Darling Ingredients Inc. (NYSE:DAR) Q1 2018 Earnings Conference Call - Final Transcript

May 10, 2018 • 08:30 am ET


Darling Ingredients Inc. (NYSE:DAR) Q1 2018 Earnings Conference Call - Final Transcript


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Randall C. Stuewe

and strong demand for our low-carbon fuels; growing collagen sales; and we survived a very harsh North American winter.

So let me talk a little bit about each segment and give you a little detail. In our feed segment, global slaughter volumes were up 3.2% over last year. Most notably, global fat prices remained under pressure most of the quarter due to the record slaughter, a strong global soy crush, declining palm oil prices, and Argentine biodiesel flooding the European market. More than offsetting this pressure was the natural hedge we have in Diamond Green Diesel. For now, it appears we have seen the bottom in fat pricing, and we should see improvement throughout the second quarter. And then with the new demand from an expanded Diamond Green Diesel, we should see a return to more historical discounts from relationships to other fats.

Once again, the significant discount our global portfolio of fats and oils experienced in Q1 gives us even more the reason to double the size of Diamond Green Diesel. On a positive note, the feed segment enjoyed improving finished product prices for proteins during the quarter, especially for our higher-grade specialty pet food products and aqua feed ingredients. Mixed PC protein values also improved during the quarter, but nonetheless, inventories build and historically wide discounts to soy remain due to significant volumes we produced. Also, in the feed segment, our global blood business enjoyed a record volume quarter, especially in China. Volume grew to all-time highs, driven by the larger-than-anticipated hog slaughter. And our specialty wet pet food business once again saw both volume and margin improvements.

The food segment results were modestly improved year over year. Rousselot, our global collagen business, grew sales volume and improved margins year over year. In Brazil, earnings improved nicely compared to the year-ago period, while macroeconomic factors continued to plague operations in Argentina. Our U.S. factories had strong volumes and improved margins, while our European factories felt the pressure of a strengthening euro. Our European edible fats business maintained robust sales volumes, due to increased raw material availability only to be offset by lower selling prices due to deflationary pressure on the global palm oil market. Our casings business, CTH, again posted a solid quarter and continues to see robust supplies and demand for its products in all global markets.

The fuel segment continues to deliver consistent earnings. Rendac, our European animal disease-mitigation business, leveraged strong supply volumes and produced consistent results. Ecoson, our bioenergy business, returned to fuller production capacity, capitalizing on ample supply and continued strong demand. Our North American biodiesel business operated at breakeven during the quarter without the 2018 blenders tax credit. As I mentioned, fuel segment earnings for the quarter included $12.6 million of the retroactive BTC passed in February.

Now, turning to Diamond Green Diesel, our 50/50 partnership with Valero. The facility reported an impressive quarter with entity EBITDA of $1.19 per gallon on sales volumes of 33.4 million gallons. When adjusting entity EBITDA