Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Improved gross margins and controlled capital spending without sacrificing operational excellence.
- Sequential improvement in feed business margins due to adjustments in raw material procurement and cost-cutting programs.
- Received a significant cash dividend of $77.1 million from the Diamond Green Diesel (DGD) joint venture.
- Sustainable aviation fuel unit is ahead of schedule and on budget, with an anticipated startup in Q4 2024.
- Optimistic outlook for the second half of 2024, with expectations of delivering $1.3 to $1.4 billion of combined adjusted EBITDA.
Negative Points
- Net income for Q2 2024 significantly decreased to $78.9 million from $252.4 million in Q2 2023.
- Net sales for Q2 2024 dropped to $1.5 billion from $1.8 billion in Q2 2023.
- Operating income for Q2 2024 decreased by $208.2 million compared to Q2 2023.
- Challenges in the renewable diesel market due to perceived overcapacity and uncertain regulatory environment.
- Customer destocking in the food segment, particularly in the gelatin and hydrolyzed collagen market, impacting revenue.
Q & A Highlights
Q: Can you provide your view on the supply and demand dynamics for SAP going into 2025, especially with new mandates in the UK and EU?
A: The sales picture is evolving as European regulations come online in 2025. Compliance around SAP is required later, but there's a strong interest from companies to get ahead. We expect demand to build as we move forward.
Q: For the 250 million gallons that DGD will produce, do you anticipate most of it will go domestic or will there be a strong export pull?
A: We expect a blend of both domestic and export sales, driven by market and regulatory rules. The 250 million gallons may seem significant, but it's manageable given our current sales book.
Q: Can you discuss the margin cadence for the second half of the year, particularly for the feed and food segments?
A: All three segments showed slight improvement over Q1. We expect margins to continue improving in the back half of the year due to price movements and our focus on margin management and cost concentration.
Q: What are your thoughts on the macro environment, particularly regarding the implementation of 45Z and the blenders tax credit?
A: We believe 45Z will be implemented by January 1. There's a lot of talk about the blenders tax credit, but we think the current legislation will continue as is.
Q: Given the recent rise in fat prices, what factors give you confidence in meeting your full-year EBITDA guidance?
A: We sold a lot of fat in Q1 and Q2 at mid $0.30 per pound levels, which have now risen to $0.40-$0.42. This price improvement, along with operational efficiencies and the ability to pretreat fats, gives us confidence in meeting our guidance.
Q: How do you see the transition from the BTC to 45Z affecting the market, particularly for biodiesel and renewable diesel?
A: We expect better renewable diesel margins as we near the end of the year. The transition to 45Z should be smooth for us, given our ability to manage risk better than the rest of the market.
Q: When do you expect the changes for the California LCFS program to be implemented?
A: We believe the changes will be implemented in 2025, likely by Q2.
Q: Can you elaborate on the internal initiatives that are expected to contribute to the second half of the year?
A: We have significant contracts coming up for renewal, which will result in better margins. These initiatives are part of a broader strategy to leverage our assets and improve operational efficiencies.
Q: What caused the decline in the food segment's EBITDA this quarter, and what is the outlook for the rest of the year?
A: The decline was primarily due to customer demand and pricing pressures in the gelatin market. However, we are optimistic about the back half of the year as customer demand is picking up.
Q: How do you view the outlook for dividends from DGD?
A: We are optimistic about additional distributions from DGD in the back half of the year. The dividend is calculated based on a formula, so it's a matter of the calculation.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
