Darling Ingredients: Reports Q1 Fiscal 2018 Results

Irving / TX. (di) Darling Ingredients Inc., a global developer and producer of sustainable natural ingredients from edible and inedible bio-nutrients, creating a wide range of ingredients and customized specialty solutions for customers in the pharmaceutical, food, pet food, feed, industrial, fuel, bioenergy, and fertilizer industries, announced financial results for the 2018 first quarter ended March 31, 2018.

First Quarter 2018 Overview

• Revenue of USD 875.4 million, includes USD 12.6 million BTC from 2017 and USD 46.2 million reduction as a result of ASC 606 adoption in Q1 2018
• Net income of USD 97.3 million, or USD 0.58 per GAAP diluted share
• Adjusted Ebitda of USD 110.4 million
• Continued strong global raw material volumes, up 2.7 percent
• Lower feed segment Ebitda as a result of lower fat pricing partially offset by robust protein values
• Diamond Green Diesel debt free following USD 53.7 million debt payment
• Euro Bonds refinanced in late April, extending maturity from 2022 to 2026 with more favorable terms

For the first quarter of 2018, the Company reported net sales of USD 875.4 million, as compared with net sales of USD 878.5 million for the first quarter of 2017. Net income attributable to Darling for the three months ended March 31, 2018 was USD 97.3 million, or USD 0.58 per diluted share, compared to a net income of USD 5.8 million, or USD 0.04 per diluted share, for the first quarter of 2017. The increase in net income for the first quarter 2018 is primarily due to the inclusion of the blenders tax credit passed retroactive for 2017 in February of 2018, which was not reported first quarter 2017 and has not yet been reinstated for 2018. First quarter results also reflect a USD 46.2 million revenue reduction as a result of adoption of ASC 606 in Q1 2018 whereby freight revenue is now presented net in cost of sales.

Comments on the First Quarter 2018

«Our operating results for the quarter were mixed, with lower Feed segment earnings offset by modestly improved Food and Fuel earnings. Harsh winter weather impacted many of our North American operations while global slaughter remained robust. The excess supply ultimately pressured prices in the Feed segment as raw material price adjustments lagged and inventories built. Steady and improving earnings in our Food and Fuel segments reflect the stability of those markets», said Randall C. Stuewe, Chairman and Chief Executive Officer of Darling Ingredients Inc. «Our Diamond Green Diesel JV benefited from the lower fat prices and continues to provide a hedge to our core Feed segment earnings. For the quarter, DGD operated at capacity post the 12-day turnaround at the predicted Ebitda per gallon run rate and we remain optimistic we will achieve the predicted USD 1.25 per gallon Ebitda for the full year. We’ve made substantial progress on our cost analysis of the facility’s Phase III expansion to 600 million gallons per year and we expect to finalize our plans later this summer».

Stuewe continued, «Recently, we further strengthened our liquidity and capital structure through a private offering of €515 million of unsecured senior notes due 2026 at 3.625 percent. This gives us financial flexibility by extending maturity and improving our cost of borrowing. We concurrently conducted a cash tender offer of all our outstanding 4.75 percent senior notes that were due 2022. We will continue to focus on maintaining the strength of our balance sheet as we capitalize on our world of growth opportunities, and we’re off to a good start in 2018».

Operational Update by Segment

• Feed Ingredients – Harsh winter weather challenged North America plant operations. Global fat prices trended sharply lower due to ample supplies and seasonality of biofuel business. Formula pricing lagged as markets cycled lower before rebounding, while protein prices recovered on strong demand for specialty products. Strong slaughter drove global volumes up 3.2 percent year-over-year.
• Food Ingredients – Improved performance was led by higher sales volumes and increased demand from Rousselot gelatin business. Earnings improved in Brazil while challenging conditions continued to impact Argentina. We had steady performance in China and North America while Europe margins were tempered by strengthening Euro. Sonac edible fats maintained robust sales volumes offset by lower selling prices due to deflationary pressure on global palm oil markets. CTH casings business delivered a solid quarter.
• Fuel Ingredients – We realized benefit of USD 12.6 million full year BTC made retroactive for 2017 in February 2018. Ecoson bioenergy plant delivered strong results on higher sales volumes. Rendac leveraged strong supply volumes producing consistent earnings while North American biodiesel facilities operated at breakeven without the BTC for 2018.
• Diamond Green Diesel Joint Venture (DGD) – DGD excelled operationally and reported entity level Ebitda of USD 1.19 per gallon on 33.4 million gallons of sales. When adjusted for expensed catalyst changeover, adjusted Ebitda was USD 1.28 per gallon. Retroactive BTC, approved in Feb. 2018, added USD 0.48 per share and Q1 2018 Ebitda, excluding the 2017 BTC, was USD 39.8 million at the entity level, or USD 19.9 million for Darling’s share. Q1 2018 does not include a vessel carrying 130,000 barrels which was loaded on the last day of March and will be recognized in Q2 2018. JV was fully deleveraged with final debt payment of USD 53.7 million. Expected downtime for 275-million-gallon expansion is scheduled for mid-June and will take 45 days with operations to commence around August 1.