and demonstrated stability in an otherwise unpredictable global environment.
Randy: The positive narrative surrounding renewable fuels public policy is very encouraging and margins have started to improve and normalize Ultimately, we expect our core business to continue to perform well [inaudible]
Randy: Generating Cat and allowing us to continue to deliver the balance sheet and opportunistically repurchase chairs throughout the balance of the year.
Randy: In first quarter, combined with Justin Davida, came in at $195.8 million and we saw the impact of higher fat prices really starting to move through the PNL and March.
Randy: specifically during the first quarter, we paid down $146.2 million in debt, lowering our financial leverage ratio to 3.33 times, and received $129.5 million in dividends from DGD, and also repurchase $35 million in common stock.
Now, turning to the feed ingredient segment.
Randy: Global rendering volumes remain strong, and despite several severe weather events in the Midwestern United States, from flooding to tornadoes to ice storms, our US rendering team adjusted well and managed operations very well in the first quarter 2025.
Randy: European and Brazilian operations also enjoyed improved performances in the latter part of the quarter.
The uncertainty on Terrace is a minor headwind.
Randy: and specifically for specialty proteins. However, terrorists are generally supportive of higher domestic fat prices. With the renewables market having digested the mechanics of 45G, we expect to benefit through higher fat prices for the balance of the year. [inaudible]
Randy: Now, the food segment. We saw a nice improvement in sales and volumes, particularly during the latter part of the first quarter. College and peptides have regained strength, and the demand for our library of products is growing.
Randy: Next tie to our revolutionary natural glucose moderation collagen peptide is gaining momentum and other active peptide products are in clinical trials. We anticipate consistent and continued performance improvement in the food segment throughout the balance of the year.
Randy: In our fuel segment, DGD had a challenging first quarter with lower than expected margins and volumes were affected by the turn-arounds performed at DGD1 and DGD2 [inaudible]
Randy: Receiving guidance on 45z in late January , created a choppy first quarter, as supply chains had to be redirected, contracts had to be modified, and customers had to adjust the cost.
Randy: We're very encouraged about the sustainable aviation fuel market, interest remains strong, and premiums and volumes have met our expectations. While the transition from the blender's tax credit to the producer's tax credit created some complications.
Randy: DGD has made the necessary adjustments to optimize the tax credits available and we anticipate we will book 100% of the producer's tax credit for eligible feed stocks during the second quarter.
Randy: Now I'd like to hand the call over to Bob to take us through the financials. I'll come back at the end here and discuss my outlook for the balance of 2025. Bob?
Bob Day: Thank you, Randy. Good morning, everyone. As Randy mentioned, DGD's results in the first quarter had more to do with macro events impacting the biofeel market than anything specific to DGD. Meanwhile, the core Darling Ingredients business performed very well on game momentum as the quarter progressed.
Bob Day: For First Quarter 2025, Darling's Combined Adjusted EBITDA was $195.8 million versus $280.1 million in the First Quarter 2024.
Bob Day: And adjusting for DGD, 1st quarter 2025 EBITDA was approximately 190 million, 1st is approximately 165 million in the 1st quarter 2024 2004
Bob Day: Total net sales in the first quarter 2025 or 1.38 billion versus 1.42 billion in the first quarter 2024
Bob Day: While raw material volume was almost the same at 3.79 million metric tons and 3.8 million metric tons and gross margins improved to 22.6% in the first quarter of 2025 versus 21.4% in the first quarter of 2024
Bob Day: Increasing through the end of the quarter, specifically total sales for first quarter 2025 or 896.3 million versus 889.8 million in the first quarter 2024.
Bob Day: Feed raw material volumes were approximately 3.1 million metric tons for both quarters, while EBITDA increased to 110.6 million in the first quarter 2025 versus 106.8 million in the first quarter 2024.
Bob Day: Gross margins for the feed segment in quarter 1, 2025 were lower at 20.3% versus 20.7% in quarter 1, 2024, which was due to certain one-time items such as inventory adjustments.
Bob Day: Moving to the food segment, we began to see noticeable improvement in margins as the industry continued destocking from the inventory buildup experience over the past 12 to 18 months.
Bob Day: While total sales for first quarter 2025 up 349.2 million were lower than first quarter 2024 at 391.3 million margins and volumes increased with raw material at 329,400 metric tons.
Bob Day: Versus 299,800 metric tons, and EBITDA increased to 70.9 million versus 61.7 million.
Looking at the fuel segment
Bob Day: Sales for the first quarter 2025 or 135.1 million versus 139.2 million in the first quarter 2024 of higher raw materials of 374,100 metric tons versus 356,900 million metric tons but slightly lower finished product sales volumes.
Bob Day: Meanwhile, overall EBITDA and other metrics in the fuel segment were clouded by DGD's results.
Bob Day: Specifically, EBITDA was $24.2 million in the first quarter of 2025 versus $133.1 million in first quarter of 2024 whereas net of DGD EBITDA was approximately $18 million in both quarters. [inaudible]
Bob Day: Looking more closely at DGD, results were mainly impacted by four things. [inaudible]
Bob Day: First, the transition from the Blender's Tax Credit to the Producers Tax Credit resulted in a lower value for gallon and a delayed reaction in RIN values as obligated party compliance has been slow to react.
Bob Day: Second, this complexity of the producer's tax credit and delayed guidance temporarily impacted both sales and feed stock eligibility for fuel types and destinations
Bob Day: Three terrorists on imported feedstocks and four downtime related to catalysts turnarounds at DGD 1 and 2
Bob Day: Darling's share of DGD EBITDA was approximately $6 million for the first quarter 2025 versus approximately $115 million for first quarter 2024, a difference of approximately $109 million
Bob Day: These items had a bigger impact on DGD in quarter one than we expect will be the case going forward.
Bob Day: However, DGD was and remains ahead of the curve with respect to making changes to its supply chain and positioning the business for success in this environment.
Overall, DGD has adjusted.
Bob Day: Supply Chain Requirements Needed to Maximize the Value of Tax Credits, and we're pleased by the positive direction in the rent market and overall margins for renewable diesel and staff.
Bob Day: While we faced some challenges during the quarter, we continued to improve the health of our balance sheet as we paid down approximately 146.2 million in debt and repurchased slightly more than 1 million shares for approximately $35 million in dollars.
Bob Day: The company's total debt, net of cash, as of March 29, 2025 25
Bob Day: was $3.84 billion versus $3.97 billion at December 28th, 2024, leading to an improvement in our bank covenant preliminary leverage ratio of $3.33 times at 1 1 1 1 1 1 2 25 versus $3.93 times at 1 1 1 1 1 2 3 1 4 25th quarter, 2024.
Bob Day: In addition, capital expenditures totaled approximately 63 million in first quarter 2025 and we ended with approximately 1.27 billion available on our revolving credit facility.
Bob Day: which is lower than the federal statutory rate at 21% due primarily to the producer's tax credit.
Bob Day: The effective tax rate, excluding the impact of the producer's tax credit and discrete items was 21.7% for the three months ended March 29, 2025. The company also paid $9.2 million of income taxes in the first quarter of 2025.
Bob Day: For full year 2025, we expect the effective tax rate to remain about the same at 5% and cash taxes to be approximately 60 million for the remainder of the year.
Bob Day: We are also in the early stages of monetizing Darling's share of the producer's tax credit and look forward to providing an update next quarter.
Bob Day: Overall, the company had a net loss of 26.2 million for the first quarter 2025, or negative 16 cents per diluted share, compared to net income of 81.2 million, or 50 cents per diluted share for the first quarter. Now I will turn the call back over to Randy.
Thanks, Bob.
As I said earlier, January and February started slow
Bob Day: But as fat prices continue to rise, we have great momentum for the remainder of the year. I'm encouraged by the performance of our core business in March.
Bob Day: Marty, but our contribution was strong and we expect this trend to continue. This gives me great confidence that our core business is strong enough to consistently generate cash and enable us to deliver. Effectively weathering any uncertainty that exists in the biofuels market.
Bob Day: Looking at the March Renery, I think the core business will earn somewhere between $9.50 billion of EVA dock for the year
Bob Day: As I mentioned, there has been a lot of noise in the renewables market, and while DGD did not perform as weed hoe, we believe the worst is behind us.
Bob Day: We expect margins to improve, and DGD to adjust accordingly. With that, I am reaffirming our guidance of 1.25 billion to 1.3 billion combined adjusted EBITDA for the balance of the year or for physical 2025. With that now let's open it up to questions.
Bob Day: They will now begin the question and answer session. In the interest of time, we ask that everyone limit themselves to one question and one follow-up. If you'd like to ask a question, please press star followed by one on your telephone keypad. If for any reason you'd like to remove that question, please press star followed by two. Again, to ask a question, press star one.
Derek Whitfield: Our first question comes from a line of Derrick Whitfield with Texas Capital.
Your line is now open.
Good morning all and thanks for taking my questions.
Maybe starting with the DVD is I understand [inaudible]
Speaker Change: Starting with the DGD, as I understand, DGD was unable to optimize feedstocks for 45Z policy in Q1.
Speaker Change: Looking forward, what is the value of an optimized feedstock slate? And then more broadly, what's the composition of that slate as you see it today?
Matt Jansen: Yeah, this is mad. I'd, I'd, I'd enter that at least initially and ask some, some of the others maybe to join in on that, but, you know, DGD.
Typically, process is a mix of feedstocks and that is...
Matt Jansen: Essentially Margin Driven, and so it's always procuring the best product that nets the highest margin.
Matt Jansen: And so that can be a mix of all types of oils and fats.
Matt Jansen: And frankly, we have all types in our recipe, so to speak. And so that will vary depending on the month of the quarter, but it's a traditional mix that is largely based on animal fat.
Matt Jansen: and cooking oil as well as corn oil and different, you know, bean oil and, and, and other oil. So it's a, it's a, it's a,
Matt Jansen: Ever-changing mix, but it's the usual suspects, let's say in the mix that are, it's all margin driven.
Yeah, I understand. Hey Derek, this is Bob. [inaudible]
It's
Speaker Change: You know, this is going to depend in part how hard we're running SAF. Obviously the value of the PTC is higher for the potential value is higher for SAF.
Speaker Change: The feedstocks required to make staff are generally lower carbon intensity, so that, you know, further enhances the value of 45Z.
Speaker Change: So, we plan on fully maximizing the value of that. As Matt pointed out, some of this just depends on access to different feedstocks. Obviously, as Darling, we have an advantage in maximizing what we can pull through our own network.
Speaker Change: to obtain the low CI score feedstocks that are eligible for PTC.
Speaker Change: And so, you know, I think we're pretty optimistic about what the value of that is going to result in for DGD, but it's hard to kind of tell you right now, what's the, you know, what's the average sense per gallon. I think, you know, what I would say is.
Speaker Change: You know, we'd be on the very higher end of the curve for both our DN staff, you know, as we go forward. Yeah, I think Derrick, this is Randy and I think Matt and Bob did a nice job there. I mean, the optimism that comes out of here is really the move from [inaudible]
Speaker Change: The noise that we had in Q1. Remember, we didn't get guidance from Treasury until January 20th.
There's various things as we noted in the script.
Speaker Change: You know, there are requirements under 45 C that required us to go back to our customers.
Speaker Change: There were three basic requirements, we won't go through them, but they had to use it or it had to go to retail and there was one other...
Speaker Change: But at the end of the day, there's just a lot of noise that went down.
Speaker Change: that allowed us only to claim a portion of 45Z and Q1. And what we're saying is in Q2, we've got to supply chain normalized. We've got the turnarounds behind us.
Speaker Change: And we expect to recognize 100% PTC on the eligible feedstocks that will process. And that's not to be slide ahead. Some of the feedstocks that may come in cheaper that don't need the PTC.
Speaker Change: You know, so it's really as Matt said it's a margin driven, but we see margins improving dramatically in Q2 versus Q1.
Speaker Change: Terrific, makes sense. And then with regard to feed, we can see your March optimism in the spread between waste and FBA feeds as they materially tightened or turned positive to your benefit. Other than timing for the quarter, were there any other drivers for lower margins in one queue? Thank you.
Well, I think...
Yeah, I mean there's
Speaker Change: Yeah, you know, if we compare it to first quarter 2024, it was a pretty significant improvement, but...
Speaker Change: There was just some things that came into quarter for end of year type things that...
that were somewhat one-off items that clouded a little bit. But, um...
Matt Jansen: I don't know, Matt, if you want to... Yeah, I think, you know, at the end of the day, sequentially when you look at the quarter, guys...
Matt Jansen: There were some one-offs, Brad noted in the script, we did have an insurance settlement in there [inaudible]
Matt Jansen: You know, we've got a bigger pipeline now headed to DGD than we've ever had because of
the restrictions on imported feedstocks and qualifications.
And, you know, remember that the year rose up...
Matt Jansen: Remember, prices are up around the world for waste fats and so it made domestic fats now more attractive. So that flowed through, we said in the script, Jan Fed, the typical weakness.
Matt Jansen: that we see and then March what we've done now is taking the March run rate. [inaudible]
Matt Jansen: And, as I always tell people, this is an easy business to give you forward guidance on when you're either in a flat or a rising market.
Matt Jansen: The DGD, given the amount of fat that comes out of the North American supply chain.
Matt Jansen: And you'll see that continue on at the current pricing. That's where we're formulating the guidance that we're throwing out there. And I think, you know, prices have actually moved up since March, even here. So it feels
Matt Jansen: You know, this business feels very, very solid going forward right now, barring any other craziness out of, you know, we're gonna be a little help out of DC here, but I think we're okay.
Thank you for your questions.
Speaker Change: Our next question comes from the line of the Dushyant Ailani with Jeffries, [inaudible]
Your line is now open.
Speaker Change: Ryan, thank you for taking my question, guys. The first one, could you possibly quantify how much better feed was in March? This was the first two months of the year, and then how that translates to, you know, core ingredients a bit of a two-tier?
Speaker Change: Dushyant, you can do the math and look at the 1.95 for the first quarter, 1.90 minus DGD and then to come with the 9.50 to a billion run rate, you can back into that, but no, we don't break out a quarter.
Second question I didn't know.
Speaker Change: That was the only question I understood, yeah. Yeah, and then, and then this is the second one, I guess could you quantify what the that's the one time an inventory impact was on feed.
The one-time employee, Michael Nord.
Yeah.
Speaker Change: We're not calling those out. I think there was some smaller one-time item. Some have been called out in the last quarter on the insurance settlement. I'm not sure that that kind of thing.
Speaker Change: Quarter on Quarter Comparison, and to say it's sequentially lower, obviously the numbers are what the numbers are, but there's just some one-off on both sides of this, but we're not calling out that material, and you know, the guidance that we gave in
Speaker Change: In February was that we, you know, as we were talking to folks and we said, well, what do you see the year off of Q4?
Speaker Change: We said we ran 233 and Q4. We said times four. What we didn't say was it's not radically spread over each quarter because you've got a situation of rising prices now. So you'll see an improved feed segment, you know.
Speaker Change: Gross Margin, you know we look at all of it, if you look at all of the segments even in the food segment. [inaudible]
Speaker Change: Remember, while 20% 17 to 20% is a high-value college in gelatin, 80% of its feed and fat.
Speaker Change: So, you get a lift there. You get a lift in the fuel segment too because of the different products that are processed there. So, you know, focusing on the feed segment in my opinion, focus on the 950 to billion run rate for the year and that's what's important here.
Thank you.
Thank you for your questions.
Speaker Change: Our next question comes from a line of Heather Jones with Heather Jones Research.
Your line is now open.
Good morning. Thank you for the question.
Speaker Change: Randy, I wanted to start it with you seeing all the Reuters rumors and we've all heard different reports.
Speaker Change: What do you think a 2026 RVA would that would be suitable would be like what what is the number that?
Speaker Change: You would be happy with and that would represent you think upside to the 952 billion you gave us.
Thank you.
Speaker Change: Heather, this is Matt. I would say that the common RVO that is expected and hopeful to be coming out here in the next few days is 5.25 billion gallons. And that is something that I would say across industries has been widely supported. And the feedback that we have so far is that that is gaining traction and that's what we're looking forward to.
Okay, thanks for that. And then my follow-up is
Speaker Change: I'm not trying to belabor this point, but Randy in the past, you've told us that roughly every penny and fat pricing is worth roughly 12 to 15 million EBITDA.
Speaker Change: And like, if you look at Q1, that's pricing versus Q1 of 24, it was up several pennies and then you also didn't have that ward, South Carolina.
Speaker Change: Issue, but yet Eva Dah for feed was roughly flat year on year, so just trying to get a sense of
Speaker Change: Was Y'all's feet and feet segment impacted by the dislocation at Diamond Green or was there something else that were missing? I get the lag and pricing relative Q3 and Q4 last year. I'm just having a hard time understanding.
the year-on-year impact.
Speaker Change: Hi, Heather, it's Matt again. I would say, think about it this way. First of all, we have a forward sales book on almost all the time. Somewhere on average of 60 to 90 days.
and so there's a lagging effect in this.
Speaker Change: And that's also partially one of the reasons it gives us confidence when we look at how March improved over the first two months because some of that started to get traction. So I think you'll see this shine through in the numbers as we go forward.
Speaker Change: When you came out of a 23, we came out in December of 23, soybean oil was 55 cents a pound.
Speaker Change: You know, we were in a very much a deflationary market, so we were flowing through higher prices that were coming down in Q1 of of 24 and now we're back in an inflationary. [inaudible]
Speaker Change: Improving Market, so they're not, as I say, they're kind of hard with the forward sales book, the kind of, if you will reconciling in what you're trying to do, what we're trying to do is say we've got 100% visibility to the March run rate. [inaudible]
Speaker Change: Prices have started to flow through in March. They're probably going to improve a little bit in April . If you look at imported fats into the US today, they're closer to 60 cents a pound.
Speaker Change: So, they're almost, you know, a hundred bucks a ton over top, you know, what we're doing right now in the US, maybe 120. So, you know, like I said, this is not a difficult business once you are in a flat or an improving market to get forward looks to.
[inaudible]
Thank you for your questions.
Speaker Change: Our next question comes along of Manav Gupta with UBS.
Steve and congratulations.
Speaker Change: R.D. Business, so help us understand a little bit what you expect besides the PTC healthy that you are getting into
Speaker Change: Carp Front, and then what could be the rent prices? Help us bridge the gap to that about 250 million of EBITDA that you will need from the renewable diesel business to get to your guide.
Thank you.
Speaker Change: Yeah, Manav, good question. And I think it sets the stage and I'll have Matt and Bob help me here and we'll give kind of give a view on the balance of the year. I mean clearly the Jan Feb, Rin production rate and the March.
suggest that the rims have to improve.
Speaker Change: You've got capacity idle right now around the industry. You know, the industry is behaving like it should. It's showing discipline and says, I'm not going to run and burn up catalyst for zero margin.
Speaker Change: So where does where do the rent have to go the rent have to go?
Speaker Change: I don't know, a buck and a half somewhere in there, you know, up 45-50 cents from where they are to restart the capacity.
Speaker Change: So, when we talk about the forward look here, the one, two, five, one, three, I think it's fairly conservative and if you look at it...
Speaker Change: As we know on the Valero call here shortly, they'll be telling you an adjusted run rate for the years about 1.1 billion because of turnaround so we had in the gallons
Speaker Change: Total gallons, and you sit there and say, well, you know, we told you we're going to earn, you know, 55, 65 cents a gallon on the PTC. It's not hard to back into. [inaudible]
Speaker Change: How we come up with the additional 250 to 300 in within DGD to get to our guidance. What that says is
Speaker Change: We're not making a statement that DGD is going to run at the zero for RD for the year and then get a PTC. We're saying rinse has to improve and we're giving you a conservative forward look.
Bob Day: Yeah, so, this is Bob, and I think, you know, with respect to Ren's [inaudible]
Bob Day: The run rate so far, Jan Feb, March puts us on pace to produce about six billion, six billion
Bob Day: Seven and a half in 2025 to meet the mandate. So we're still under producing by quite a bit. We've seen Rins go up by over 40 cents equivalent to 65 cents a gallon since the start of the year. So there is a lot of momentum, you know moving in the right direction. And then we're going to have a little bit more momentum. And then we're going to have a little bit more momentum.
Bob Day: And it really comes down to when obligated parties feel the need for compliance to advance.
Bob Day: as to when those RIN values get to where they ultimately need to be. So we see a lot of support there, as Randy mentioned, in the PTC. We weren't able to realize a lot of the PTC in the first quarter due to the late guidance and having maybe not the best feedstocks in place.
Bob Day: and some of the sales qualifications that we needed to go through to get ready. So that's going to also be a real lift to the P&L as we go forward.
Bob Day: The other thing we have talked a lot about is just the downtime. I mean, you can see you know the number of gallons we produce.
Bob Day: We were less than two-thirds of total capacity, so that's another thing that is really going to provide a helpful lift as we go forward through the rest of the year. And then lastly, there are a lot of...
Bob Day: Positive discussions kind of going on behind the scenes around the RVO, and also a carb, and so I think we're pretty confident in what the outlook is without those things, but if those come to pass then...
It certainly could change the picture in a positive way. [inaudible]
Bob Day: I would just also include, this is Matt, I would also include that there's also the SAF component. I mean, so this is a continuous margin bill with the PTC with the with the RIN.
Bob Day: with the obviously fat price, all of these will influence the margins, but with our staff production we're also that also gives us more confidence.
Perfect, and sometimes dark doesn't get...
Bob Day: enough credit for the kind of innovation you bring to the market so recently you have launched some products you know to control blood sugar and you also have an attractive pipeline of
Bob Day: Projects and Products, you do plan to bring to the market. Can you help us walk us through some parts of that business which I think remains somewhat underappreciated? Yes, sir.
Speaker Change: So, this is Bobby. I think you're referring to Ruslo and our college and business. And you point out, I mean, EBITDA increased pretty significantly this quarter.
Bob Day: Versus a year ago and last quarter, you know, we are bringing some very innovative products to market. I think, you know, we've advertised. Thank you very much.
Bob Day: As loudly as we can, the next data portfolio of products and the next data glucose control product that is currently on the market and undergoing
Bob Day: Additional trials to really get this out in a larger way.
Bob Day: We love talking about collagen and our ability to innovate through collagen and put together peptide profiles that have targeted health benefits and
Bob Day: And really do amazing things for people. What's exciting from the business standpoint is that margins are significantly higher in those products. And so as we continue to develop the next type of GC product and other products in the next type of portfolio.
Bob Day: You know, we looked to see earnings in that particular segment increase quite a bit [inaudible]
Thank you for your questions.
Speaker Change: Our next question comes from line of Tom Palmer with City Group
You're lightest and open.
Bye-bye.
Good morning, and thanks for the questions.
Speaker Change: I guess just first, I wanted to clarify on the guidance. You noted the expectation.
Speaker Change: that in the relative near term, we could get some resolution on the RVO, sounded like 5.25 billion gallons for biomass-based diesel was
Your Expectation.
Speaker Change: I know it might be hard to be overly precise, but I just want to understand how much of this is baked into how you're thinking about the year versus if it does come through with this 5.25 level that would be kind of upside versus how you're thinking about the year. [inaudible]
Speaker Change: Yeah, and this is Randy Tom, you know, great question in the sense, I mean...
Speaker Change: You know, obviously coming off the last year we're a little bit snakebitten and we're being with a pretty conservative view. I mean DC is a bit hard to handicap right now. We spent a lot of time there recently with our colleagues across the agriculture and energy, feels like we have alignment on the 5.25 billion gallons. I mean, you know clearly. . . . . . .
The White House needs some wins here.
Speaker Change: And I think the American farmer has been singled out as somebody that the Trump administration gets and understands and wants to support.
Speaker Change: And so I think we're gonna ride that momentum and that's very positive. Now the good news is that the 5.25 billion gallons is that's a lot of demand that it hasn't been there in the past.
Speaker Change: You know, that gets friendly feedstocks, whether you're soybean oil or whether you're animal fats and waste fats, so...
Speaker Change: It's bullish the base business that is not baked in yet because remember that doesn't start until you know 26 so that that's number one number two if you start moving feedstocks up unless you're going to get help out of RIMS
Speaker Change: If you're going to get help out of LCFS, there's still no margin in this. Until at the end of the day, those are going to have to move in order to fulfill.
Speaker Change: The Rin, what I'm going to call the Rin Deficit that is building out there right now.
So you know, we're setting up.
Speaker Change: You know, right now for what I'm going to call, you know, the fantastic finish in the back half of the year here as this thing becomes a little more clear.
Bob Day: Bob, do you want anything? Yeah, I just one thing I think that it's interesting that what we're hearing is talk about a gallon mandate when historically it's really been referred to as rinse and so I think there's quite a lot of confusion actually between rins and gallons. [inaudible]
Bob Day: The reality is a 5.25 billion gallon D4 mandate would effectively increase run demand by about 3 billion in 2026 versus 2025 So that would be a substantial increase
Bob Day: We're not really faking that into this forward guidance. I think if that were to be clarified, we'd probably see a pretty interesting market unfold.
As I told the negative. [inaudible]
Bob Day: So something's got to get what the situation we're in right now is not sustainable.
Bob Day: What we know is we have the two lowest cost operating assets in the best place in the world
Bob Day: and they're profitable. And we know that as we were given that guidance in Q2 here, so...
Bob Day: But in order to restart the industry and to fulfill the existing mandate before the new mandate, you've got to bring back profitability. There just didn't enough capacity to fill the RVO, even as it stands today at the margins that exist.
Bob Day: Thanks for all that color. Maybe I could just follow up quickly on kind of the last point you note in.
Speaker Change: At least on, you know, regeneration near the day, it is tracking below this year's mandate. What do you think is driving this at this point? It's a great day.
Speaker Change: And I guess any view on what might cause kind of a change other than obviously this RVO announcement for 26 maybe, you know, making people more concerned about the ring bank. Thank you.
Speaker Change: Bob has always said it's really not a futures market that anticipates the S&D here. So the obligated parties are still sitting there trying to figure out what's going on in DC. Are there going to be SREs? Is there going to be a bigger RVO?
Um...
Speaker Change: I can tell you that our colleagues in San Antonio, we see a tightness in Ren's building very rapidly here, so we've got a universal view on this right now, but there's just so much noise, you know, if you think about it 61 to 105, it's a big move already.
Speaker Change: And, but it's not enough to restart the industry. There's very limited liquidity, if you will, if you wanted to go after and said, let's go get long rims today. There's very limited liquidity. And the obligated parties just
Speaker Change: You know, until they get more transparency, I don't know what you think, Bob, Matt? I think that's right. I think for some of the Advocate parties who don't have an immediate penalty for lack of compliance, they're looking at a pretty significantly increased rent price in there. [inaudible] I don't know what you're talking about.
Speaker Change: They're sitting on the sidelines, but as time goes on, that's going to be harder and harder to do.
Tom, I would just say that's really...
Speaker Change: There's two things to watch for. Number one is just the margin. In terms of what the renewable diesel and the biodiesel margin is, it would help will dictate the production and therefore the regeneration. And then the other is imports, whether it on importing on biofuels, so those two things I would. And, um.
Speaker Change: Watch 4 is Indicators to look for direction on Ren Martin.
Thank you for your questions.
Speaker Change: Our next question comes from line of Ryan Todd with Piper Sandler
Your line is now open.
Ryan Todd: Good, thanks. Good morning everybody. Maybe a question first of all you mentioned a little earlier in your comments, but I know there are a lot of moving pieces of volatility. It just stands right now. Can you talk through the impacts of the current terror regime on the various aspects of your business?
Look at at a high level talking about the core business business.
Ryan Todd: You know, one thing with tariffs coming into the United States, it limits availability of waste fats and
Ryan Todd: And so that's been supportive to the North American waste fat prices. So that's generally good. I think that, you know, the one the one area where it's not entirely positive is [inaudible]
Ryan Todd: is in selling protein products to China, but that's less of a tariff hit, and it just takes a market that was available that needs to be redirected somewhere else, but the net net really isn't a...
Ryan Todd: It really isn't a negative for Darling's core business. The question really is more about how does it affect the renewable fuel industry in the United States and, you know, tariffs on feed stocks and
Ryan Todd: You know, as we kind of re-engineer supply chains, we're just finding ways around those things so we don't see it as a really negative thing for our business fortunately. I don't know.
Speaker Change: Thanks, and then maybe shift into staff. Can you maybe provide a little more color in terms of what you say? I mean you said the demand, Paul has been reasonable so far, like...
Speaker Change: Can you walk through what sort of demand poll are you seeing? Is that mostly coming from mandated markets, or is it also the voluntary markets?
Speaker Change: And what would you need to see at this point to think about moving forward with the second staff project?
Speaker Change: So, this is Matt. So, we have a mix between whether it's the demand, whether it's the obligated or the...
Speaker Change: Markets, or the voluntary markets. It's pretty well balanced on that. We're running at an optimal rate to maximize the margins that we have.
Speaker Change: You know, our our staff sales books started more than a year ago [inaudible]
Speaker Change: As we were contracting staff so we've got a fair bit of a book on already I tell you quite a strong book as a matter of fact through the whole year and so we're delivering on those contracts. Thanks.
Speaker Change: And so, to your question on a second staff line, I think right now we need to let some of the storm clear on all of the market dynamics that are going on.
Speaker Change: to make a final call on that. It's something that is on the table and we've done the engineering work on that, but we're holding off for the time being to have more clarity on what the future holds.
Speaker Change: The other reality is that as the market evolves in the...
The Credit
Scenario.
Speaker Change: What we're seeing more and more interest in is the book and claim .
A process
Thank you for your questions, Ryan.
Speaker Change: Our next question comes from the line of pooran Sharma with Steven.
Thanks for the questions [inaudible]
Speaker Change: Just wanted to get a sense of capital allocation priorities from here. It looks like you did do a little bit of de-leveraging also with the share repurchases.
but just wanted to...
We'll talk about something you said on the last.
Paul, I think you mentioned your target is 2.5.
Speaker Change: Wanted to get a sense of when you think we could get there and what the pace of deleveraging investors can expect going forward.
Yeah, thanks. Thank you. This is Bob.
Speaker Change: That's correct. I mean, first I'd just say that our plan hasn't changed. We are focused on continuing to pay down debt and, you know, deliver our balance sheet. We've made a lot of progress to that and recently and we will continue through the rest of the year.
Speaker Change: Well, we'll get pretty close to that 2.5 by the end of the year. You know, we may not quite get there, but it'll happen early 2026 if it doesn't happen by the end of the year. That's really what we're seeing.
Speaker Change: Okay, I appreciate that. And just really wanted to, I think everybody has asked good questions about DGD. Maybe I could focus in on the food segment here.
Speaker Change: Really good margins, much higher than anticipated. You kind of spoke to some of the strength here, but wondering if you could share some. [inaudible]
Speaker Change: Some incremental color, and do you think that this is a level of gross margin performance that you can sustain here? I think last time
Speaker Change: On the last call, you said you were working with CPG customers. [inaudible]
Speaker Change: to help them better educate their customers on this product. So what's just wondering if you could just give us an overview on food and next tea there there? [inaudible]
Yeah, this is Bob again. And so, um,
Speaker Change: Appreciate you bringing this segment up. It's an exciting one for us here.
I think on a high level what we've seen is [inaudible]
Speaker Change: Stopped Making Product and they've begun to destack inventories. We've seen some announcements that some of the higher costs
Speaker Change: Areas of the world have decided to shut production down and that's just led to an overall you know better health in the gelatin market and the college and market so you know we think that we're in a pretty good spot as we go forward. [inaudible]
Speaker Change: As far as next data, you know, we do have a product on the market under a brand called Kodiage, CODE, AGE, and the next data glucose control product is inside that product
Um...
Speaker Change: We are going through some trials that we should finish this summer [inaudible]
Speaker Change: And that's with a much larger sample size that would allow the larger CPG companies to be comfortable.
Speaker Change: taking this product to market. So really what we're expecting is is to get through that process, go through some, you know, commercial commercial activities to be able to see this product in much higher volume as we kind of get near the end of 2025.
Thank you for your questions.
Speaker Change: Our next question comes from the line of Andrew Strelzik with BMO.
You like that open? [inaudible]
Andrew Schrizel-Zick: Hey, good morning. Thanks for taking the questions. My first one is just on the comment you made that we could get the preliminary
Speaker Change: I guess what informs that view? Do you have some visibility to that? It sounds like there's space on your comments still so much certainty around. Maybe the SRE, so could we get a preliminary number without a resolution around that? Just curious about that comment specifically. Thank you very much.
Speaker Change: Well, let me if I did say next couple of days, I guess I wouldn't try to be that exact on that. I really did say next couple of days. I think in the coming days is probably a better description of that and I apologize if I came out too soon on that but we are optimistic on that. But in terms of having... [inaudible]
Speaker Change: You know, special insight or anything that gives us any confidence more than what other people who are industry participants, I would say we don't have any.
Speaker Change: Extra knowledge in that regard, but we do have a real remain optimistic about the volume as well as the timing.
Speaker Change: Andrew, you know, the discussion is clearly happening in DC. We're part of them with a larger group.
Speaker Change: There is a, the first time in my career since 2007 that we have absolute alignment amongst a high majority, if not the 90% of the trade groups.
Speaker Change: in this on what should happen here. And we have a president that also now realizes that the American farmers important. So my view is, I think you'll see something out of DC here somewhere.
Speaker Change: in the next 45-60 days, maybe sooner, but...
Speaker Change: that they're all working on it and you know it's just a lot of different moving parts there but everybody at least is reading off of the same song sheet right now.
Speaker Change: Got it, okay, that makes sense and I appreciate you clarifying that. My second question, I feel like we felt like the runway was there for with all these drivers and better performance. Thank you very much.
Speaker Change: you know, for the last couple quarters. And so I guess I'm just.
Speaker Change: Curious kind of how you handicap the risks. I know most of this is kind of industry related and macro related but as you sit here today and taking the March and just kind of extrapolating that makes a lot of sense. How do you handicap the risks or what you're paying attention to on the risks around the guidance? Thanks for your time.
Thank you. Thank you.
Speaker Change: Look, this is Bob, I think guidance around the core business is the risks are relatively low.
Speaker Change: These are sort of momentum-driven markets and they're pointed in the right direction. So I think it's pretty low there as it relates to biofuels, you know that there's certainly there's going to be more uncertainty there just because it's so influenced by policy and there's so much going on behind the scenes. [inaudible]
Speaker Change: We give guidance today based on what we're seeing and all the things that we've explained, but that's one that could be affected more by things outside of our control than our core business. [inaudible]
Thank you for your questions.
Speaker Change: Adam's question comes from a line of Matthew Blair with TPH
Come on, it's not open.
Speaker Change: Thank you and good morning. So regarding the new LCFS standard in California
Speaker Change: I think the comment period just ended a few days ago. Thank you.
Speaker Change: and we're waiting for CARB to re-submit the new targets to the OAL. Is that your understanding as well? And then perhaps more importantly, do you have a view on the implementation timing?
Speaker Change: For these new targets, do you think they'll be backdated to January 1st, 2025? Or is an implementation date in 2026 more reasonable at this point? Thank you
Speaker Change: Hey, good morning, Matthew. I would say that, particular to your question on the timing, yes, the comment that created on Monday.
Speaker Change: And we understand there's 30 working days to provide some analysis. There's going to they have to go through a process in order to address the comments.
Speaker Change: We understand that's ongoing and we remain optimistic that the guess is on track and we're going to see something come out definitively.
Speaker Change: You know, and the reasonably near future, I don't want to get so we think that's on track.
Speaker Change: And so, whether that is going to be retroactive or effective in some time of mid-year or first year, that's a question we continue to ask. I think we're prepared no matter what, but...
Speaker Change: I think in my view, at worst case scenario would be January 1 of 26, but there is a chance from what we understand of having something sir.
Great, thank you. And then um...
Speaker Change: For DGD, your reported Q1 EBITDA was quite a bit different than what your partner reported. It sounds like there is at least a 45Z contribution in your number, which may not be in your partner's reported number because I also clarify, is there any LCM impact in your Q1 DGD EBITDA and if so, how much?
Thank you.
Hey, Matt, this is Bob. Yeah, I mean we're [inaudible]
Speaker Change: You know, we see a pretty, pretty big difference there. I think one thing just want to make really clear is that none of the difference has anything to do with recognition of 45Z.
You know, historically, we...
Speaker Change: We have shown, you know, we report LCM differently. So I think that's the way to look at it. In particular, the first quarter had had a lot of volatility in both LIFO and LCM. The big difference between our number and what Valero is showing is with the LCM. [inaudible]
Thank you.
Thank you for your questions, Matthew.
Speaker Change: Our next question comes from a line of Betty Zhang with Scotia Bank [inaudible]
Your line is now open.
Thank you. Bye.
Speaker Change: Thanks. Good morning. Thanks for taking the question. I'm sorry to go back to this but I was wondering for the PTC that was recognized in first quarter. Can you share how much of it was was recorded?
Speaker Change: You know, I think we would sort of roughly say that-
Speaker Change: We'll show this in more clarity in the 10Q, which she'll come out in a couple of weeks, but we were roughly able to realize PTC on about a third of the volume that we had in the court.
Great. Thank you.
Speaker Change: And for my follow-up, so we saw there were some buybacks and you also paid down some debt. I'm wondering, going forward, how do you see that split? How do you view, you know, allocation going forward? [inaudible]
So it's Bob again and um...
Speaker Change: We're focused on paying down debt. I mean, we'll opportunistically look at buying shares back. When we came, we want to buy back our delusion. You know, so we did some of that in the first quarter, but the lion share of the capital, we spent that way it was towards debt pay down and we'll continue to focus more on that.
Thank you for your question.
Jason Gabelman: Our next question comes from the line of Jason Gabelman with PD Securities
Jason Gabelman: Good morning. Thanks for taking my questions. I was one of the people who thought there was a different PTC booking versus LCM.
with your DGD partner, so appreciate that clarification.
Um...
Jason Gabelman: The first question is on the PTC monetization and I guess it seems like some of if not all of the distribution from DGD
Jason Gabelman: that you booked him on cue was related, most likely to timing of...
Blenderstacks, credit, cash inflows. [inaudible]
are tied to monetizing the producer tax credit. [inaudible]
Speaker Change: So with that in mind, I was hoping you could provide a little more context on the steps involved and what we should be looking out for in terms of progressing the ability to monetize that. Thanks.
Speaker Change: Jason, this is Bob again, so just to kind of touch on something you said, the distributions from DGD, I mean certainly the PTC, you know, realization, monetization of PTC is one source of revenue that we will realize. Thanks for your time.
Speaker Change: You know, when rule, rule that out that we get more that way, but we'll see how that plays out as far as the process around monetizing the PTC.
It's moving forward, I would say very efficiently. [inaudible]
as it is with these types of processes.
There are a number of steps.
Speaker Change: brokerage firms involved, you know, lining up counter parties, getting contracts kind of ironed out, terms legal terms ironed out, and we're going through that process to be able to set up for. [inaudible]
Speaker Change: You know, let's call it some sort of an auction to be able to sell those credits and monetize those in the in the latter half of the second quarter.
Speaker Change: But we're going to need any further guidance or anything from the, yeah.
Speaker Change: No, no, no, and going forward we would expect to capture 100% of the qualified
Feedstock PTC
Thank you.
Thank you. Bye.
Got it, great [inaudible]
Speaker Change: I understand that it's a benefit to the feed business. You have the sensitivity one cent per pound is worth $50 million of EBITDA, but I would imagine all else equal those feed prices moving higher or actually a headwind to the DGD business that outweighs the feed business.
Speaker Change: So, is that correct, and then further to that point? Can you just talk about...
Speaker Change: What exactly is driving the waste oil strength? It seems like they're pricing above their carbon intensity difference to vegetable oil. So, you know, if they're at kind of a sustainable premium to vegetable oil or if they need to come down a bit. Thanks.
Speaker Change: And so let me, that's the simple answer to that question.
Speaker Change: U.S. Produced Animal Fast, it's available in the market and so it's it's in demand right now for for good reason and so that's also part of the the price differentiation that we're seeing between that and so if you know
Speaker Change: Yeah, and this is Bob, just one of the other reasons is crop oil. [inaudible]
Bob: Aren't eligible for all types of biofuels. So there is that element as well where I use cooking oil, verified use cooking oil, certified use cooking oil is eligible for pretty much any type of fuel whether it's
Bob: You know, biodiesel, renewable diesels, family aviation fuel regardless of the destination so some feedstocks just do have more versatility and then they therefore may trade above their carbon intensity adjusted value. [inaudible]
Thank you for your questions.
Ben Callow: Our next question comes from a line of Ben Kallo with beard [inaudible]
Your line is now open.
Ben Callow: Hi, good morning. If Randy, if everything stayed the same today, how would the core business be in Q2? I'm just trying to figure out the cadence of Evidov for the core business, not, not DGD. Thank you.
Ben Callow: Hey, Ben, this is Bob. I think, you know, what I would probably do is I would just say that we don't expect quarter two to look a lot different from quarters three and four, and so, you know, if you just take quarter one, subtract that from the guidance, you know, that's probably the best way to do the math on that. Thank you so much.
Okay, thanks [inaudible]
Thank you for your question.
Ben Callow: That concludes our Q&A portion for today. I would now like to pass the conference back to the management team for closing remarks.
Alright. Alright.
Speaker Change: Thanks, everyone. Thanks, Victoria. Thank you for questions today. If you have any other questions, please reach out to Suann. Thanks for taking the time to be with us today. Stay safe and have a great day and talk to you here. Next quarter.
For more information, visit www.FEMA.gov
Speaker Change: That concludes today's call. Thank you for your participation and have a wonderful rest of your day.