Earnings call transcript: Darling Ingredients misses Q2 2025 forecasts

Darling Ingredients (DAR) reported Q2 2025 results significantly below analyst expectations, with EPS of $0.08 (vs. $0.3 forecast) and revenue of $1.19 billion (vs. $1.49 billion projected), prompting an over 8% stock decline. The underperformance was driven by a challenging renewable fuel environment, including regulatory uncertainties around RINs and Small Refinery Exemptions, and protein market pressures, despite a slight improvement in gross margins and stable core ingredient volumes. Management anticipates sequential improvement in the second half of 2025, forecasting full-year adjusted EBITDA of $1.05 billion to $1.1 billion, as core ingredient strength and strategic initiatives like the NexTyta joint venture are expected to drive recovery, with a stronger outlook for 2026 contingent on policy clarity.

Analysis

Darling Ingredients (DAR) reported a significant second-quarter 2025 earnings miss, with EPS of $0.08 falling 73% short of the $0.30 forecast and revenue of $1.19 billion underperforming projections by over 20%. This triggered a sharp negative market reaction, with the stock declining more than 8% across regular and premarket trading to near its 52-week low. The underperformance was driven primarily by a challenging renewable fuels environment, where regulatory uncertainty regarding RINs and Small Refinery Exemptions (SREs) pressured margins and led to a year-over-year decline in Darling's share of DGD's adjusted EBITDA to $42.6 million from $76.6 million. Despite these headwinds, the company's core business showed resilience; gross margins improved to 23.3% from 22.5% a year ago, supported by rising fat prices in the Feed segment and steady demand for collagen and gelatin in the Food segment. Management has issued full-year Combined Adjusted EBITDA guidance of $1.05 billion to $1.1 billion, implying a stronger second half driven by the core ingredients business. However, the outlook remains heavily dependent on the timing of regulatory clarity, as encapsulated by the CEO's comment on losing fortunes in timing. Strategic initiatives, such as the capital-efficient NexTyta joint venture, are positioned as long-term growth drivers in the high-margin health and wellness space, while capital discipline is being enforced with a target to keep expenditures at or below $400 million for the year.

Key Decisions for Investors

• Given the stock's sharp decline to near its 52-week low, value-oriented investors may see an opportunity, but must weigh this against the significant near-term uncertainty stemming from the renewable fuels segment.
• Investors should closely monitor regulatory catalysts, particularly the EPA's final decisions on Small Refinery Exemptions (SREs) and the Renewable Volume Obligation (RVO), as these will be the primary determinants of margin recovery for the Diamond Green Diesel (DGD) segment in late 2025 and 2026.
• It is crucial to differentiate between the company's segments: the core Feed and Food businesses are demonstrating fundamental strength and margin expansion, while the Fuel segment's performance is a call option on favorable policy outcomes.
• For long-term investors, the progress of the NexTyta joint venture in the health and wellness market should be tracked as a key source of future growth and earnings diversification, independent of the volatile energy and regulatory cycles.