IRVING, Texas, Aug. 8, 2018 /PRNewswire/ -- Darling Ingredients Inc. DAR, 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, today announced financial results for the 2018 second quarter ended June 30, 2018.

Second Quarter 2018 Overview

• Revenue of $846.6 million
• Net income/(loss) of $(30.4) million, or $(0.18) per GAAP diluted share
• Adjusted EBITDA of $115.1 million
• Debt paydown of $44.0 million
• Global raw material volumes strong, up 4.0%
• Argentina gelatin facility closed and profitable sales volumes relocated
• Exited TRS "Industrial Residuals Business" while retaining the Used Cooking Oil ("UCO") business
• Diamond Green Diesel ("DGD") results reflect expansion and turnaround in process
• DGD JV issued $25 million partner dividend
• Euro bonds refinanced, lowering borrowing cost and extending maturity

For the second quarter of 2018, the Company reported net sales of $846.6 million, as compared with net sales of $894.9 million for the second quarter of 2017. The reduction in net sales resulted from the reclass of billed freight per new revenue standard and the deconsolidation of the Company's Best Hides subsidiary.   Net loss attributable to Darling for the three months ended June 30, 2018 was $(30.4) million, or $(0.18) per diluted share, compared to a net income of $9.1 million, or $0.05 per diluted share, for the second quarter of 2017.  The net loss for the second quarter 2018 reflects debt extinguishment costs of $23.5 million related to Euro bond refinancing, a loss of $15.5 million from the sale of Terra Renewal Services subsidiary, and $15.0 million of restructuring and impairment charges incurred as result of the Hurlingham, Argentina, gelatin plant closure. Excluding these items, adjusted net income for the second quarter 2018 was $17.7 million or $0.11 cents per share.

Comments on the Second Quarter 2018

"Operationally we had a solid second quarter.  Performance improved sequentially and year-over-year, and we took several strategic actions to strengthen our portfolio and position the company for future growth," said Randall C. Stuewe, Chairman and Chief Executive Officer of Darling Ingredients Inc. "Strong slaughter activity drove global tonnage up 4.0 percent, and our expansion projects and recent acquisitions contributed as expected. The feed segment delivered much improved results across our geographies with improved raw material volumes and widening margins."

"Food segment results reflect the closure of our gelatin operation in Argentina due to ongoing macroeconomic headwinds and redeployment of production to our other gelatin locations. The facility represented approximately 3 percent of the Food segment sales, and we are now filling orders for most high-margin customers from other Rousselot facilities. This strategic realignment will optimize our gelatin assets and better leverage our existing Rousselot system," stated Mr. Stuewe.

"In the Fuel segment, operational efficiencies and favorable pricing generated consistent performance when adjusted for the 2017 Blenders Tax Credit (BTC) received in the first quarter. We remain optimistic the BTC will once again be made retroactive for 2018."

"Diamond Green Diesel, our 50/50 joint venture with Valero to produce a premium low-carbon fuel additive, has now completed construction on the expansion from 160 million gallons to 275 million gallons annually.  We are in the early stages of commissioning and anticipate being on line mid-August.  Spot margins remain attractive and we look forward to the significant contribution this facility is expected to bring Darling," concluded Mr. Stuewe.

Operational Update by Segment

• Feed Ingredients – Achieved strong operating margins through disciplined execution across our major markets. Higher slaughter volumes increased global tonnage by 5.6 percent. Protein pricing improved year-over-year and showed sequential improvement on higher demand for species specific meals. Revenues were impacted by the sale of our majority interest in Best Hides, the reclass of billed freight and lower fats pricing, while many of our proteins and specialty products delivered improved performances.
• Food Ingredients –Performed consistently when adjusted for the closure of Argentina gelatin facility. Majority of the Argentina gelatin sales were repositioned to our other 11 factories. Global gelatin demand remains strong with specialty collagen sales becoming more significant. Declining global palm oil market prices pressured margins at our Sonac edible fats business. CTH casings business impacted by margin compression.
• Fuel Ingredients – Executed well across operations. North American biodiesel leveraged improved operational efficiencies and benefited from higher low sulfur diesel pricing. Canada biodiesel held near breakeven despite absence of BTC. Ecoson bioenergy business delivered an improved performance boosted by the start-up of the new Belgium digester. Rendac, our European disposal rendering and disease mitigation operations, continues to deliver consistent results.
• Diamond Green Diesel Joint Venture (DGD) – Entity results reflect higher operating expenses associated with the extended shutdown as well as hedge losses. DGD posted $1.05 EBITDA per gallon without the benefit of the BTC. Facility expansion to 275 million gallons anticipated to be online with saleable product in August. 100 percent of production targeted to LCFS domestic and global premium markets. JV partners each received a $25 million dividend in the second quarter.

Financial Update by Segment

 

• Feed Ingredients operating income for the three months ended June 30, 2018 was $37.3 million, a decrease of $2.4 million or (6.0) % as compared to the three months ended July 1, 2017. Segment operating income was down in the three months ended June 30, 2018 as compared to the same period in fiscal 2017 due to higher depreciation charges from increased capital expenditures while operations were essentially flat as compared to the same period in fiscal 2017.
• Feed Ingredients operating income during the six months ended June 30, 2018 was $58.9 million, a decrease of $12.3 million or (17.3) % as compared to the six months ended July 1, 2017. Segment operating income was down in the six months ended June 30, 2018 as compared to the same period in fiscal 2017 due to lower finished fat product prices, higher depreciation charges from increased capital expenditures and higher selling, general and administrative expenses that more than offset increased raw material volumes.

 

 

• Food Ingredients operating loss was $5.7 million for the three months ended June 30, 2018, a decrease of $16.9 million or (150.9) % as compared to the three months ended July 1, 2017. This decrease was primarily due to the restructuring and impairment charges incurred as a result of the Hurlingham, Argentina gelatin plant shut down. This decrease more than offset improved results in China and North American gelatin markets. The Company's edible fat prices were lower as a result of lower competing fat markets as compared to the same period in fiscal 2017. The casings business delivered slightly lower earnings due to an increase in raw material prices as compared to the same period in fiscal 2017.
• Food Ingredients operating income was $6.2 million for the six months ended June 30, 2018, a decrease of $19.2 million or (75.6) % as compared to the six months ended July 1, 2017. This decrease was primarily due to the restructuring and impairment charges incurred as a result of the Hurlingham, Argentina gelatin plant shut down and lower earnings in the European gelatin market. The Company's edible fat prices were lower as a result of lower competing fat markets as compared to the same period in fiscal 2017. The casings business delivered slightly lower earnings due to an increase in raw material prices as compared to the same period in fiscal 2017.

 

 

• Exclusive of the DGD Joint Venture, the Company's Fuel Ingredients segment operating income for the three months ended June 30, 2018 was $5.0 million, an increase of $2.9 million or 138.1% as compared to the same period in fiscal 2017. The increase in earnings is primarily due to overall higher sales prices and strong demand from biodiesel industries.
• Exclusive of the DGD Joint Venture, the Company's Fuel Ingredients segment income for the six months ended June 30, 2018 was $22.2 million, an increase of $16.5 million or 289.5% as compared to the same period in fiscal 2017. The increase in earnings is primarily due to the reinstated fiscal 2017 blenders tax credits in North America of approximately $12.6 million recorded in the first quarter of fiscal 2018 as compared to the lack of blenders tax credits in the same period of fiscal 2017, higher overall sales prices and strong demand from biodiesel industries.

 

  

 

Selected financial information for the Company's Diamond Green Diesel Joint Venture is as follows:

 

Darling Ingredients Inc. reports Adjusted EBITDA results, which is a Non-GAAP financial measure, as a complement to results provided in accordance with generally accepted accounting principles (GAAP) (for additional information, see "Use of Non-GAAP Financial Measures" included later in this media release). The Company believes that Adjusted EBITDA provides additional useful information to investors. Adjusted EBITDA, as the Company uses the term, is calculated below:

About Darling

Darling Ingredients Inc. is a global developer and producer of sustainable natural ingredients from edible and inedible bio-nutrients, creating a wide range of ingredients and specialty solutions for customers in the pharmaceutical, food, pet food, feed, technical, fuel, bioenergy, and fertilizer industries.  With operations on five continents, the Company collects and transforms all aspects of animal by-product streams into useable and specialty ingredients, such as gelatin, edible fats, feed-grade fats, animal proteins and meals, plasma, pet food ingredients, organic fertilizers, yellow grease, fuel feedstocks, green energy, natural casings and hides.  The Company also recovers and converts recycled oils (used cooking oil and animal fats) into valuable feed and fuel ingredients, and collects and processes residual bakery products into feed ingredients. In addition, the Company provides environmental services, such as grease trap collection and disposal services to food service establishments. The Company sells its products domestically and internationally and operates within three industry segments: Feed Ingredients, Food Ingredients and Fuel Ingredients. For additional information, visit the Company's website at http://www.darlingii.com.

Darling Ingredients Inc. will host a conference call to discuss the Company's second quarter 2018 financial results at 8:30 am Eastern Time (7:30 am Central Time) on Thursday, August 9, 2018.  To listen to the conference call, participants calling from within North America should dial 1-844-868-8847; international participants should dial 1-412-317-6593.  Please refer to access code 10122304.  Please call approximately ten minutes before the start of the call to ensure that you are connected.

The call will also be available as a live audio webcast that can be accessed on the Company website at http://ir.darlingii.com. Beginning one hour after its completion, a replay of the call can be accessed through August 16, 2018, by dialing 1-877-344-7529 (U.S. callers), 855-669-9658 (Canada) and 1-412-317-0088 (international callers).  The access code for the replay is 10122304.  The conference call will also be archived on the Company's website.

Use of Non-GAAP Financial Measures:

Adjusted EBITDA is not a recognized accounting measurement under GAAP; it should not be considered as an alternative to net income, as a measure of operating results, or as an alternative to cash flow as a measure of liquidity, and is not intended to be a presentation in accordance with GAAP.  Adjusted EBITDA is presented here not as an alternative to net income, but rather as a measure of the Company's operating performance. Since EBITDA (generally, net income plus interest expenses, taxes, depreciation and amortization) is not calculated identically by all companies, this presentation may not be comparable to EBITDA or Adjusted EBITDA presentations disclosed by other companies. Adjusted EBITDA is calculated in this presentation and represents, for any relevant period, net income/(loss) plus depreciation and amortization, goodwill and long-lived asset impairment, interest expense, (income)/loss from discontinued operations, net of tax, income tax provision, other income/(expense) and equity in net loss of unconsolidated subsidiary. Management believes that Adjusted EBITDA is useful in evaluating the Company's operating performance compared to that of other companies in its industry because the calculation of Adjusted EBITDA generally eliminates the effects of financing, income taxes and certain non-cash and other items that may vary for different companies for reasons unrelated to overall operating performance.

As a result, the Company's management uses Adjusted EBITDA as a measure to evaluate performance and for other discretionary purposes. In addition to the foregoing, management also uses or will use Adjusted EBITDA to measure compliance with certain financial covenants under the Company's Senior Secured Credit Facilities and 5.375% Notes and 3.625% Notes that were outstanding at June 30, 2018. However, the amounts shown in this presentation for Adjusted EBITDA differ from the amounts calculated under similarly titled definitions in the Company's Senior Secured Credit Facilities and 5.375% Notes and 3.625% Notes, as those definitions permit further adjustments to reflect certain other non-recurring costs, non-cash charges and cash dividends from the DGD Joint Venture. Additionally, the Company evaluates the impact of foreign exchange impact on operating cash flow, which is defined as segment operating income (loss) plus depreciation and amortization.

Cautionary Statements Regarding Forward-Looking Information:

{This media release contains "forward-looking" statements regarding the business operations and prospects of Darling Ingredients Inc. and industry factors affecting it. These statements are identified by words such as "believe," "anticipate," "expect," "estimate," "intend," "could," "may," "will," "should," "planned," "potential," "continue," "momentum," and other words referring to events that may occur in the future.  These statements reflect Darling Ingredient's current view of future events and are based on its assessment of, and are subject to, a variety of risks and uncertainties beyond its control, each of which could cause actual results to differ materially from those indicated in the forward-looking statements.  These factors include, among others, existing and unknown future limitations on the ability of the Company's direct and indirect subsidiaries to make their cash flow available to the Company for payments on the Company's indebtedness or other purposes; global demands for bio-fuels and grain and oilseed commodities, which have exhibited volatility, and can impact the cost of feed for cattle, hogs and poultry, thus affecting available rendering feedstock and selling prices for the Company's products; reductions in raw material volumes available to the Company due to weak margins in the meat production industry as a result of higher feed costs, reduced consumer demand or other factors, reduced volume from food service establishments, or otherwise; reduced demand for animal feed; reduced finished product prices, including a decline in fat and used cooking oil finished product prices; changes to worldwide government policies relating to renewable fuels and greenhouse gas("GHG") emissions that adversely affect programs like the U.S. government's renewable fuel standard, low carbon fuel standards ("LCFS") and tax credits for biofuels both in the Unites States and abroad; possible product recall resulting from developments relating to the discovery of unauthorized adulterations to food or food additives; the occurrence of 2009 H1N1 flu (initially known as "Swine Flu"), Highly pathogenic strains of avian influenza (collectively known as "Bird Flu"), bovine spongiform encephalopathy (or "BSE"), porcine epidemic diarrhea ("PED") or other diseases associated with animal origin in the United States or elsewhere; unanticipated costs and/or reductions in raw material volumes related to the Company's compliance with the existing or unforeseen new U.S. or foreign (including, without limitation, China) regulations (including new or modified animal feed, Bird Flu, PED or BSE or similar or unanticipated regulations) affecting the industries in which the Company operates or its value added products; risks associated with the DGD Joint Venture, including possible unanticipated operating disruptions and issues relating to the announced expansion project; risks and uncertainties relating to international sales and operations, including imposition of tariffs, quotas, trade barriers and other trade protections imposed by foreign countries; difficulties or a significant disruption in our information systems or failure to implement new systems and software successfully, including our ongoing enterprise resource  planning project; risks relating to possible third party claims of intellectual property infringement; increased contributions to the Company's pension and benefit plans, including multiemployer and employer-sponsored defined benefit pension plans as required by legislation, regulation or other applicable U.S. or foreign law or resulting from a U.S. mass withdrawal event; bad debt write-offs; loss of or failure to obtain necessary permits and registrations; continued or escalated conflict in the Middle East, North Korea, Ukraine or elsewhere; uncertainty regarding the likely exit of the U.K. from the European Union; and/or unfavorable export or import markets. These factors, coupled with volatile prices for natural gas and diesel fuel, climate conditions, currency exchange fluctuations, general performance of the U.S. and global economies, disturbances in world financial, credit, commodities and stock markets, and any decline in consumer confidence and discretionary spending, including the inability of consumers and companies to obtain credit due to lack of liquidity in the financial markets, among others, could negatively impact the Company's results of operations. Among other things, future profitability may be affected by the Company's ability to grow its business, which faces competition from companies that may have substantially greater resources than the Company. The Company's announced share repurchase program may be suspended or discontinued at any time and purchases of shares under the program are subject to market conditions and other factors, which are likely to change from time to time. Other risks and uncertainties regarding Darling Ingredients Inc., its business and the industries in which it operates are referenced from time to time in the Company's filings with the Securities and Exchange Commission.  Darling Ingredients Inc. is under no obligation to (and expressly disclaims any such obligation to) update or alter its forward-looking statements whether as a result of new information, future events or otherwise.}

 

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SOURCE Darling Ingredients Inc.