Adam Samuelson: Okay. And if I could just maybe follow on that last one and it kind of goes back to the original question. How do we think about maybe flat price veg oils in that scenario where that’s a pretty significant amount of veg oil demand and waste veg oil in particular is going to be challenged to find homes in the biodiesel market that yes maybe the waste fat discounts to veg oil narrow or go away but that could put downward pressure on the veg oil market broadly do you — are you concerned about that in any way?
Bob Day: Well, I think — look our view is what it is. And if we have a stronger LCFS in California, it’s going to be more supportive of demand overall. But I mean you’re right it favors renewable diesel over biodiesel. Biodiesel is generally produced from vegetable oil. Renewable diesel outside of Diamond Green Diesel is a lot of its vegetable oil as well. But as we go forward, we should see more animal fats. I mean I think what it points to is increased demand for UCO and animal fats and less demand for vegetable oil. And so those spreads should come together. But the overall demand for fats and oils really shouldn’t change. It’s really about the spreads between the different products.
Randall Stuewe: The only thing that I’d add is it would come down to ultimate crush capacity and whether or not crush given the new crush plants out there do they start to scale back. That always takes longer than you think it does but that’s the kind of the wild card that’s out there.
Bob Day: And that’s a really good point — sorry, but it’s a really good point because crush margins — soy crush margins are not very good right now and they’re not projected to look really good here over the next couple of years. And so one way to control supply as an industry of vegetable oil is to lower crush. And at $25 a ton crush margins you’re not far away from slowing that down.
Matt Jansen: What surprised me to see imports drop off as well as I think that freestanding biodiesel refineries will be disadvantaged.
Operator: The next question comes from Manav Gupta from UBS. Please go ahead.
Manav Gupta: Guys you said you were constructive on the LCFS prices. Recent car workshop for the first time introduced the concept of a 7% step down or 9% step down for 2025 versus the proposed 5% step down. Do you think car is finally recognizing that the prices are too low and there is a strong possibility that now when the revised numbers come out you could see a 7% step down or a 9% step down which actually hits the credit bank pretty hard?
Bob Day: Yes, I think it’s — look I think we’re projected to be at 13.75, so a 5% or 7% or 9% step down, all of them are a significant increase to where we are today. What we know is that through the regulatory impact assessment they’ve got goals as far as where they would like to see LCFS credits trading. And really we believe they’re going to put a step down in place that they believe is going to allow that market to move to the prices they think it should be at. We had the workshop recently. There’s a lot of constructive dialogue going on. And in all scenarios it’s a step down from where we are today where that might not have been the way the discussion was going a while ago. So, it’s hard to speculate as to where they’re going to land. But we think it’s going to be based on good data and analysis and when they make that decision.
Randall Stuewe: Yes. And keep in mind Manav it’s always been a 2025 kickoff, if you will. Everybody got a little optimistic aggressive in thinking that car would move faster here. It’s still a very regimented and gated process there. And I think you’ll — I think they’re going to publish here shortly. I think it will go to a Board meeting in July. And then after that we’ll see on the execution time.
Manav Gupta: Perfect. My quick follow-up here is on the DJD margin for the quarter. I mean it was a big improvement from $0.41 to $0.76. But as you highlighted there was this still a feedstock lag effect working against you. Like so if we adjust for that the price decline in the feedstocks would it be fair to say that if the feedstock prices had not moved at all this $0.76 could easily be like $1 for the quarter? I’m just trying to quantify the impact of the feedstock price lag for the quarter.
Brad Phillips: Well, I don’t see the exact calculation but I would say that generally speaking or directionally that seems correct.
Operator: The next question comes from Paul Cheng from Scotiabank. Please go ahead.
Paul Cheng: Hey, guys. Good morning.
Randall Stuewe: Good morning.
Paul Cheng: Randy, I don’t know if you can comment. DGD the first quarter sales seems really high comparing to the production level. So I assume that we are drawing down inventory. So at this point how much is the inventory that will remain? In other words for the rest of the year should we assume that sales will be pretty closely aligned with the production volume or that is still going to be in excess of the production volumes.
Matt Jansen: This is Matt. I’ll answer that. I would say first of all that DGD does not really have a program to store a bunch of finished products. So the — really the operational intention and expectation is ship what gets produced. And so what happens is from time to time as you bridge months and bridge quarters sometimes don’t get invoiced in one month and they may get invoiced in the next. And therefore you can see a shift. But I would say that’s likely what you’re talking about right here.
Randall Stuewe: Yes. I think for the year Paul I mean we’re still out there at that 1.350 in a total production and shipped produced and shipped hopefully can match up. It’s just the timing of vessels and barges and railcars of different things here. And obviously as we start to transition in Q4 to taking 250 million gallons of R&D offline, most of that I think Matt you told me most of the SPK and SAF will move out what by rail then..
Matt Jansen: Ore barge.
Randall Stuewe: Ore barge. Yes it could be a little bit of timing. But production is what’s important to us here and the timing of sales is — will happen.
Paul Cheng: I see. And second question is on the feed volume from — I mean with the small acquisition you get three more plants and also then what is coming back. So Randy can you give us some idea then how sequentially the volume is going to look like?
Suann Guthrie: Can you repeat that Paul?
Paul Cheng: If we’re looking at the feed ingredient that segment from the first to the second quarter how is the volumes we should expect given that you just completed a small acquisition that adds three plants and then you also have what being rebuilt and is working. I know that not a one-to-one but are we going to see some incremental benefit from a volume standpoint for the feed ingredient when we move from the first to the second quarter?
Randall Stuewe: Yes. I mean Paul so when I look and Matt can comment more North America. But globally we’ve made procurement changes in our spreads in Europe. We’re still actively doing it in South America. Raw material volumes are rather large or just the cattle slaughter shipping again from the US down to South America so the piles of raw material are quite large. North America clearly Matt already commented about Ward. That is such a blessing to have that online just from a — we were running at 100% capacity and then running through Saturday so that should take a lot of pressure off the system. And then we’ve seen some pricing improvement in the fat side. It’s been very modest in North America. It’s been a little better in Europe today it’s back really reflecting palm oil values as alternative there.
So Q2 within the core ingredients business looks to be stronger at least at the moment. We don’t have April numbers yet because the month is not closed, but it looks stronger and the operating team feels better about it than Q1. Matt anything you want to add
Matt Jansen: I think you covered it okay.
Operator: The next question comes from Andrew Strelzik from BMO. Please go ahead.
Andrew Strelzik: Hey, good morning. Thanks for taking the questions. My first one is a two-parter on the guidance. I think a month or so ago you maybe were at a conference and I recognize it wasn’t formal guidance or anything like that. But you kind of insinuated that the market environment kind of suggested a $1.55 billion $1.6 billion type of EBITDA number and – so I guess I was just hoping that maybe you could bridge from your comments at that time. So now the formal guidance of $1.3 billion to $1.4 billion. And then secondarily, you kind of alluded a little bit to this in the last question but you talked about a back half kind of loaded year. Is that just a reflection of the first quarter? Or is 2Q also a little bit limited and then kind of we see the full acceleration in the back part of the year.
Randall Stuewe: Yes. Number one, Andrew my crystal ball had fog in it when I gave that prediction before. But it was hinged on a couple of things. One, it was hinged on some optimism that the LCFS market would come back upon realizing what was going to happen to do that with the change of car. And number two just believing that waste fats couldn’t stay down below world veg oil prices very long. And first off I was wrong on both of those. It’s a timing thing. We’re saying Q2 is going to be stronger than Q1 from the core ingredient side. And then obviously, we got a turnaround in DGD coming on here. For DGD 3 and I think that plant ran 15 or 18 months before we turn it around, which is an absolute amazing deal and that’s to do the tie-ins also for SAF 1.
So it’s really – when I talk about back half of the year, we’re going to pick up momentum. You get the LCFS announcement out there and people then realize that it’s real. People realize that these R&D plants aren’t running at the rate or going to run at the rate that should help things as you move into – as you get closer to next year you realize that the RVO is going to have less imports 800 million, 900 million gallons. That has to have a positive effect on both RINs and domestic feedstock values and ultimately, what else am I forgetting guys? I mean what else is going to drive this?
Brad Phillips: I think that I would just – historically speaking, I would say Q3 is naturally a challenge for us to keep in mind as we plan for this. Principally due just to the summer heat and all but we’re ready for it. So…
Andrew Strelzik: Okay, great. That was helpful. And then my other question is just on the adjustments you’re making to the procurement process and the operating costs, which you’ve been talking about for the last several months, so that’s not entirely new. But I’m just curious are you finding new opportunities within those buckets? And you referenced some of the evidence that some of that is already playing out. But I guess how would you frame the extent to which you’ve realized those benefits versus kind of incrementally what might be to come in future quarters? Thank you.
Randall Stuewe: No it’s a very fair question. I mean number one typically a lot of the procurement formulas in North America were CPI based and they had to be relooked at that one enough. In a lot of cases, we’ve given a lot of labor increases post-COVID and so as these contracts matured and changed, we’ve had to step out. And then 7% interest rate on these assets is a different calculation in diesel fuel and 450 a gallon. So it’s just been a comprehensive look all around and the team has been very open to it. As I said, we’ve had a tailwind since fourth quarter 2019 and then the wins changed and deflation hit and you have to go look at this stuff and we’ve done it. I mean the Brazilian acquisition has really been a good acquisition.
It’s meeting business case, but it’s one where we’re having to be when you transition from a private owner to a public company. I’ve always said and the guys have heard me say private owners run for tax avoidance public company runs for earnings. And that requires us to make changes in the raw material procurement from the slaughterhouses down there more often than has been historically done. So I think there’s nothing really tangibly too new of what we’re doing here other than we’ve given the team — number one, you’ve seen us take CapEx down solidly $100 million for the year. Number two, we’ve kind of just told that we’ve had to work with the teams to just say “Hey until we see fat prices come up you’ve got to be really cognizant of cost management.
And so that’s kind of where we’re at. Are you guys — anything you want to add to that?
Unidentified Company Representative: I’d just say, look I appreciate the question. It’s a pretty prevalent theme around here. Our suppliers they’ve got several options. They can go to another rendering plant. And meanwhile we’re kind of at capacity across the continent. They can go to landfill and landfill is less acceptable and more expensive every day or they can build a new rendering plant. And that’s a whole lot more expensive than it was a few years ago. And so all that is taken into consideration when we’re repricing agreements. We don’t realize an immediate impact in a one-month period from restructuring these agreements. And a lot of these they come up at their three-year agreements. But over time, we’re in a really healthy position given the book value of our assets relative to replacement value.
Operator: The next question comes from Derrick Whitfield from Stifel. Please go ahead.
Derrick Whitfield: Thanks, guys. Good morning, all. Randy focusing on guidance and kind of pulling you back closer to your previous crystal ball projection. I can certainly appreciate the conservative EBITDA guidance, as your stock doesn’t reflect meaningful value for DGD and you’ve now taken out the bare case with the guidance. Having said that, if we assume fat prices remain depressed and annualized Q1, you could easily be above the top end of your guidance based on DGD spot margins north of the dollar per gallon with no contribution from SAF. And kind of thinking about the interplay between your businesses assuming static RIN and LCFS prices lower fat prices are a net positive for Darling as the impact for downstream is far greater than the impact for upstream. Is that fair?
Brad Phillips: I missed that last part.
