Darling Ingredients Inc. (NYSE:DAR) Q3 2023 Earnings Call Transcript

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But quickly pull down debt down to around that $4 billion $3.9 billion level.

Brad Phillips : We do have one pending transaction that’s out there and on Miropasz in Poland which is €110 million that is expected to close likely in Q1. But outside of that I would say, 2024 is an M&A light year on new acquisitions.

Randall C. Stuewe : I call it an M&A holiday.

Ben Bienvenu : You earned it. Very good very helpful and makes sense. On the third quarter, in the Feed business, I want to ask about in the UCO [ph] segment. The pricing seems to be much weaker year-over-year than broader UCO quotes would suggest. Is there something discrete or specific that’s happening in that third quarter that we should be mindful of as we think about the relationship between pricing in that segment and the pricing of used cooking oil out in the marketplace?

Randall C. Stuewe : This is Randy. Year-over-year I think prices were 65% down to 55%. So about 20%-ish. Remember Q3 a year ago Diamond Green Diesel III was not operational yet. And so we were still trading a bunch of material around the world. So as Brad said earlier, you got some leads and lags, you’ve got some quality premiums, you got some training that was going on there. But I don’t know anything else you want to add, Brad?

Brad Phillips: That’s it. Often times when we’re exporting in the past, there can be some premiums built in there with that exporting. So that will all flush out now that we have all three units on …

Randall C. Stuewe: Right.

Brad Phillips: …and are going forward.

Operator: The next question comes from Matthew Blair of TPH. Please go ahead.

Matthew Blair: Hey. Good morning. Thanks for taking my questions. I guess the first one is, I think in your recent guidance you talked about that you anticipate DGD margins higher in Q4 versus Q3. And I wanted to see if that’s still held. On our modeling it seems like you would receive a pretty nice tailwind from the hedging side of things, but we were worried that there would still be some of that price lag impact from your feedstocks versus the low D4 RINs in Q4 that might weigh on margins. So I wanted to check on that first.

Brad Phillips: Yeah. I would say that’s a — that’s the reality of the way our book works. We do — we have to manage the pipeline through DGD. There’s anticipated purchases. And so we’re chewing through that. But I would say that the — if you think about the progression through the quarter December will be better than October.

Matthew Blair: Yeah. We see that too. And so just to be clear the guidance is still that Q4 DGD margins higher than Q3?

Randall C. Stuewe: We clearly we’re going to make more gallons. I mean, that’s an absolute. And right now if we had to look at it, as Matt said, as each month goes on that margins widening out spot margins as you can see are much better. We should have a hedge gain coming back provided there’s no major rally again in the heating oil market. And that’s assuming D4s and LCFS really kind of flat.

Operator: The next question comes from Jason Gabelman of Cowen. Please go ahead.

Jason Gabelman: Yeah. Hey. Thanks for taking my questions. My first one is on the 2023 outlook. And it’s a two-parter. The first part of it is you had initially or previously guided to $1.875 billion you reduced that. In hindsight, where do you think you were off from the prior to current guidance? And then as you think about the $100 million EBITDA range for 4Q, how do you think about what’s driving the high to low end of that range? And I have a follow-up. Thanks.

Randall C. Stuewe: Yeah. I think there’s three letters that drove most of it. DGD in Q3, clearly was — didn’t deliver what we thought it was. And we’re going to be. And clearly we’re being somewhat conservative on DGD Q4. Right now it looks like, DGD has got to deliver for us to get to the high-end of the range in Q4 and then the fat prices that didn’t get recognized in Q3, because they were sold the DGD in Q4 have to flow-through. So like we just said there’s timing issues here that puts you that kind of range. I continue to look at myself in the mirror and say, why am I even trying to guide this thing after 20 years. So it’s just — this is — but we have a pretty good feel for it. I mean, as we came in, and I’d just remind the listeners, as we came in sequentially out of Q2 we said, seasonally we would be lower in Q3.

And we were. And so plus or minus 5% is not a — not bad. What we didn’t see coming at us was the DGD all the volatility that hit there due to whatever you want to call it the war in the Middle East and D4 RINs collapse and everything there that could have happened to you happen. The fire took us offline. That was another 10 days or minor disruption as we call it and the team did a magical job but it’s just — you got to power down and power back up. And that’s six days with three, four days of repairs. So those that took another I don’t know 20 million gallons or off-line or whatever it was. So that’s why we’re a little more bullish Q4 than we were in Q3 here.

Jason Gabelman: All right. Great. And my follow-up is on the 2024 outlook. And it seems like there’s a decent amount of crushing capacity for soybeans coming online in the US. And as we sit here soybean oil pricing is still decently above where it was relative I guess to where it was prior to COVID. So it does seem like there’s potential for some downside next year and I know you touched on it earlier, but I was just wondering if your outlook factors in all that new crusher capacity coming online in North America and how that can impact vegetable oil prices? Thanks.

Matt Jansen: Yes. This is Matt. I would say, yes, that is factored into our expectations whether it’s oil or — and including protein. So these new plants are known projects wouldn’t surprise me similar to what we’re seeing in the RD space if some of them get delayed for a myriad of reasons. One of the other thing we really haven’t talked about lately is the — with the this increase in interest rates that we’ve seen CapEx and the money it takes to build and operate is — has gone up. So that I mean that’s just the reality of the business. But at the end of the day yes, the — we incorporate that into our expectations.

Randall C. Stuewe: Bob, do you have any comment.

Bob Day: Yes. I think I would just add that near-term imports have had a bigger impact than added crush capacity in the United States for oilseed crush. And the other thing is that we are overall as an industry increasing renewable diesel capacity at a much faster pace than we’re adding oil production capacity. Short-term we’ve got a lot of oil in the system and we’ve seen pressure on prices. But if you even getting out 12 months to 18 months it’s going to be pretty tough for the soybean oil industry to keep up with demand as we see it.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Randall Stuewe for any closing remarks.

Randall C. Stuewe: All right. Thanks everybody for your questions today. As always, if you have additional questions reach out to Suann. Please stay safe, have a great holiday season and we look forward to talking to you in the future.

Operator: The conference has now concluded. Thank you for attending today’s presentation and you may now disconnect.

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