Darling Ingredients Inc. (DAR, Financial), the largest producer of sustainable natural ingredients, posted mixed second-quarter results on Aug. 9, including a 2.17% increase in net sales. Net sales for the first six months increased 7.23%.
Darling Ingredients produces the highest quality-sustainable proteins from edible and inedible bionutrients worldwide. These products are for customers in the pharmaceutical, food, pet food, feed, technical, fuel, bioenergy and fertilizer industries. Maintaining the concept of sustainable development, the company collects and transforms all aspects of animal byproduct streams into broadly used and specialty ingredients, such as gelatin, organic fertilizers, pet food ingredients and others. The company has created its global platform with over 200 facilities on five continents employing 10,000 people. Darling Ingredients’ reportable operating segments are:
- Feed Ingredients.
- Food Ingredients.
- Fuel Ingredients.
- Diamond Green Diesel Joint Venture.
Second-quarter results
During the second quarter ended July 1, the company’s net sales increased 2.17% to $896.35 million compared to $877.34 million for the comparable prior-year period. Net sales for the Feed, Food and Fuel Ingredients segments increased 1.14% to $549.12 million, 2.84% to $279.83 million and 8.24% to $67.4 million.
Gross profit for the reported quarter decreased 2.32% to $195.58 million compared to $200.23 million in the prior-year period. The gross profit margin decreased to 21.82% from 22.82% in the same period last year.
Darling Ingredients’ operating income was $37.06 million, a decrease of 31.96% from $54.47 million in the comparable quarter of 2016. Operating income as a percentage of net sales decreased 4.13% from 6.21%.
Net income attributable to the company decreased to $9.15 million, or 5 cents per diluted share compared to $32 million, or 19 cents per diluted share, for the comparable prior-year period. Net income as a percentage of net sales decreased to 1.02% from 3.65% in the prior-year period. Adjusted EBITDA decreased 11.25% to $110.05 million compared to $124 million in the year-ago quarter.
Darling Ingredients’ cost of sales and operating expenses increased 3.49% to $700.76 million compared to $677.11 million. On the other hand, cost of sales as a percentage of net sales decreased to 78.18% compared to 77.18% in the prior-year period.
Selling, general and administrative expenses increased 12.3% to $85.53 million compared to $76.16 million in the same period last year. Net interest expense for the reported quarter decreased 6.38% to $22.45 million compared to $23.98 million.
Darling Ingredients ended the quarter with cash and cash equivalents of $124.82 million, an increase of 8.96%, compared to $114.56 million in December 2016. Inventories for the reported quarter increased 8.71% to $359.63 million compared to $330.81 million in December 2016. Long-term debt, net of current portion remained flat to $1.73 billion.
Second-quarter results for Diamond Green Diesel Joint Venture
Total operating revenues for the Diamond Green Diesel Joint Venture segment increased 14.04% to $150.79 million, compared to $132.23 million in the same period last year. Operating income and net income for the reported quarter decreased 42.32% to $16.79 million and 40.35% to $16.26 million compared to $29.11 million and $27.26 million for the comparable prior-year period. Total long-term debt decreased 15.83% to $45.24 million compared to $53.75 million in December 2016.
First six months results overview
The following chart shows the company's financial results for first six months of 2017.
| Metrics | Six months ended June 2017 | Six months ended June 2016 | % change |
| Net sales | $1.78 billion | $1.66 billion | 7.23% |
| Gross profit | $386.02 million | $380.97 million | 1.32% |
| Operating income | $68.48 million | $81.16 million | (15.62)% |
| Net income | $17.73 million | $36.65 million | (51.62)% |
| Cost of sales and operating expenses | $1.39 billion | $1.28 billion | 8.59% |
| Selling, general and administrative expenses | $173.45 million | $157.63 million | 10.04% |
| Net interest expense | $44.13 million | $47.88 million | (7.83)% |
| Adjusted EBITDA | $212.58 million | $222.95 million | (4.65)% |
| Net cash provided by operating activities | $197.55 million | $168.23 million | 17.43% |
Projections and growth
The global pet industry is growing, and it will reach $91 billion by 2019. This will pave the way for Darling Ingredients to focus on serving the growing pet and aqua demand. In 2017, the company plans to open a new poultry rendering plant in the U.S. and new blood plant in Europe. For the Food segment, the company plans its gelatin expansion in China, the U.S. and Brazil.
Globally, 284 million tons of meat and approximately 100 million tons of meat byproducts are produced out of which Darling Ingredients processes approximately 10 million tons of the world’s meat byproducts. Therefore, the company plans to open new plants, introduce new products and expand through acquisition globally.
For Diamond Green Diesel Joint Venture segment, the company plans a major expansion of 275 million gallons of renewable diesel annually from 160 million, and for this Darling Ingredients has already started its construction which is expected to be completed at the end of the second quarter of 2018.
On a concluding note
Darling Ingredients is a rock-solid company with a strong financial profile, decent risk management, operational excellence, remarkable white space opportunities and an experienced management team. The company’s main motto is to achieve a sustainable top three market position within the next five years. With its recent quarterly report, the company is headed toward a bright future and is set to deliver greater shareholder returns.
Disclosure: I do not hold any positions in the company.
