Darling Ingredients Inc., a global developer and producer of sustainable natural ingredients from edible and inedible bio-nutrients, creating a wide range of ingredients and customized specialty solutions for customers in the pharmaceutical, food, pet food, feed, industrial, fuel, bioenergy, and fertilizer industries, has announced financial results for the 2019 third quarter, which ended September 28, 2019.
For the third quarter of 2019, the company reported net sales of $842.0 million, as compared with net sales of $812.6 million for the third quarter of 2018. The $29.4 million increase in net sales resulted from higher finished product fat prices, strong contribution from higher sales values for Food Segment collagen ingredients and higher sales volume that more than offset lower protein pricing.
Net income attributable to Darling for the three months ended September 28, 2019 was $25.7 million, or $0.15 per diluted share, compared to a net loss of $(6.0) million, or $(0.04) per diluted share, for the third quarter of 2018. The increase was primarily due to DGD earning $32 million in 2019 third quarter as compared to a $(2.6) million loss in the 2018 third quarter due to extended downtime in the third quarter 2018 for completion of the expansion, as well as a $7.2 million write-down of our China blood plasma inventory in the third quarter 2018 due to the African Swine Fever (ASF) outbreak.
Under Darling's current share repurchase authorization, the Company repurchased 636,634 shares of common stock during the third quarter. Subsequent to the close of the quarter, the Company repurchased an additional 407,076 shares, totaling $7.5 million. Darling has $180.7 million worth of shares remaining under its current authorization with purchases to be made from time to time on the open market at prevailing market prices or in negotiated transactions off the market. Repurchases may occur over the authorized period unless extended or shortened by the Board of Directors.
"We reported solid third quarter results, underscored by the strength of our vertically integrated supply chain and excellent execution amid continued trade uncertainty and escalating disease disruption due to African Swine Fever," said Randall C. Stuewe, Chairman and Chief Executive Officer of Darling Ingredients Inc. "Overall, our operating segments delivered exceptional results with improved earnings in our Feed Segment as we navigated volatile global markets. Led by our Rousselot Functional Ingredients and Health & Nutrition platform, our Food Segment is solidly positioned to capture growing global demand for collagen ingredients. In the Fuel Segment, higher sales volumes supported solid performance across operations despite the lack of the Blenders Tax Credit (BTC).
"Our Diamond Green II expansion increasing capacity to 675 million gallons of renewable diesel is progressing on schedule with expected completion in late 2021. We are also pleased to expand our relationship with Valero, our joint venture partner, as we explore advanced engineering and development cost review for a potential renewable diesel plant at Valero's refinery in Port Arthur, TX. If approved, construction would begin in 2021, with expected operations commencing in 2024, resulting in 1.1 billion gallons of total annual production capacity at DGD," concluded Mr. Stuewe.
Feed Ingredients |
Three Months Ended |
Nine Months Ended |
||||
($ thousands) |
September 28, 2019 |
September 29, 2018 |
September 28, 2019 |
September 29, 2018 |
||
Net sales |
$ 496,978 |
$ 482,744 |
$ 1,480,244 |
$ 1,467,365 |
||
Gross margin |
117,186 |
99,005 |
336,638 |
344,169 |
||
Loss (gain) on sale of assets |
(2,429) |
107 |
(7,343) |
526 |
||
Selling, general and administrative expenses |
47,319 |
39,702 |
142,615 |
131,914 |
||
Depreciation and amortization |
50,182 |
47,321 |
148,271 |
140,933 |
||
Segment operating income |
22,114 |
11,875 |
53,095 |
70,796 |
||
Adjusted EBITDA (1) |
$ 72,296 |
$ 59,196 |
$ 201,366 |
$ 211,729 |
(1) Adjusted EBITDA calculated by adding depreciation and amortization to segment operating income |
Food Ingredients |
Three Months Ended |
Nine Months Ended |
||||
($ thousands) |
September 28, 2019 |
September 29, 2018 |
September 28, 2019 |
September 29, 2018 |
||
Net sales |
$ 276,467 |
$ 265,208 |
$ 830,466 |
$ 847,457 |
||
Gross margin |
61,824 |
54,478 |
187,375 |
162,495 |
||
Gain on sale of assets |
(253) |
(33) |
(13,518) |
(244) |
||
Selling, general and administrative expenses |
22,811 |
21,843 |
68,129 |
67,894 |
||
Restructuring and impairment charges |
- |
- |
- |
14,965 |
||
Depreciation and amortization |
19,743 |
19,697 |
59,115 |
60,725 |
||
Segment operating income |
19,523 |
12,971 |
73,649 |
19,155 |
||
Adjusted EBITDA (1) |
$ 39,266 |
$ 32,668 |
$ 132,764 |
$ 94,845 |
(1) Adjusted EBITDA calculated by adding depreciation and amortization and restructuring and impairment charges to segment operating income |
Fuel Ingredients |
Three Months Ended |
Nine Months Ended |
||||
($ thousands) |
September 28, 2019 |
September 29, 2018 |
September 28, 2019 |
September 29, 2018 |
||
Net sales |
$ 68,604 |
$ 64,624 |
$ 193,767 |
$ 219,774 |
||
Gross margin |
10,116 |
11,164 |
31,912 |
49,203 |
||
Loss on sale of assets |
13 |
98 |
16 |
190 |
||
Selling, general and administrative expenses |
912 |
(2,822) |
583 |
(4,056) |
||
Depreciation and amortization |
7,895 |
9,370 |
24,055 |
26,378 |
||
Equity in net income/(loss) of Diamond Green Diesel |
32,020 |
(2,630) |
94,390 |
109,655 |
||
Segment operating income |
33,316 |
1,888 |
101,648 |
136,346 |
||
Combined Adjusted EBITDA (1) |
$ 48,739 |
$ 14,397 |
$ 144,583 |
$ 171,814 |
(1) Combined adjusted EBITDA calculated by subtracting equity in net income of DGD from segment operating income and adding depreciation and amortization with Darling's share of DGD's EBITDA (referenced in the DGD Operating Financial Results table included herein calculated by taking 50% of the depreciation, amortization and accretion expense plus the operating income) |
Darling Ingredients Inc. and Subsidiaries Consolidated Operating Results For the Periods Ended September 28, 2019 and September 29, 2018 (in thousands, except per share data) (unaudited) |
|||||||||||||
Three Months Ended |
Nine Months Ended |
||||||||||||
$ Change |
$ Change |
||||||||||||
September 28, |
September 29, |
Favorable |
September 28, |
September 29, |
Favorable |
||||||||
2019 |
2018 |
(Unfavorable) |
2019 |
2018 |
(Unfavorable) |
||||||||
Net sales |
$ 842,049 |
$ 812,576 |
$ 29,473 |
$ 2,504,477 |
$ 2,534,596 |
$ (30,119) |
|||||||
Costs and expenses: |
|||||||||||||
Cost of sales and operating expenses |
652,923 |
647,929 |
(4,994) |
1,948,552 |
1,978,729 |
30,177 |
|||||||
Loss (gain) on sale of assets |
(2,669) |
172 |
2,841 |
(20,845) |
472 |
21,317 |
|||||||
Selling, general and administrative expenses |
83,549 |
67,447 |
(16,102) |
249,569 |
232,907 |
(16,662) |
|||||||
Restructuring and impairment charges |
- |
- |
- |
- |
14,965 |
14,965 |
|||||||
Depreciation and amortization |
80,407 |
78,842 |
(1,565) |
239,057 |
235,915 |
(3,142) |
|||||||
Total costs and expenses |
814,210 |
794,390 |
(19,820) |
2,416,333 |
2,462,988 |
46,655 |
|||||||
Equity in net income/(loss) of Diamond Green Diesel |
32,020 |
(2,630) |
34,650 |
94,390 |
109,655 |
(15,265) |
|||||||
Operating income |
59,859 |
15,556 |
44,303 |
182,534 |
181,263 |
1,271 |
|||||||
Other expense: |
|||||||||||||
Interest expense |
(19,359) |
(20,080) |
721 |
(60,088) |
(66,220) |
6,132 |
|||||||
Debt extinguishment costs |
- |
- |
- |
(12,126) |
(23,509) |
11,383 |
|||||||
Foreign currency gain/(loss) |
466 |
(2,106) |
2,572 |
(654) |
(7,082) |
6,428 |
|||||||
Gain/(loss) on disposal of subsidiaries |
- |
3,038 |
(3,038) |
- |
(12,500) |
12,500 |
|||||||
Other (expense)/gain, net |
(2,614) |
(2,786) |
172 |
(7,158) |
(4,103) |
(3,055) |
|||||||
Total other expense |
(21,507) |
(21,934) |
427 |
(80,026) |
(113,414) |
33,388 |
|||||||
Equity in net loss of unconsolidated subsidiaries |
(665) |
(162) |
(503) |
(1,087) |
(57) |
(1,030) |
|||||||
Income/(loss) before income taxes |
37,687 |
(6,540) |
44,227 |
101,421 |
67,792 |
33,629 |
|||||||
Income taxes expense/(benefit) |
10,850 |
(1,403) |
(12,253) |
23,900 |
3,992 |
(19,908) |
|||||||
Net income/(loss) |
26,837 |
(5,137) |
31,974 |
77,521 |
63,800 |
13,721 |
|||||||
Net income attributable to noncontrolling interests |
(1,116) |
(900) |
(216) |
(7,530) |
(2,952) |
(4,578) |
|||||||
Net income/(loss) attributable to Darling |
$ 25,721 |
$ (6,037) |
$ 31,758 |
$ 69,991 |
$ 60,848 |
$ 9,143 |
|||||||
Basic income/(loss) per share: |
$ 0.16 |
$ (0.04) |
$ 0.20 |
$ 0.42 |
$ 0.37 |
$ 0.05 |
|||||||
Diluted income/(loss) per share: |
$ 0.15 |
$ (0.04) |
$ 0.19 |
$ 0.42 |
$ 0.37 |
$ 0.05 |
|||||||
Number of diluted common shares |
168,266 |
164,656 |
168,453 |
165,774 |
Darling Ingredients Inc. and Subsidiaries Condensed Consolidated Balance Sheets September 28, 2019 and December 29, 2018 (in thousands) |
||||
September 28, |
December 29, |
|||
2019 |
2018 |
|||
ASSETS |
(unaudited) |
|||
Current assets: |
||||
Cash and cash equivalents |
$ 69,122 |
$ 107,262 |
||
Restricted cash |
159 |
107 |
||
Accounts receivable, net |
355,006 |
385,737 |
||
Inventories |
353,003 |
341,028 |
||
Prepaid expenses |
46,378 |
35,247 |
||
Income taxes refundable |
4,952 |
6,462 |
||
Other current assets |
25,061 |
22,099 |
||
Total current assets |
853,681 |
897,942 |
||
Property, plant and equipment, less accumulated depreciation, net |
1,714,768 |
1,687,858 |
||
Intangible assets, less accumulated amortization, net |
537,360 |
595,862 |
||
Goodwill |
1,212,313 |
1,229,159 |
||
Investment in unconsolidated subsidiaries |
447,689 |
410,177 |
||
Operating lease right-of-use assets |
119,063 |
- |
||
Other assets |
46,179 |
53,375 |
||
Deferred income taxes |
13,846 |
14,981 |
||
Total assets |
$ 4,944,899 |
$ 4,889,354 |
||
LIABILITIES AND STOCKHOLDERS' EQUITY |
||||
Current liabilities: |
||||
Current portion of long-term debt |
$ 61,092 |
$ 7,492 |
||
Accounts payable, principally trade |
192,010 |
219,479 |
||
Income taxes payable |
10,404 |
4,043 |
||
Current operating lease liabilities |
35,223 |
- |
||
Accrued expenses |
297,164 |
309,484 |
||
Total current liabilities |
595,893 |
540,498 |
||
Long-term debt, net of current portion |
1,559,809 |
1,666,940 |
||
Long-term operating lease liabilities |
83,754 |
- |
||
Other non-current liabilities |
113,222 |
115,032 |
||
Deferred income taxes |
219,329 |
231,063 |
||
Total liabilities |
2,572,007 |
2,553,533 |
||
Commitments and contingencies |
||||
Total Darling's stockholders' equity |
2,308,493 |
2,273,048 |
||
Noncontrolling interests |
64,399 |
62,773 |
||
Total stockholders' equity |
$ 2,372,892 |
$ 2,335,821 |
||
$ 4,944,899 |
$ 4,889,354 |
Darling Ingredients Inc. and Subsidiaries Consolidated Statement of Cash Flows Nine Months Ended September 28, 2019 and September 29, 2018 (in thousands) (unaudited) |
||||||
Nine Months Ended |
||||||
September 28, |
September 29, |
|||||
Cash flows from operating activities: |
2019 |
2018 |
||||
Net income |
$ 77,521 |
$ 63,800 |
||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||
Depreciation and amortization |
239,057 |
235,915 |
||||
Loss/(gain) on disposal of property, plant, equipment and other assets |
(20,845) |
472 |
||||
Loss on disposal of subsidiaries |
- |
12,500 |
||||
Asset impairment |
- |
2,907 |
||||
Gain on insurance proceeds from insurance settlements |
(1,371) |
(1,253) |
||||
Deferred taxes |
(4,765) |
(15,708) |
||||
Increase (decrease) in long-term pension liability |
1,122 |
(375) |
||||
Stock-based compensation expense |
18,543 |
13,606 |
||||
Write-off deferred loan costs |
4,721 |
8,163 |
||||
Deferred loan cost amortization |
4,435 |
6,265 |
||||
Equity in net income of Diamond Green Diesel and unconsolidated subsidiaries |
(93,303) |
(109,598) |
||||
Distribution of earnings from unconsolidated subsidiaries |
57,118 |
27,418 |
||||
Changes in operating assets and liabilities, net of effects from acquisitions: |
||||||
Accounts receivable |
20,388 |
9,657 |
||||
Income taxes refundable/payable |
8,058 |
(9,838) |
||||
Inventories and prepaid expenses |
(34,371) |
(25,960) |
||||
Accounts payable and accrued expenses |
(19,799) |
(23,004) |
||||
Other |
6,173 |
4,731 |
||||
Net cash provided by operating activities |
262,682 |
199,698 |
||||
Cash flows from investing activities: |
||||||
Capital expenditures |
(245,092) |
(213,726) |
||||
Acquisitions, net of cash acquired |
(1,431) |
(51,301) |
||||
Investment of unconsolidated subsidiaries |
(2,000) |
(10,000) |
||||
Proceeds from sale of investment in subsidiaries |
- |
82,805 |
||||
Gross proceeds from disposal of property, plant and equipment and other assets |
15,402 |
3,361 |
||||
Proceeds from insurance settlement |
1,371 |
1,253 |
||||
Payments related to routes and other intangibles |
(3,150) |
(1,253) |
||||
Net cash used by investing activities |
(234,900) |
(188,861) |
||||
Cash flows from financing activities: |
||||||
Proceeds from long-term debt |
511,985 |
623,698 |
||||
Payments on long-term debt |
(566,107) |
(661,268) |
||||
Borrowings from revolving credit facility |
325,485 |
386,436 |
||||
Payments on revolving credit facility |
(332,884) |
(362,463) |
||||
Net cash overdraft financing |
27,858 |
3,361 |
||||
Deferred loan costs |
(7,027) |
(9,668) |
||||
Issuance of common stock |
39 |
182 |
||||
Repurchase of common stock |
(11,740) |
- |
||||
Minimum withholding taxes paid on stock awards |
(3,247) |
(2,215) |
||||
Distributions to noncontrolling interests |
(4,500) |
(8,005) |
||||
Net cash used by financing activities |
(60,138) |
(29,942) |
||||
Effect of exchange rate changes on cash |
(5,732) |
(6,238) |
||||
Net decrease in cash, cash equivalents and restricted cash |
(38,088) |
(25,343) |
||||
Cash, cash equivalents and restricted cash at beginning of period |
107,369 |
106,916 |
||||
Cash, cash equivalents and restricted cash at end of period |
$ 69,281 |
$ 81,573 |
||||
Supplemental disclosure of cash flow information: |
||||||
Accrued capital expenditures |
$ 3,978 |
$ (5,295) |
||||
Cash paid during the period for: |
||||||
Interest, net of capitalized interest |
$ 49,727 |
$ 58,731 |
||||
Income taxes, net of refunds |
$ 21,475 |
$ 28,682 |
||||
Non-cash operating activities |
||||||
Operating lease right of use asset obtained in exchange for new lease liabilities |
$ 16,425 |
$ - |
||||
Non-cash financing activities |
||||||
Debt issued for assets |
$ - |
$ 24 |
Selected financial information for the Company's Diamond Green Diesel Joint Venture is as follows:
Diamond Green Diesel Joint Venture Condensed Consolidated Balance Sheets September 30, 2019 and December 31, 2018 (in thousands) |
||||||
September 30, |
December 31, |
|||||
2019 |
2018 |
|||||
Assets: |
(unaudited) |
|||||
Total current assets |
$ 193,457 |
$ 186,258 |
||||
Property, plant and equipment, net |
653,463 |
576,384 |
||||
Other assets |
30,587 |
24,601 |
||||
Total assets |
$ 877,507 |
$ 787,243 |
||||
Liabilities and members' equity: |
||||||
Total current portion of long term debt |
$ 293 |
$ 189 |
||||
Total other current liabilities |
47,373 |
40,619 |
||||
Total long term debt |
8,859 |
8,485 |
||||
Total other long term liabilities |
4,409 |
539 |
||||
Total members' equity |
816,573 |
737,411 |
||||
Total liabilities and members' equity |
$ 877,507 |
$ 787,243 |
Diamond Green Diesel Joint Venture Operating Financial Results Three Months and Nine Months Ended September 30, 2019 and September 30, 2018 (in thousands) (unaudited) |
||||||||||||||
Three Months Ended |
Nine Months Ended |
|||||||||||||
$ Change |
$ Change |
|||||||||||||
September 30, |
September 30, |
Favorable |
September 30, |
September 30, |
Favorable |
|||||||||
Revenues: |
2019 |
2018 |
(Unfavorable) |
2019 |
2018 |
(Unfavorable) |
||||||||
Operating revenues |
$ 262,118 |
$ 104,811 |
$ 157,307 |
$ 859,647 |
$ 407,121 |
$ 452,526 |
||||||||
Expenses: |
||||||||||||||
Total costs and expenses less depreciation, amortization and accretion expense |
183,022 |
103,794 |
(79,228) |
633,109 |
169,632 |
(463,477) |
||||||||
Depreciation, amortization and accretion expense |
15,242 |
6,516 |
(8,726) |
38,574 |
18,890 |
(19,684) |
||||||||
Total costs and expenses |
198,264 |
110,310 |
(87,954) |
671,683 |
188,522 |
(483,161) |
||||||||
Operating income |
63,854 |
(5,499) |
69,353 |
187,964 |
218,599 |
(30,635) |
||||||||
Other income |
506 |
556 |
(50) |
1,781 |
1,348 |
433 |
||||||||
Interest and debt expense, net |
(320) |
(318) |
(2) |
(965) |
(637) |
(328) |
||||||||
Net income |
$ 64,040 |
$ (5,261) |
$ 69,301 |
$ 188,780 |
$ 219,310 |
$ (30,530) |
Darling Ingredients Inc. reports Adjusted EBITDA results, which is a Non-GAAP financial measure, as a complement to results provided in accordance with generally accepted accounting principles (GAAP) (for additional information, see "Use of Non-GAAP Financial Measures" included later in this media release). The company believes that Adjusted EBITDA provides additional useful information to investors. Adjusted EBITDA, as the company uses the term, is calculated below:
Reconciliation of Net Income to (Non-GAAP) Adjusted EBITDA and (Non-GAAP) Pro forma Adjusted EBITDA
Three and nine months ended September 28, 2019 and September 29, 2018
Three Months Ended - Year over Year |
Nine Months Ended - Year over Year |
|||||||
Adjusted EBITDA |
September 28, |
September 29, |
September 28, |
September 29, |
||||
(U.S. dollars in thousands) |
2019 |
2018 |
2019 |
2018 |
||||
Net income/(loss) attributable to Darling |
$ 25,721 |
$ (6,037) |
$ 69,991 |
$ 60,848 |
||||
Depreciation and amortization |
80,407 |
78,842 |
239,057 |
235,915 |
||||
Interest expense |
19,359 |
20,080 |
60,088 |
66,220 |
||||
Income tax expense/(benefit) |
10,850 |
(1,403) |
23,900 |
3,992 |
||||
Restructuring and impairment charges |
- |
- |
- |
14,965 |
||||
Foreign currency loss/(gain) |
(466) |
2,106 |
654 |
7,082 |
||||
Other expense/(income), net |
2,614 |
2,786 |
7,158 |
4,103 |
||||
Debt extinguishment costs |
- |
- |
12,126 |
23,509 |
||||
Loss/(gain) on sale of subsidiary |
- |
(3,038) |
- |
12,500 |
||||
Equity in net (income)/loss of Diamond Green Diesel |
(32,020) |
2,630 |
(94,390) |
(109,655) |
||||
Equity in net (income) of unconsolidated subsidiaries |
665 |
162 |
1,087 |
57 |
||||
Net income attributable to noncontrolling interests |
1,116 |
900 |
7,530 |
2,952 |
||||
Adjusted EBITDA |
$ 108,246 |
$ 97,028 |
$ 327,201 |
$ 322,488 |
||||
Foreign currency exchange impact (1) |
3,088 |
- |
14,749 |
- |
||||
Pro forma Adjusted EBITDA to Foreign Currency (Non-GAAP) |
$ 111,334 |
$ 97,028 |
$ 341,950 |
$ 322,488 |
||||
DGD Joint Venture Adjusted EBITDA (Darling's share) |
$ 39,548 |
$ 509 |
$ 113,270 |
$ 118,745 |
||||
Darling plus Darling's share of DGD Joint Venture Adjusted EBITDA |
$ 147,794 |
$ 97,537 |
$ 440,471 |
$ 441,233 |
(1) |
The average rates assumption used in the calculation was the actual fiscal average rate for the three months ended September 28, 2019 of €1.00:USD$1.11 and CAD$1.00:USD$0.76 as compared to the average rate for the three months ended September 29, 2018 of €1.00:USD$1.16 and CAD$1.00:USD$0.76, respectively. The average rates assumption used in the calculation was the actual fiscal average rate for the nine months ended September 28, 2019 of €1.00:USD$1.12 and CAD$1.00:USD$0.75 as compared to the average rate for the nine months ended September 29, 2018 of €1.00:USD$1.20 and CAD$1.00:USD$0.78, respectively. |
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