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Darling Ingredients Inc. Reports First Quarter 2020 Financial Results

IRVING, Texas, May 6, 2020 /PRNewswire/ -- Darling Ingredients Inc. (NYSE: DAR, "Darling") --

Darling International Inc. (PRNewsfoto/Darling International Inc.)

First Quarter 2020

  • Net income of $85.5 million, or $0.51 per GAAP diluted share
  • Net Sales of $852.8 million
  • Adjusted EBITDA of $213.3 million
  • Diamond Green Diesel ("DGD") earned $2.63 EBITDA per gallon on approximately 79 million gallons sold
  • Repurchased $55 million of common stock

Darling reported net sales of $852.8 million for the first quarter of 2020, as compared with net sales of $835.1 million for the same period a year ago.  Net income attributable to Darling for the three months ended March 28, 2020 was $85.5 million, or $0.51 per diluted share, compared to a net income of $18.0 million, or $0.11 per diluted share, for the first quarter of 2019.

"We delivered a strong first quarter performance consistent with the guidance we provided on our February 2020 earnings call, generating $213 million of combined adjusted EBITDA," said Randall C. Stuewe, Chairman and Chief Executive Officer of Darling Ingredients Inc. "The diversity of our global platform from food to feed to green hydrocarbon is helping us to weather the COVID-19 pandemic."

"We continue to execute our global strategy of creating sustainable ingredients for feed, food and fuel, from the waste streams of the food processing industry and being a leader in the production of green hydrocarbons to assist with global decarbonization. First and foremost, Darling has acted to ensure that we are providing a safe work environment for our employees across our network of 200+ locations around the world," added Stuewe. "We are also taking the necessary steps to safeguard our balance sheet in the current environment. While we anticipate some disruption and potential lighter volumes of raw materials processed in the coming quarter, accordingly, we are committed to managing and reducing operating expenses across the business. Consistent with this approach, we are targeting a deferral of 15% to 20% in capital expenditures until the uncertainty surrounding the COVID-19 outbreak improves."

"In April, DGD had accumulated over $600 million of cash, sufficient to fund the phase II 2020 expansion of DGD and provide each joint venture partner with a $125 million distribution. Also, Darling anticipates receiving an additional $65 to $75 million in July consistent with the distribution policy at DGD," stated Stuewe.

As of March 28, 2020, Darling had $76.4 million in cash and cash equivalents, and $795.9 million available under committed revolving credit agreements. Total debt outstanding at the end of the first quarter of 2020 was $1.75 billion.

Under Darling's current share repurchase authorization, the Company repurchased 2.2 million shares of common stock during the first quarter for a total of $55 million. Darling has approximately $126 million remaining under its current authorization.

Combined adjusted EBITDA was $213.3 million for the first quarter of 2020, compared to $133.3 million for the same period in 2019.

Segment Financial Tables (in thousands)


Three Months Ended March 28, 2020

Feed Ingredients

Food Ingredients

Fuel Ingredients

Corporate

Total







Net Sales

$    512,625

$    270,294

$    69,923

$            -

$    852,842

Cost of sales and operating expenses

388,453

205,430

53,025

-

646,908

Gross Margin

$    124,172

$      64,864

$    16,898

$            -

$    205,934







Loss on sale of assets

50

2

9

-

61

Selling, general and administrative expenses

53,947

25,476

1,654

15,116

96,193

Depreciation and amortization

53,521

20,305

8,092

2,753

84,671

Equity in net income of Diamond Green Diesel

-

-

97,820

-

97,820

Segment operating income/(loss)

$      16,654

$      19,081

$  104,963

$ (17,869)

$    122,829

Equity in net income of unconsolidated subsidiaries

$           869

$                -

$             -

$            -

$           869

Segment Income/(loss)

$      17,523

$      19,081

$  104,963

$ (17,869)

$    123,698







Segment EBITDA

$      70,175

$      39,386

$    15,235

$ (15,116)

$    109,680

DGD Adjusted EBITDA (Darling's Share)

$                -

$                -

$  103,634

$            -

$    103,634

Adjusted EBITDA

$      70,175

$      39,386

$  118,869

$ (15,116)

$    213,314







Three Months Ended March 30, 2019

Feed Ingredients

Food Ingredients

Fuel Ingredients

Corporate

Total







Net Sales

$    495,819

$    279,164

$    60,121

$            -

$    835,104

Cost of sales and operating expenses

386,859

214,004

50,050

-

650,913

Gross Margin

$    108,960

$      65,160

$    10,071

$            -

$    184,191







Loss/(gain) on sale of assets

(4,391)

114

27

-

(4,250)

Selling, general and administrative expenses

48,831

21,887

(754)

15,039

85,003

Depreciation and amortization

49,369

19,511

7,798

2,486

79,164

Equity in net income of Diamond Green Diesel

-

-

24,277

-

24,277

Segment operating income/(loss)

$      15,151

$      23,648

$    27,277

$ (17,525)

$      48,551

Equity in net loss of unconsolidated subsidiaries

$         (504)

$                -

$             -

$            -

$         (504)

Segment income/(loss)

$      14,647

$      23,648

$    27,277

$ (17,525)

$      48,047







Segment EBITDA

$      64,520

$      43,159

$    10,798

$ (15,039)

$    103,438

DGD Adjusted EBITDA (Darling's Share)

$                -

$                -

$    29,828

$            -

$      29,828

Adjusted EBITDA

$      64,520

$      43,159

$    40,626

$ (15,039)

$    133,266


 

Darling Ingredients Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
March 28, 2020 and December 28, 2019

  (in thousands)



March 28,


December 28,

2020


2019

ASSETS

(unaudited)



Current assets:





Cash and cash equivalents

$       76,339


$          72,935


Restricted cash

106


110


Accounts receivable, net

397,700


406,338


Inventories

381,432


362,957


Prepaid expenses

45,107


46,599


Income taxes refundable

3,106


3,317


Other current assets

26,270


25,032


              Total current assets

930,060


917,288

Property, plant and equipment, net

1,764,120


1,802,411

Intangible assets, net

497,779


526,394

Goodwill

1,202,592


1,223,291

Investment in unconsolidated subsidiaries

802,184


689,354

Operating lease right-of-use assets

123,859


124,726

Other assets

42,653


47,400

Deferred income taxes

14,532


14,394


$  5,377,779


$     5,345,258

LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:





Current portion of long-term debt

$       86,397


$          90,996


Accounts payable, principally trade

211,596


239,252


Income taxes payable

8,593


8,895


Current operating lease liabilities

37,472


37,805


Accrued expenses

307,688


311,391


              Total current liabilities

651,746


688,339

Long-term debt, net of current portion

1,664,858


1,558,429

Long-term operating lease liabilities

91,250


91,424

Other noncurrent liabilities

111,145


115,785

Deferred income taxes

250,338


247,931


              Total liabilities

2,769,337


2,701,908

Commitments and contingencies




Total Darling's stockholders' equity

2,543,565


2,565,819

Noncontrolling interests

64,877


77,531


              Total stockholders' equity

$  2,608,442


$     2,643,350



$  5,377,779


$     5,345,258

 

Darling Ingredients Inc. and Subsidiaries
Consolidated Operating Results
For the Periods Ended March 28, 2020 and March 30, 2019

(in thousands, except per share data)




(First Quarter Unaudited)



Three Months Ended







$ Change



March 28,


March 30,


Favorable



2020


2019


(Unfavorable)

Net sales

$ 852,842


$ 835,104


$             17,738

Costs and expenses:







Cost of sales and operating expenses

646,908


650,913


4,005


Loss (gain) on sale of assets

61


(4,250)


(4,311)


Selling, general and administrative expenses

96,193


85,003


(11,190)


Depreciation and amortization

84,671


79,164


(5,507)

Total costs and expenses

827,833


810,830


(17,003)


Equity in net income of Diamond Green Diesel

97,820


24,277


73,543

Operating income

122,829


48,551


74,278

Other expense:







Interest expense

(19,090)


(19,876)


786


Foreign currency gain/(loss)

1,664


(732)


2,396


Other income (expense), net

(1,881)


(2,525)


644

Total other expense

(19,307)


(23,133)


3,826

Equity in net income/(loss) 






    of unconsolidated subsidiaries

869


(504)


1,373

Income before income taxes

104,391


24,914


79,477

Income tax expense

18,300


5,274


(13,026)

Net income

86,091


19,640


66,451

Net income attributable to







noncontrolling interests

(581)


(1,628)


1,047

Net income attributable to Darling

$   85,510


$   18,012


$             67,498








Basic income per share:

$       0.52


$       0.11


$                 0.41

Diluted income per share:

$       0.51


$       0.11


$                 0.40








Number of diluted common shares:

167,927


168,660



 

Darling Ingredients Inc. and Subsidiaries
     Consolidated Statement of Cash Flows
Periods Ended March 28, 2020 and March 30, 2019
(in thousands)
(unaudited)






Three Months Ended





March 28,


March 30,

Cash flows from operating activities:

2020


2019


Net income

$     86,091


$     19,640


Adjustments to reconcile net income to net cash provided by operating activities:






Depreciation and amortization

84,671


79,164



Loss/(gain) on disposal of property, plant, equipment and other assets

61


(4,250)



Gain on insurance proceeds from insurance settlement

-


(845)



Deferred taxes

6,377


(2,901)



Increase (decrease) in long-term pension liability

(264)


646



Stock-based compensation expense

10,818


10,327



Write-off deferred loan costs

-


27



Deferred loan cost amortization

1,416


1,574



Equity in net income of Diamond Green Diesel and other unconsolidated subsidiaries

(98,689)


(23,773)



Changes in operating assets and liabilities, net of effects from acquisitions:






     Accounts receivable

487


11,692



     Income taxes refundable/payable

348


7,270



     Inventories and prepaid expenses

(24,999)


(5,063)



     Accounts payable and accrued expenses

(16,790)


(43,016)



     Other

(14,981)


(1,891)




Net cash provided by operating activities

34,546


48,601

Cash flows from investing activities:





Capital expenditures

(61,599)


(84,269)


Acquisitions, net of cash acquired

-


(1,431)


Gross proceeds from disposal of property, plant and equipment and other assets

379


7,868


Proceeds from insurance settlement

-


845


Payments related to routes and other intangibles

(3,416)


(2,778)




Net cash used by investing activities

(64,636)


(79,765)

Cash flows from financing activities:





Proceeds from long-term debt

8,264


2,138


Payments on long-term debt

(8,638)


(10,974)


Borrowings from revolving credit facility

219,933


156,829


Payments on revolving credit facility

(100,782)


(138,147)


Net cash overdraft financing

(9,594)


14,525


Issuance of common stock

67


12


Repurchase of common stock

(55,044)


-


Minimum withholding taxes paid on stock awards

(4,328)


(3,190)


Acquisition of noncontrolling interest

(8,784)


-


Distributions to noncontrolling interests

(688)


-




Net cash provided by financing activities

40,406


21,193

Effect of exchange rate changes on cash flows

(6,916)


(1,575)

Net increase/(decrease) in cash, cash equivalents and restricted cash

3,400


(11,546)

Cash, cash equivalents and restricted cash at beginning of year

73,045


107,369

Cash, cash equivalents and restricted cash at end of period

$     76,445


$     95,823

Supplemental disclosure of cash flow information:





Accrued capital expenditures

$      (1,630)


$      (8,623)


Cash paid during the period for:






Interest, net of capitalized interest

$        5,863


$     21,602



Income taxes, net of refunds

$     11,453


$        2,894


Non-cash operating activities:






Operating lease right of use obtained in exchange for new lease liabilities

$        9,121


$        4,794


Non-cash financing activities:






Debt issued for service contract assets

$               21


$                    -

 

Diamond Green Diesel Joint Venture
Condensed Consolidated Balance Sheets
March 31, 2020 and December 31, 2019

(in thousands)






March  31,


December  31,





2020


2019

Assets:



 (unaudited) 




Total current assets


$        821,602


$       668,026


Property, plant and equipment, net


779,961


713,489


Other assets


30,446


30,710



Total assets


$     1,632,009


$    1,412,225








Liabilities and members' equity:






Total current portion of long term debt


$               496


$              341


Total other current liabilities


70,758


75,802


Total long term debt


8,936


8,742


Total other long term liabilities


4,273


4,422


Total members' equity


1,547,546


1,322,918



Total liabilities and members' equity


$     1,632,009


$    1,412,225

 

Diamond Green Diesel Joint Venture
Operating Financial Results
Three Months Ended March 31, 2020 and March 31, 2019

(in thousands)





(First Quarter Unaudited)




Three Months Ended








$ Change




March 31,


March 31,


Favorable

Revenues:

2020


2019


(Unfavorable)


Operating revenues

$        358,615


$        302,718


$          55,897

Expenses:







Total costs and expenses less








depreciation, amortization and accretion expense

151,347


243,063


91,716


Depreciation, amortization and

11,774


11,418


(356)



accretion expense





 ` 

Total costs and expenses

163,121


254,481


91,360


Operating income 

195,494


48,237


147,257

Other income

461


641


(180)



Interest and debt expense, net

(315)


(324)


9



Net income 

$        195,640


$          48,554


$        147,086

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 months ended March 28, 2020 and March 30, 2019




Three Months Ended

Adjusted EBITDA 

March 28,


March 30,

(U.S. dollars in thousands)

2020


2019






Net income attributable to Darling

$           85,510


$               18,012

Depreciation and amortization

84,671


79,164

Interest expense

19,090


19,876

Income tax expense

18,300


5,274

Foreign currency loss/(gain)

(1,664)


732

Other expense, net

1,881


2,525

Equity in net (income) of Diamond Green Diesel

(97,820)


(24,277)

Equity in net (income)/loss of unconsolidated subsidiaries

(869)


504

Net income attributable to noncontrolling interests

581


1,628


Adjusted EBITDA (Non-GAAP)

$         109,680


$               103,438

Foreign currency exchange impact 

2,158

(1)

-


 Pro forma Adjusted EBITDA to Foreign Currency (Non-GAAP)

$         111,838


$               103,438

DGD Joint Venture Adjusted EBITDA (Darling's Share)

$         103,634


$                 29,828






Darling plus Darling's share of DGD Joint Venture Adjusted EBITDA 

$         213,314


$               133,266






(1) The average rate assumption used in this calculation was the actual fiscal average rate for the three months ended March 28, 2020 of €1.00:USD$1.10 and CAD$1.00:USD$0.75, as compared to the average rate for the three months ended March 30, 2019 of  €1.00:USD$1.14 and CAD$1.00:USD$0.75, respectively.

About Darling

Darling Ingredients Inc. is a global developer and producer of sustainable natural ingredients from edible and inedible bio-nutrients, creating a wide range of ingredients and specialty solutions for customers in the pharmaceutical, food, pet food, feed, technical, fuel, bioenergy, and fertilizer industries.  With operations on five continents, the Company collects and transforms all aspects of animal by-product streams into useable and specialty ingredients, such as collagen, edible fats, feed-grade fats, animal proteins and meals, plasma, pet food ingredients, organic fertilizers, yellow grease, fuel feedstocks, green energy, natural casings and hides.  The Company also recovers and converts recycled oils (used cooking oil and animal fats) into valuable feed and fuel ingredients and collects and processes residual bakery products into feed ingredients. In addition, the Company provides environmental services, such as grease trap collection and disposal services to food service establishments. The Company sells its products domestically and internationally and operates within three industry segments: Feed Ingredients, Food Ingredients and Fuel Ingredients. For additional information, visit the Company's website at http://www.darlingii.com.

Darling Ingredients Inc. will host a conference call to discuss the Company's first quarter 2020 financial results at 8:30 am Eastern Time (7:30 am Central Time) on Thursday, May 7, 2020.  To listen to the conference call, participants calling from within North America should dial 1-844-868-8847; international participants should dial 1-412-317-6593.  Please refer to access code 10142656.  Please call approximately ten minutes before the start of the call to ensure that you are connected.

The call will also be available as a live audio webcast that can be accessed on the Company website at http://ir.darlingii.com. Beginning one hour after its completion, a replay of the call can be accessed through May 14, 2020, by dialing 1-877-344-7529 (U.S. callers), 1-855-669-9658 (Canada) and 1-412-317-0088 (international callers).  The access code for the replay is 10142656.  The conference call will also be archived on the Company's website.

Use of Non-GAAP Financial Measures:

Adjusted EBITDA is not a recognized accounting measurement under GAAP; it should not be considered as an alternative to net income, as a measure of operating results, or as an alternative to cash flow as a measure of liquidity and is not intended to be a presentation in accordance with GAAP.  Adjusted EBITDA is presented here not as an alternative to net income, but rather as a measure of the Company's operating performance. Since EBITDA (generally, net income plus interest expenses, taxes, depreciation and amortization) is not calculated identically by all companies, this presentation may not be comparable to EBITDA or Adjusted EBITDA presentations disclosed by other companies. Adjusted EBITDA is calculated in this presentation and represents, for any relevant period, net income/(loss) plus depreciation and amortization, goodwill and long-lived asset impairment, interest expense, (income)/loss from discontinued operations, net of tax, income tax provision, other income/(expense) and equity in net loss of unconsolidated subsidiary. Management believes that Adjusted EBITDA is useful in evaluating the Company's operating performance compared to that of other companies in its industry because the calculation of Adjusted EBITDA generally eliminates the effects of financing, income taxes and certain non-cash and other items that may vary for different companies for reasons unrelated to overall operating performance.

As a result, the Company's management uses Adjusted EBITDA as a measure to evaluate performance and for other discretionary purposes. In addition to the foregoing, management also uses or will use Adjusted EBITDA to measure compliance with certain financial covenants under the Company's Senior Secured Credit Facilities and 5.25% Notes and 3.625% Notes that were outstanding at March 28, 2020. However, the amounts shown in this presentation for Adjusted EBITDA differ from the amounts calculated under similarly titled definitions in the Company's Senior Secured Credit Facilities and 5.25% Notes and 3.625% Notes, as those definitions permit further adjustments to reflect certain other non-recurring costs, non-cash charges and cash dividends from the DGD Joint Venture. Additionally, the Company evaluates the impact of foreign exchange impact on operating cash flow, which is defined as segment operating income (loss) plus depreciation and amortization.

Cautionary Statements Regarding Forward-Looking Information:

{This media release contains "forward-looking" statements regarding the business operations and prospects of Darling Ingredients Inc. and industry factors affecting it. These statements are identified by words such as "believe," "anticipate," "expect," "estimate," "intend," "could," "may," "will," "should," "planned," "potential," "continue," "momentum," and other words referring to events that may occur in the future.  These statements reflect Darling Ingredient's current view of future events and are based on its assessment of, and are subject to, a variety of risks and uncertainties beyond its control, each of which could cause actual results to differ materially from those indicated in the forward-looking statements.  These factors include, among others, existing and unknown future limitations on the ability of the Company's direct and indirect subsidiaries to make their cash flow available to the Company for payments on the Company's indebtedness or other purposes; global demands for bio-fuels and grain and oilseed commodities, which have exhibited volatility, and can impact the cost of feed for cattle, hogs and poultry, thus affecting available rendering feedstock and selling prices for the Company's products; reductions in raw material volumes available to the Company due to weak margins in the meat production industry as a result of higher feed costs, reduced consumer demand or other factors, reduced volume from food service establishments, or otherwise; reduced demand for animal feed; reduced finished product prices, including a decline in fat and used cooking oil finished product prices; changes to worldwide government policies relating to renewable fuels and greenhouse gas("GHG") emissions that adversely affect programs like the U.S. government's renewable fuel standard, low carbon fuel standards ("LCFS") and tax credits for biofuels both in the United States and abroad; possible product recall resulting from developments relating to the discovery of unauthorized adulterations to food or food additives; the occurrence of 2009 H1N1 flu (initially known as "Swine Flu"), Highly pathogenic strains of avian influenza (collectively known as "Bird Flu"), severe acute respiratory syndrome ("SARS"), bovine spongiform encephalopathy (or "BSE"), porcine epidemic diarrhea ("PED") or other diseases associated with animal origin in the United States or elsewhere, such as the outbreak of African Swine Fever ("ASF") in China and elsewhere; the occurrence of pandemics, epidemics or disease outbreaks, such as the current COVID-19 outbreak; unanticipated costs and/or reductions in raw material volumes related to the Company's compliance with the existing or unforeseen new U.S. or foreign (including, without limitation, China) regulations (including new or modified animal feed, Bird Flu, SARS, PED, BSE, ASF or similar or unanticipated regulations) affecting the industries in which the Company operates or its value added products; risks associated with the DGD Joint Venture, including possible unanticipated operating disruptions and issues relating to the announced expansion project; risks and uncertainties relating to international sales and operations, including imposition of tariffs, quotas, trade barriers and other trade protections imposed by foreign countries; difficulties or a significant disruption in our information systems or failure to implement new systems and software successfully,  risks relating to possible third party claims of intellectual property infringement; increased contributions to the Company's pension and benefit plans, including multiemployer and employer-sponsored defined benefit pension plans as required by legislation, regulation or other applicable U.S. or foreign law or resulting from a U.S. mass withdrawal event; bad debt write-offs; loss of or failure to obtain necessary permits and registrations; continued or escalated conflict in the Middle East, North Korea, Ukraine or elsewhere; uncertainty regarding the exit of the U.K. from the European Union; and/or unfavorable export or import markets. These factors, coupled with volatile prices for natural gas and diesel fuel, climate conditions, currency exchange fluctuations, general performance of the U.S. and global economies, disturbances in world financial, credit, commodities and stock markets, and any decline in consumer confidence and discretionary spending, including the inability of consumers and companies to obtain credit due to lack of liquidity in the financial markets, among others, could cause actual results to vary materially from the forward looking statements included in this release or negatively impact the Company's results of operations. Among other things, future profitability may be affected by the Company's ability to grow its business, which faces competition from companies that may have substantially greater resources than the Company. The Company's announced share repurchase program may be suspended or discontinued at any time and purchases of shares under the program are subject to market conditions and other factors, which are likely to change from time to time. Other risks and uncertainties regarding Darling Ingredients Inc., its business and the industries in which it operates are referenced from time to time in the Company's filings with the Securities and Exchange Commission.  Darling Ingredients Inc. is under no obligation to (and expressly disclaims any such obligation to) update or alter its forward-looking statements whether as a result of new information, future events or otherwise.}

For More Information, contact:


Jim Stark, Vice President, Investor Relations

Email : james.stark@darlingii.com

5601 MacArthur Blvd., Irving, Texas 75038 

Phone : 972-281-4823

 

Cision

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SOURCE Darling Ingredients Inc.