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

May 10, 2018 • 08:30 am ET

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

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Q & A
Operator
Operator

Thank you, we will now begin the question-and-answer session. (Operator Instruction) Our first question will come from David Katter with Baird. Please go ahead.

Analyst
David Katter

Good morning, guys. Thank you for taking the question. Quickly, on the further expansion of Diamond Green to 600 million gallons. What do you foresee -- what could change between now, when you make a decision that'll make that more or less likely, your decision to proceed there?

Executive
Randall C. Stuewe

David, this is Randy. And I do have John Bullock in the room with me here. I'll take the first stab at it, and John can help me if I don't say it right. I think number one, from a macro perspective, we're very close on that decision, but it's still very much part of the process to nail down the final engineering cost, plus or minus 10%. We've funded that to go forward here and expect that to be completed later this summer, early the fall. So, the real checkpoint is, as you guys know, obviously with the challenging trade issues around the world; with steel, aluminum, copper pricing moving around, we're trying to make sure we have a strong understanding of both what the cost is and what the risk is there, so that'll be nailed down. And then, ultimately, we'll take one final snapshot at any potential policy implications, both good or bad, and make the final go here on or around probably the end of September, 1st of October.John, is that fair enough?

Executive
John Bullock

That's exactly right.

Executive
Randall C. Stuewe

Okay, thanks David.

Analyst
David Katter

Thank you. One more on fat pricing. You guys, I think mentioned that you think you're at the bottom here. What gives you confidence in that?

Executive
Randall C. Stuewe

What gives us confidence is -- is just seems -- historically it's just too low, number one. Number two, Diamond Green Diesel had 12 days down in the first quarter. That's a big supply chain air bubble. The market's anticipating Diamond Green to go down here in about 30 days from now or a little more. And then, we've seen that stay down around the world in one or two of their factories. And then you couple that on top of the Argentine biodiesel that was flooding the U.S., but now is flooding Europe. And it's just put a lot of fat on the market.

So, it's always hard to call the bottom to this, David, but at the end of the day, it just feels like it's about ready to perk back up. The long harsh winter didn't really get us back into feeding rations, where we thought we would be to take on a little bit of the surplus. The good news is slaughter is big.

Our formulas in our business are working, but there's just a lot of fat on the market. It looks like it's being worked through. You take the biodiesel seasonality and the generation one plant, those should be coming online now and taking up a little more of the slack. So, it kind