Q2 2019 Earnings Call
Welcome to chorus call leasehold and operator will be with you shortly.
Welcome to the chorus call leasehold and operator will be with you shortly.
Of course color commentary like.
Darling ingredients Q2 earnings call.
I please have your name.
David Brown.
What company are you with.
IRA A.I.E.R.A.
Okay I'll go it puts you in that the conference is being recorded.
Yes.
[noise].
All 12 year over year earnings came in slightly lower due to the re categorization of raw materials within the European sector globally, our bio energy businesses continued to perform at a steady pace now Diamond Green diesel performed well and delivered $87.8 million of adjusted EBITDA on the sale of 70 million gallons of renewable diesel achieving our targeted dollar 25 per gallon adjusted EBITDA during the quarter. It should be noted that we have an average EBITDA of $1.25 for the last three quarters in a row. We are on track to meet our full year production target of 275 million gallons at an average adjusted EBITDA of about $1.25 per gallon before any benefit from the blenders tax credit as mentioned on our Q1 earnings call. In April we received the 17.7 million cash dividend from that from the joint venture and in July the JV paid each partner another $37.8 million.
The construction of phase three Super Diamond remains on budget and on schedule to begin operating on our new annual production rate of 675 million gallons plus an additional 60 million gallons of renewable gasoline by the end of 2021 once in production Diamond Green diesel will be one of the largest producers of renewable diesel using low carbon feedstocks in the world and we will we will be making even more meaningful contribution to reducing carbon emissions globally with our low carbon biofuels.
Now turning to politics, we remain optimistic that the blenders tax credit will be approved and implemented most likely when Congress reconvenes in September both parties have agreed on the form and the duration and now they must find in appropriations vehicle to attach the legislation. Our expectation is the dollar down will be approved and made retroactive for 2018. It will be extended to cover 2019 production and also 2020 with its reinstatement we have the potential to receive an additional $157.4 million of entity level EBITDA for 2018, and an additional 100 $141.1 million for the first half of 2019, the soonest, though we could receive a retroactive payment for the tax credit would probably be in early 2020, what that Brad will take us through a few financial highlights. Okay. Thanks, Randy net income for the second quarter of 2019 totaled $26.3 million or 16 cents per diluted.
This year compared to a net loss of $30.4 million or a net loss of 18 cents per diluted share for the 2018 second quarter. The net loss for the 2018 second quarter included cost of 23.5 million related to debt extinguishment for our euro bond refinancing compared to $12.1 million of debt extinguishment cost recorded in the second quarter of 2019 related to the U.S bond refinance.
In the 2018 second quarter. We also recorded a 15.5 million loss from the sale of our Terra renewal services subsidiary and $15 million of restructuring costs related to the closure of the Argentina gelatin plant.
SGN eight for the quarter was $81 million in line with the guidance provided last quarter on lower sequentially.
Two other due to a larger portion of annual compensation expenses being recorded in Q1.
Which occurs each year, we continue to anticipate a quarterly SGN a run rate of approximately $80 million per quarter for the remainder of the year.
Interest expense was 20.8 million for the period compared to $23 million in the second quarter of 2018. The decrease was primarily due to refinancing of 515 million Euro senior notes.
From for three quarters percent to 3.58% in the second quarter of fiscal 2018.
Now looking at taxes, the company reported income tax expense of $7.8 million for the three months ended June 29 2018.
The effective tax rate was 20%, which differ slightly from the federal statutory rate of 21% due primarily to the relative mix of earnings among jurisdictions with different tax rates and discrete items, including the recognition of the deferred tax asset for which no tax benefit had previously been recorded.
The company also paid $9.7 million of income taxes in the second quarter.
As Randy mentioned Congress continues to discuss it tax extenders package, including the biofuel tax credit we are hopeful that the biofuel tax incentives, which has bipartisan support will ultimately be reenacted. During the year for 2019, we are projecting an effective tax rate of 30%, excluding the biofuel tax credit.
If the tax incentive is reenacted retroactively for 2018 and for 2000, a nice thing the effective tax rate is projected to be 15%.
Finally, we are projecting cash taxes of approximately $25 million for the remainder of fiscal 2019.
As previously mentioned, we refinanced the $500 million use notes to a five and 5.25 rate and extended the maturity to 2027.
Capital expenditures of 167 point 8.9 million were made during the first six months of fiscal 2019 against the projected 300 million.
For the full fiscal 2019, we paid down 18 million in debt during the quarter and our liquidity remains strong with unrestricted cash of $87.1 million and 913 million available under our revolving credit facility.
Also as mentioned subsequent to quarter end, we received a $37.8 million dividend from Diamond Green diesel with that I'll turn it back over to you Randy Thanks, Brad.
Overall, I'm very pleased with the agility of our teams in responding to and successfully overcoming the headwinds in the current challenging macro environment, we capitalized on the diversity of our business continue to identify new opportunities to maximize the performance of our assets and leveraged our global platform and integrated business structure to deliver a track record of sustainable performance and shareholder value.
We expect to see an improved second half of the year in our core business segments and a full year performance by DGD of $1.25.
EBITDA per gallon, we expect raw material volumes to remain strong in North America with some leakage from Europe to China fat prices should further improve while protein oversupply will continue to pressure prices as we manage through trade uncertainty and the SAP outbreak in China, Our global college and businesses, making raw material pricing adjustments to further strengthen markets margins and we expect market share gains as our new peptide product line expands to address global demand, we continue to make meaningful progress towards our long term strategic objectives, which includes maximizing returns from DGD and executing on our existing and announced growth channel investments. The cornerstone of Darling success is rooted in our entrepreneurial culture and the commitments of our entire team to leave positive impact on our environment and drive sustainable solutions for feeding and fueling a growing world with that Andrew Let's go ahead and open it up to two anyway.
We will now begin the question and answer session to a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then too.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Adam Samuelson of Goldman Sachs. Please go ahead.
Yeah. Thanks, good morning, everyone.
Good morning, Adam.
So Randy I'm, hoping you can maybe a little elaborate a bit more on your comments about an improved second half in the base business and talk a little bit about some of maybe the divergent dynamics and in the fat side versus.
Versus proteins kind of how maybe contract lags kind of pulled some earnings out of the second quarter.
And kind of the volatility you are seeing in crop prices move, especially on the corn side corn to the upside so end of the down and how that kind of can influence the realizations in the back half.
Okay, Yeah, let me I'll give a little bit of color on that I mean, obviously, we'll break it into both the core business by segment here I mean, the feed segment sequentially was pretty much flat quarter over quarter, while prices move down on the protein side anywhere from 10% to 15%.
In that business and so as you have the raw material supply agreements, where we were chasing markets. If you will in a sense, where what you buy today to sell for less tomorrow until you find bottom there.
So obviously the at the end of the day that the protein side, both in Canada, the us and even Europe . We were we were unable to make raw material adjustments or lowering what we pay for raw material to offset those falling markets. Conversely, we saw fat prices start to improve but it really didnt happen until.
The end of June or mid June and you always have to remember that diamond Green diesel for our North American assets has the supply chain. So somewhere between 60 and 75 days out. So basically we were forward sold in a in an improving market. So the comments about an improving second half is we believe that we will see fat prices improve for two reasons one.
At the end of the day continued strong demand from the global bio fuel markets in Diamond Green diesel plus the we've seen an improvement in the price of corn, especially cash corn and so we're seeing strong feed demand from the use of fat and if you look at feed demand in North America or animal production Theres no sign of any slowing yet of the poultry markets, the beef and pork side, they're feeding a lot of wheat and when they need a lot of wheat, they need a lot of fat. So we'll continue to see some strong improvement there.
Also you know is that within that feed segment, we should see some improvement the contribution from our bakery business as it is.
As it fills the improvement there.
In the food segment, we've only had one of our US spray dryers are the second spray dryer for the college and product online in Brazil now here for about 90 days.
We're still working some kinks out there and getting up to speed on full production animal so that should contribute sharply and better as we go forward. Conversely, as we've talked in the food segment, we've seen China come in and start to buy.
Basic pork bones out of out of Europe , and also edible fat that has not gone into our processing system to be frozen and shipped to suit.
China, So we've seen some reduction in raw materials, there in the food segment Conversely.
Pig skin also that is made into in Europe predominantly for us into college and.
His band frozen and sold to China announced so we've had to chase the market's up a little bit there, which caused some margin compression we should be able to widen those margins out the back half of the year.
And then in the fuel segment Thats, just going to be fairly consistent throughout the balance of the year and then ultimately we we remain optimistic that Congress because both sides of the I'll have agreed on.
The basic structuring language of the blenders tax credit that we will see that come back here in the back half of the year and improve bio fuel margins again, so hope that helps a little bit.
Lot of helpful color and then just to follow up on on Diamond Green and the renewable diesel margins how.
Does the blenders tax credit impact both the L. CFS and the RIN markets. If at all to do as we think about the margins kind of firm.
Let's say for Q on or is that Congress actually does get the BTC.
Past.
Yes. This is John block I mean at the end of the day, obviously the extra dollar helps with the margins if the dollar attached trend it has an effect.
Then in theory, the rest of the green premiums the LCF asking rents don't have to do quite as much work to incentive production.
Hi, with the LCFS market is is very tight.
Obviously with the very aggressive growth plans at there are in California, as well as a whole bunch of other places in the world around the LCFS steels I'm not so sure that the dollar tax credit being a factor not being in effect is going to have much impact that market should remain very very strong.
The rins market will be impacted by whether or not the tax credit is there or not.
And it will be a little bit higher.
Not a tax credit and maybe a little bit lower theres attached credit. So at the end of the day. There is some relationship not so sure much what the LCFS I think thats strong by itself and it really doesn't matter what the what the government does with the tax credit.
Okay.
Appreciate the color I'll pass it on thanks.
The next question comes from Heather Jones of Heather Jones Research LLC. Please go ahead.
Good morning.
Good morning.
Good morning.
So uh huh.
My first question is on your so two part.
Once when specifically do you expect.
The food margins to catch up for the cost pass through gelatin.
And two.
In the core rendering business.
Given that we're now starting to see moves in fat prices at all do you think the move and product pricing will be enough to offset the.
The reduced operating leverage from less raw materials. So if he did those are my two questions on Europe , and then I have a follow up.
Yeah, I mean, the college and business obviously is a.
Multi continent for continent business, we're having strong results in China.
The the peptide businesses really anchored out of South America today, and then strong results here in North America.
China early given the pig skin volatility that's happened and prices have moved up 30, 40% in Europe that caused some margin compression in the.
China or in the in the European plants. The couple two three plants that we have over there, we'll see that widen back out so I mean.
If you take if you take out the Xinjiang property sale out of the Q2.
I think we'll have a pretty consistent solid run rate in that business for the balance in the food segment for the balance of the year I don't anticipate much more tonnage leaking out of the what I call. The bone processing business and then the fat melting business right now at this time I think that it's a pretty well saturated we've had to make some raw material adjustments. So the food segment I think is pretty representative of how it's going to move forward here. The feed segment. The challenge that I was alluding back to Adam was that fat prices improved late in the quarter, but theres no way could they overcome the decline in protein what I'm trying to decode for you now is that look feels like protein has as I always hate to call a bottom, but feels like were at or near the bottom there were too big of historical discount globally now to soybean meal and that's what's given me the courage to step forward and and say.
That were flat now our formulas will and processing agreements have adjusted now and going forward, we should be able to widen out those margins going forward and then I think the thing is.
Were this is whatever August seven.
August Twelveth the the the U.S. government comes out with their their crop report and there are there is a lot of uncertainty out there of what the status is of the corn and soybean crop and I've never seen in my.
Career here the base.
The unknown and the uncertainty that we've ever had in how many acres are planted how many are going to be harvested and what the yields are going to be this year. So I think you know hang on to the 12 and we could see a surprise.
That would say that there is a lot less corn out there I had the honor of traveling yesterday in the Midwest to go look in and Theres Theres a wide variation in the.
Maturity level of the corn crop out there right now from some that was planted so late with no Kathleen to some it looks pretty good. So we'll see where we go there, but I think that at the end of the day will flow through to better fat prices and stable protein prices going forward together.
I guess I was wanting to talk about your specifically because there's a chance that as this.
So as as the situation evolves that it's going to translate to.
Increased demand here. So we're so Europe is we're on the front lines.
So I just want to talk about a specifically like your you got lower raw material volumes, there, which clearly.
Reduces your operating leverage.
So do you think that as these higher prices prices moves through the system do you anticipate.
Benefit from higher pricing to more than offset reduced operating leverage.
Well, let me correct you on something I, the only lower raw material volumes were seeing are in the food segment and thats such a small portion of the food segment, it's really immaterial our cat one two and three processing businesses in Europe are up year over year quarter over quarter. So.
I think I don't see any type of change there right now at this moment I think you know I think the view is that the margin structures of animal production.
In Europe have improved now whether they actually will produce more animals in response to China's long term demand, we still see environmentalists have a position on that but at the end of the day. The markets are encouraging additional production everywhere in the world to get ready to feed China height.
It's simple to say, we don't know how much demand is going to come out of China for poultry for or even be fear and the one thing for certain right. Now is it doesn't appear that it's coming from the US It will come from China or from Europe , first and maybe South America until the trade disputes put to bed. So there isn't any really operating leverage discussion to have on Europe today as it's a it looks very consistent going forward other than a little bit of pressure in the food segment.
Okay. Thank you and my and my follow up is on is on China. So you've had excellent.
Visibility.
Into what's been going on there as far as losses, the magnitude and just wondering if you could update us on your thinking there like your blood plasma supplies I mean, what are what is your operations on the ground, telling you as far as the magnitude of.
Of the issue there.
Still a lot of unknowns.
Our college and business there is the food demand side, and the nutraceutical and and pharmaceutical demand remains strong we saw pig skin prices run up and then they backed off we saw hide prices run up and then they levelled off we were able to adjust margins. So our exposure. There is there's quite a few less pigs and available there can't really put any more detail around at our blood business. There is right now.
Basically treading water running at operating at a breakeven as we try to basically we used to so hemoglobin and plasma the red cells to aquaculture and then the white cells to baby pig starter fees.
We have not we are keeping those products. If you will co mingled today and they're going all the aqua culture in a little bit the pet food 90, 95% aquaculture, we've not seen.
Any real there is I would say our supplies of forcing blood are down anywhere from 25% to 50% depending on.
Where you're at in the country today clearly the Chinese government is working diligently to try to build a bio security plan to isolate the the the kind of the small producer on farm producer so.
I think we have not theres no way that they are have this situation under control today.
And so time will tell but right now our businesses are pretty steady in safe going forward.
Okay perfect. Thank you so much.
The next question comes from Craig Irwin of Roth Capital Partners. Please go ahead.
Hi, and good morning, and thanks for taking my questions.
Good morning, guys.
So Randy on Diamond Green.
Having a heck of a quarter I saw that they.
The plant operated 106% utilization.
Is there an opportunity for additional de bottlenecking, there can we see some capacity creep.
On the existing footprint without the expansion to Super Diamond.
Yes. This is John block you know, we just we just got to the 275 million gallon level late last year.
Still kind of learning the new plant or the expanded plant as we're talking about I think to the first half of the year, we're running at 280 282 million gallon pace.
Yes from time to time, we need to work on the unit our guidance still holds a $275 million for this year as we get into next year, we'll play and how is it possible that we could be a little bit better than 275, yes as possible as we learn the unit, we may be able to move it up a little bit, but it's too early to make any predictions or calls about that to 70 fives our guidance and.
We should be around there.
Great that's good to hear.
My follow up is about DTC. So it's good to see taking a constructive.
And constructive outlook on on renewals I share your view.
You've been conservative in the past so that's a nice change.
Can you maybe share with us what the current thinking is for the use of proceeds on when we get that said this cash in the bank is this something that diamond Green will primarily invest in growth capex to cover that.
$1.1 billion Capex, just super Diamond or use a portion of it likely to be given back end used.
In the core business.
Yeah, Craig I mean, as you know there there is a dividend policy that exists within Diamond Green diesel and I think we keep a floating 50 million reserve. There. So anything that comes in from that we will look at and dividend back to the parent companies as we go forward as we as we said.
We expect where the margin structure is and the production rates that John referred to through 2019, 20, and 21 here to to support the the $1.1 billion of investment in there. So we'll go ahead and dividend back and move forward from there.
The only reason you wouldn't was if margin structures radically changed here, which were not remotely seeing that in fact, we're seeing margin structures, even widen out from the dollar in the quarter a gallon.
Right now so we feel pretty optimistic there you know as Brad tried to allude and I've tried to say, it's a really a timing thing is we anticipate that they are going to and we're optimistic we'll find a vehicle sometime after they reconvene in September and depending on if it's September or October or November when when it comes through when you file for the retroactive and the prospective and then it's really when do they mailed the check and that could be anywhere from December to Q1 right. Now. So it's just really a timing deal for us.
Great. Thanks, again for taking my questions.
The next question comes from Ken Saslow Bank of Montreal. Please go ahead.
Hi, good morning, everyone.
Each one of them.
Two questions. One you do one ones, probably a little bit.
The first one.
If I looked at the bio diesel margin the bio fuels margins.
Diamond Green diesel.
Significantly outperformed the industry can you talk about the recapturing of the LCFS credit it seems like that was probably the spread relative to the market.
Margins.
Ill start there and then I'll ask a follow up.
Yes, Ken This is Jon block I think as we've talked about in the past.
As the LCFS markets have developed.
Two and a half years ago, we did move anything to the best markets now all of it moves to one hour CFS market or another and because of the demand increases its occurred in those markets as time moves along here.
We were able to get a little bit more in a little bit more of that L. CFS. So I think as you look at what our earnings have been so far this year.
It is fair to say that yes. It is because in part we are receiving a greater portion of the L. CFS premium.
Can you give more clarity on that like are you getting 80%, 90%. When you present, any any sort of range or any sort of parameters would be helpful.
Yes, the I understand that and I think we've been asked that question multiple times, we have not really I believe given any specific guidance around that can you know part of this is.
You know this is a negotiation between us and our customers that are going on out there.
Obviously, those contracts and the information contained in those contract is confidential information, we certainly would not be I don't want to position too.
To where we are providing confidential information from a person that we have a critical for our customers that we have a critical relationship with all I can tell you is that it has been improving is improving and looks like it will continue to improve.
Okay.
Randy.
My second question.
Is what when you talk about food and feed for the back half of the year I understand when you're talking about and I get it I think the bigger question is how do you feel the building blocks for 2020 2021 for those businesses are I am assuming you don't expect food to be at that level in perpetuity and im assuming feed should have a little bit, but how do you kind of frame it and I'm not looking for exact guidance for 2020 2021, but I mean, there's got to be a framework from which to help us out work and that'd be great.
Yes, I mean, I think I think looking forward here, depending on what happens and specifically in the feed segment, we see a tonnage continuing to be strong.
Maybe leveling off here, we've been through five years of growth in the tonnage side of.
Of the the business in both North America and Europe now.
I don't really see much slowing going on there, but maybe a little less rate. We've made a lot of investments over the last three to four years in the in the core rendering business both in the US up in Canada and to a degree in Europe to capture that volume growth such that within our supply chain, we can control more low carbon feedstock around the world to support our expansions in our our pending expansions. So we feel pretty good going forward that the tonnage in the core rendering business is going to continue we think that we'll be able to widen out margins. We've been starting up a lot of plants around the around the us over the last.
18 months and trying to get an established customer bases and supply bases and widen out margin. So we feel pretty good that there is a a pretty.
Aggressive program to widen out those margins, we've seen what we've been unable to overcome here in the short term 10 and this is what we think will widen out next year is we brought the poultry slaughter has been very very strong we've captured a lot of that growth in our new plants and as we start to gain approvals and government approvals into those businesses for pet food allocations, we should be able to get some additional margin there as I referred to in Q2 here, we saw the pet food margins narrow substantially almost a $100 year over year from what they were part of that's due to the supply side driving an excess supply and then also if you China was always a buyer.
The low ASP chicken products for aquaculture in there that those have been basically tariffs are embargoed and that tonnage is forcing back margins here a little bit. So we kind of think optimistically going forward to 20 to 2020 that were the core rendering businesses around the world are pretty set up pretty nicely to enjoy higher fat prices and steady may be improving protein prices and they would be dramatically improved protein prices. If the if we end up with some type of crop disruption here in North America. The food segment, we even feel more optimistic about because we're bringing on the pep than business week. We are sold out of that product today around the world and we've got additional capacity coming online in the first half of next year. So I feel even more optimistic as we bring those new plants online.
Given that I know, where the sales are going to go and I know the margin structure that we should do quite well there and then in the in the fuel segment, that's a pretty much steady as she goes type of segment without Diamond Green diesel in there and then as John was alluding to when you look at 2020.
For us.
Great really appreciate it thank you yes.
You got it.
Okay.
The next question comes from David Kantor of Baird. Please go ahead.
Hi, guys. Thanks for taking the question.
You just touched on it there I guess two on margins at Diamond Green diesel.
The first is can you kind of get guidance seems to imply a pretty big step up in margin in the second half can you give us a little more details on the drivers there and then second can you talk a little bit about the change in your outlook from the Q1 call to now.
Is that just where margins came in in Q2 or are there change expectations for the second half a year that changed the outlook to about 25 from kind of the range we were at before.
Yes. This is John block I mean.
That's probably more of a distinction without a difference.
We talked about $1.25 to $1.40 earlier in the year, we just simply said $1.25.
In our most recent.
We'll be in the dollar 25 $1.40 range quite frankly pretty good July so.
At the end of the day were.
Not really changing anything from an outlook perspective on diamond, we just always want to be conservative too.
And what we're saying about the earnings potential so I wouldn't take any I wouldn't take any hidden meaning into the fact that we didnt say $1.25 to $1.40 for the balance of the year.
We're we're feeling good about where we are from a margin perspective at Diamond Green diesel.
Got it and then kind of the step up to the second half you said that.
Margins have been good in July and what other visibility do you have there.
I will I mean, we.
We know are buying our fattwin or sell on our fuel and so you know.
We feel good about where we are from a margin structure I mean I don't.
Diamond has been extremely consistent when you take out the hedge impact that we had since the fourth quarter of last year.
Through the second quarter of this year and our data on $1.25 a gallon. It continues to run very very well in terms of our margin. We're right on where we think were going to be and as we capture more and more of the L. CFS premium we can move that up a little bit now that kind of varies from quarter to quarter, a little bit and sometimes I think that there is a little bit too much of a focus on quarter to quarter. When you go back and look at Diamond on an annual basis, what you see is more gallons.
And great margins and more money every year and we have no reason to discount that thats not going to be the situation going forward.
Great. Thanks very much.
The next question comes from Benjamin Hogan of inherent group. Please go ahead.
Hey, guys good morning format.
So a couple of questions.
One.
In the past you guys have explained that Darling has fixed dollar margins on the core rendering business and then a minority portion of your throughput picks on some commodity risk.
So my question is where within rendering might you be feeling the impact of the U.S. trying to tariffs and the African swine fever that you called out the most can you give us some examples.
Yes. This is John Bullock.
A pretty interesting question I mean, I think the background of this is African swine fever is a very significant event for the agricultural industry around the world.
It is difficult to get a handle on exactly where all of the various threads associated with Iran is extremely difficult because getting exact information are accurate information on what's actually happening with that out of China is impossible for the world to really know I think.
Obviously if.
30% or 50% of the hogs in China our debt.
That means that a significant portion of the world animal population is temporarily deceased and there is going to have to be a reallocation around the world to meet that demand. The demand is still there, though that's the important part about this we have just a disruption in terms of the number of animals that are currently living on the Earth.
The demand for the meat that comes from those animals is still there and that's going to be regenerated from various places.
Europe , the US South America, and then when you overlay the current trade dispute between China and the us that makes the reallocation process, even that more difficult to look into so expect some kind of disruptions and those types of things as we go through the next six to 18 months, but the fundamental thing that everybody has to remember is the pigs might be that the demand for the meat is still there and it's going to be met by the world market and we are positioned to process. The by products that come from that me wherever it happens to be produced in Ben This is Randy I mean.
John's comments are spot on I mean, when you start to think about the both intended an unintended consequences you start in China, It's so and you've got less animals. The fee. So the soybean processing industry. There is shutdown a lot of capacity. So therefore, they are importing less beans.
Card deal there was a press release out shutdown their feed mills six feed mills as they couldn't find animals to feed.
And so then you say well if they're crushing less beings that means they are making less soybean oil so theyre going to have to ultimately import probably additional soybean oil or palm oil or canola oil or something to feed the people and then they were a strong quarter of a lot of different proteins around the world.
From Ddgs out of the us from canola meal out of Canada.
Meat and bone meal out of Argentina, they're importing less and all those products are still being processed and they have to find homes around the world within the geography typically that are produced so you're getting this dislocation and disruption that we've never seen before.
Used to be that you could correlate.
Meat and bone meal, or mixed VC meat and bone marrow to $50 under soybean meal to $50 over soybean mill and if it got 50 above you better sell everything and it got 50 below you knew someone who's going to buy everything we went to 150, a tonne under needs soybean meal in the quarter here, which was unheard of so.
Formulas are processing agreements defer all around the world for us and in Europe , We kind of set prices every 60 days with our raw material guys and Canada every 90 days and anywhere from a week to a month here in the us and so they could just never catch up you could never renegotiate quick enough with how far proteins from from poultry proteins. The mix BC. The ruminant support proteins fell during the quarter and that's where we're hoping and we're optimistic that they are normalizing here and we saw normalized quite a bit and and the impact of it.
Within the second quarter here at least the start of the third quarter now.
Okay. Thanks for that color and all things considered.
During their business performed quite well I would say kind of demonstrated its.
Its earnings power and stability.
One more question before.
On the last call you talked how.
During the final stages of ramping up to report on workplace safety.
Can you give us an update on how that's going and maybe an example of what you plan to report.
Yes in fact, we obviously the way we operate is we had our board meeting here.
Monday Tuesday, and then obviously the earnings release yesterday, and then the earnings call today is pretty typical for us within the.
The board meeting. This this time, we presented our full CSR SG program to the board for approval and it involves basically.
The same program that we have rolled out verbally and to a degree at the BMO conference. This year.
Safe food safely clean air clean water, and then improved communities and employee awareness here and we've now turned that into the next level as we've looked at ISS and.
The glass Lewis programs and the different thing ratings that are out there and we have created any SG fact sheet that I.
Make an eye contact with Melissa here that hopefully we will have out here. Some time at the start of Q4, where we will start to show you the last several years.
Basically the analytics that range from greenhouse gas reduction to safety within to water recycling on on a global level that fits with SAS b and some of the deferred consultancy and agency groups that have to approve the number so.
I would say Ben hang with me, we hear you allowed unclear.
As we look at the foundation of the program as disclosure disclosure disclosure and with that comes a responsibility for accuracy and with the 200 and some facilities around five continents, we're making sure all the data is accurate and audit to double before we release it here, but it's coming soon.
Okay. Thanks, guys appreciate it.
And we have a follow up from Heather Jones of how the Jones Research LLC. Please go ahead.
Hi, Thanks for taking the follow up.
I just wanted to go back to food because.
I remember being very surprised how well it did in Q1 and I know it was down sequentially, but still up pretty dramatically in Q2 and.
It's just a big been a big step change that I wanted to dig in more than one.
I was wondering once you are able to get pricing adjusted for the end higher picks in cost et cetera.
Do you think it's possible to get back to Q1 levels or are we going to be more in the Q2 range and then secondly.
Could you help us understand more like how much of this capacity brought up and.
And how much is left to come and 2020.
Yeah, and I think as we've talk at a high level in the food segment, we've kind of always talk to 80, 85% of that is the college and business.
And I think Thats pretty standard going forward, we're seeing a pretty nice improvement in the margin structure within the college and business driven by a couple of things and you have to fundamentally step back and look at the world and how the college and trade flows happen around the world and really at the end of the day, China is an autonomous island or geography, and so we self produced there and sell 99.9% domestic there.
We've had some volatility in margins there because of pig skin supply high supply. The last couple of years, we've been able to widen now those margins again with better raw material pricing and also we have I think the best product.
As a western supplier in there from a food safety perspective and were being recognized for that now you come to the other three continents of South America, Europe , and the us and as we described the people South America's predominantly runs on animal Heights, and they they recover and capture college and out of the high business Slaughter has been strong down there hi to pricing has been and availability has been favorable and the industry has probably 2020, 5% too much capacity in South America from a gelatin business different than a college and peptide, but the gelatin business as we brought up our our captain or college and peptide business in Hydrolyzed College and in South America today It has diverted.
Commodity gelatin to the new product and has helped those margins improve and once those margins in that core business improve at Domino's and spills over into Europe , and the us and so as we look forward.
Q1 was pretty much hitting on all cylinders Q2, little little little softer, but we look at a new run rate in the food segment driven by the improved margins in both the gelatin in college and business and in Q on Q1 Q2 of next year, we're going to bring on two more plants and you'll begin to see the impact there. So I mean I think over you know as we've always said that the food segment had run in that 131 40.
EBITDA level pretty consistently over the last three or four years I think you could see over the next couple of years anywhere from 25 to a 40% improvement in that segment going forward.
Driven by the new demand for the the peptide product line from us.
That's very helpful. Thank you so much.
This concludes our question and answer session I would like to turn the conference back over to Randall C. Stuewe, Chairman and Chief Executive Officer for any closing remarks.
All right. Thanks, Andrew appreciate everybody's questions today stay tuned we'll talk to you again here in November .
Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.