Key Points
- Reported EPS of $0.49 beat estimates by $0.13, while revenue of $1.5 billion narrowly missed expectations of $1.457 billion.
- Net income fell significantly to $78.9 million from $252.4 million year-over-year, a decline of 68.7%.
- Strong performance in specialty ingredients was offset by lower earnings in the Diamond Green Diesel (DGD) segment.
Darling Ingredients (DAR 0.36%), a global leader in converting food waste into sustainable products, released its Q2 2024 earnings on July 25. The company reported diluted EPS of $0.49, exceeding the analyst estimate of $0.36 by $0.13. Net sales for the quarter reached $1.5 billion, narrowly missing the $1.457 billion estimate. However, net income dropped by 68.7% year-over-year, mainly due to falling fat prices and reduced earnings from its Diamond Green Diesel segment. Overall, the quarter showed resilience in certain sectors, but highlighted the need for ongoing adaptation to market conditions.
Source: Analyst estimates for the quarter provided by FactSet.
| Metric | Q2 2024 | Analyst Estimate | Q2 2023 | % Change YoY |
|---|---|---|---|---|
| Revenue | $1.46 billion | $1.46 billion | $1.76 billion | -18% |
| Net Income | $81.4 million | N/A | $252.4 million | -68.7% |
| Diluted EPS | $0.49 | $0.45 | $1.55 | -68.4% |
| Adjusted EBITDA | $273.6 million | N/A | $508.3 million | -46.2% |
Company Overview
Darling Ingredients Inc. converts food waste into sustainable products such as renewable energy, fertilizers, gelatin, and collagen. With operations across five continents, it manages a diverse product portfolio serving industries like pharmaceuticals, pet food, bioenergy, and food production. Recent focuses include improving margins and earnings in the specialty ingredients segment and preparing the Port Arthur facility for sustainable aviation fuel (SAF) production.
The company has aimed to reduce debt and cut costs to maintain financial stability. It heavily relies on raw materials like animal by-products, which it processes into specialty ingredients. Managing these operations efficiently is crucial for Darling Ingredients' success.
Notable Quarterly Developments
During the second quarter, various factors influenced the financial performance of Darling Ingredients:
1. **Financial Performance:** Net income significantly declined to $78.9 million from $252.4 million year-over-year, primarily due to lower earnings in the Diamond Green Diesel (DGD) segment and falling fat prices. Revenue also decreased by 18% to $1.5 billion. Adjusted EBITDA fell by 46.2% to $273.6 million from $508.3 million in Q2 2023.
2. **Diamond Green Diesel:** Earnings from the DGD joint venture dropped substantially to $76.6 million from $247.4 million in the same quarter last year. The venture sold 311.5 million gallons of renewable diesel at $0.49 per gallon EBITDA.
3. **Global Operations:** The company completed a significant turnaround at its Port Arthur facility, setting the stage for SAF production later this year. This strategic move is part of its long-term focus on sustainability.
4. **Specialty Ingredients:** The specialty ingredients business showed sequential improvement, driven by necessary changes aimed at enhancing margins and earnings. Feed Ingredients net sales were $934.1 million, Food Ingredients $378.8 million, and Fuel Ingredients $142.3 million.
5. **Cost-Cutting:** Management emphasized focusing on debt reduction and widening margins through effective cost-control measures. Capital expenditure for the six months ended June 29, 2024, was $191.7 million, lower than the prior year's $238.1 million.
Looking Ahead
Darling Ingredients provided a fiscal year 2024 guidance of $1.3 billion to $1.4 billion in combined adjusted EBITDA. Management expressed optimism, noting early signs of fat price stabilization, which could influence Q3 and Q4 earnings. Forward-looking strategies involve expanding SAF production capabilities and maintaining a strong focus on debt reduction.
Investors should watch for earnings improvements in the DGD segment, the impact of SAF production commencing at the Port Arthur facility, and ongoing cost-management initiatives. Monitoring these areas will be crucial in assessing the company's trajectory and growth potential in upcoming quarters.
