On Thursday, Darling Ingredients (NYSE:DAR) discussed first-quarter financial results during its earnings call. The full transcript is provided below.
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The full earnings call is available at https://events.q4inc.com/attendee/712936517
Summary
Darling Ingredients reported a strong first quarter 2026 with a combined adjusted EBITDA of $406.8 million, significantly up from $196 million in the same quarter of 2025.
The company highlighted improved operational excellence and margin expansion, particularly in its core ingredients and feed segments, with a focus on cost reduction and commercial agility.
Future outlook is positive with expectations of continued earnings growth, stronger cash flow, and debt reduction, supported by favorable regulatory changes and increased renewable diesel demand.
Operational highlights include strong performance in the Global Ingredients and Diamond Green Diesel segments, with the latter seeing improved margins due to increased renewable volume obligations.
Management emphasized the strategic focus on capital allocation, operational efficiency, and market agility, expecting tailwinds from higher fat prices and improved regulatory frameworks to benefit performance in 2026.
Full Transcript
OPERATOR
Good morning and welcome to the Darling Ingredients Inc. Conference call to discuss the first quarter 2026 financial results. After the Speaker’s prepared remarks, there will be a question and answer period and instructions to ask a question will be given at that time. Today’s call is being recorded. I would now like to turn the call over to Ms. Sue Ann Guthrie, Senior Vice President of Investor Relations. Please go.
Sue Ann Guthrie (Senior Vice President of Investor Relations)
Thank you for joining the Darling Ingredients first quarter 2026 earnings call. Here with me today are Mr. Randall C. Stewey, Chairman and Chief Executive Officer and Mr. Bob Day, Chief Financial Officer. Our first quarter 2026 earnings news release and slide presentation are available on the Investor page of our corporate website and will be joined by a transcript of this call once it is available. During this call we will be making forward looking statements which are predictions, projections or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors discussed in today’s press release and the comments made during this conference call and in the Risk Factors section of our Form 10K, 10Q and other reported filings with the securities and Exchange Commission. We do not undertake any duty to update any forward looking statement. Now I will hand the call over to Randy.
Randall C. Stewey (Chairman and Chief Executive Officer)
Thanks Sue Ann. Good morning everyone and thanks for joining us. Over the last few years, public policy, uncertainty and deflationary and volatile commodity markets created a challenging operating environment. During that time, Darling Ingredients remained laser focused on controlling what we could control. We prioritized operational excellence and maintained strict disciplined capital allocation with a goal to achieve a meaningful debt reduction. Headwinds have now shifted and the results we share today confirm a much more favorable operating environment. We are moving forward with significantly improved earnings power, stronger cash flow potential and a more robust foundation for long term value creation. For the first quarter of 2026 we saw the operating environment allow for expected EBITDA growth and sequential gross margin improvement. Darling’s core ingredients business really delivered this quarter with improved global operations margin expansion and focused commercial execution. Combined adjusted EBITDA for first quarter was 406.8 million including 255.6 million from our Global Ingredients business and 151.2 million from Diamond Green Diesel. Our feed ingredients segment had a fantastic quarter. We saw steady volumes with a strong global poultry volumes offsetting stagnant North American cattle herd. Operational excellence remained a key focus this quarter driving improvements in throughput, cost reduction and product quality that translated into stronger gross margins. At the same time, our Commercial agility allowed us to pivot sales to higher priced markets while fat prices were softer earlier in the quarter. Our disciplined risk management approach combined with spot sales helped us mitigate the typical lag impacts we would see in that environment. The renewable volume obligation announced at the end of March has been extremely constructive for Darling and dgd. We are already seeing a favorable movement on fat prices as renewable diesel demand grows. DGD overcame a shutdown at Port Arthur that briefly interrupted our supply chain. As those dynamics continue to play out, we anticipate this to be a nice tailwind for our feed segment for the remainder of 2026. Turning to our food segment, we’re seeing nice growth in collagen, particularly in Europe and Asia. Sales in both collagen and gelatin improved year over year, reflecting not only increased customer demand, but new applications for collagen and food, nutrition and health products. Our Next Tita glucose control product is currently pending a patent in both in the US for production processes and the use of Next Tita as a dietary supplement ingredient offering a non pharmaceutical option targeting lower blood glucose. With an interest in food as medicine and increased demand for protein, collagen continues to be positioned well for growth. Now, as you can see in our results, our fuel segment is at an inflection point as renewables margins turned a corner. With finalization of the renewable volume Obligation, with a very constructive RVO and now a clear path forward, we expect DGD’s results to continue to strengthen throughout the year. Diamond Green Diesel delivered a strong quarter with 151.2 million of EBITDA or around $1.11 EBITDA per gallon. Our Non DGD green energy businesses continue to deliver stable earnings. We’ll have the opportunity for a slight tailwind due to increased energy prices in Europe. Now with that, I’d like to hand the call over to Bob to take us through some financials. Then I’ll come back and discuss my thoughts on the second quarter. Mom.
Bob Day (Chief Financial Officer)
Thank you, Randy. Good morning everyone. As Randy said, first quarter was very strong across all measures and the Darling platform is poised to move forward with significantly improved earnings. Power for the quarter, Combined adjusted EBITDA was 407 million versus 196 million in first quarter 2025 and 336 million last quarter. Core ingredients Non DGD improved both year over year and sequentially for first quarter 2026 core ingredients EBITDA was 256 million versus 190 million in first quarter 2025 and 278 million last quarter. Total net sales were 1.6 billion versus 1.4 billion. Raw material volume was 3.8 million metric tons, essentially unchanged. Meanwhile, gross margins for the quarter improved to 26.1% compared to 22.6% in the first quarter last year and from 25.1% last quarter. Looking at the feed segment for the quarter, EBITDA improved to 169 million from 111 million a year ago, while total sales were 985 million versus 896 million and raw material volume was flat at approximately 3.1 million metric tons. Gross margins relative to sales improved nicely to 25.3% in the first quarter versus 20.3% in the first quarter from last year and 24.6% in the fourth quarter of 2025. In the Food segment, total sales for the quarter were 405 million compared to 349 million in the first quarter of 2025. Gross margins for the Food segment were 28.9% of sales compared to 29.3% a year ago and raw material volumes were flat at around 330,000 metric tons compared to the same time last year. EBITDA for first quarter 2026 was 81 million versus 71 million in first quarter of 2025 in the fuel segment, starting with Diamond Green Diesel, Darling’s share of DGD EBITDA for The quarter was 151 million, which includes a favorable LCM inventory valuation adjustment of 97 million at the DGD entity level and sales of around 272 million gallons, an average EBITDA margin of 111 per gallon. Darling contributed approximately $190 million to DGD during the quarter, mainly to provide short term working capital, most or all of which is expected to be returned in subsequent quarters. In addition, during the quarter darling monetized 45 million in production tax credit sales, the proceeds of which will be paid in the coming quarters. Other fuel segment sales not including DGD were 160 million for the quarter versus 135 million in 2025 on strong energy and biogas prices in Europe and relatively flat volumes of around 370,000 metric tons combined. Adjusted EBITDA for the full fuel segment including DGD was roughly 180 million for the quarter versus 24 million in the first quarter of 2025. As of quarter end, total debt net of cash was approximately 4 billion versus 3.8 billion ending fourth quarter 2025. The increase in debt results from contributions to DGD mentioned earlier and timing of production tax credit payments, some of which will come in the second quarter. Capital expenditures totaled 95 million in the quarter. Our bank covenant preliminary leverage ratio was 3.17 times as of quarter end versus 2.9 times at year end 2025. In addition, we ended the quarter with approximately $1.1 billion available on our revolving credit facility. We recorded an income tax expense of $38.6 million for the quarter, yielding an effective tax rate of 22%. That rate, excluding the impact of the production tax credit and discrete items was 32% and we paid 20.5 million in income taxes in the first quarter. For 2026, we expect the effective tax rate to be around 25% and cash taxes of approximately 60 million for the remainder of the year. Overall net income was approximately 134 million for the quarter or $0.83 per diluted share, compared to a net loss of 26 million or negative $0.16 per diluted share for the first quarter of 2025. Last quarter we mentioned that we have some assets held for sale that are not considered strategic for our business. Those asset sales continue to move forward but have not yet closed. Of those, we have signed an agreement to sell the majority of our grease trap environmental service assets. The sale is pending some permitting transfers which we expect to be completed in the next few months. We’ll have more to say about the TRAP and other businesses for sale at a later date. With that, I will turn the call back over to Randy.
Randall C. Stewey (Chairman and Chief Executive Officer)
Thanks, Bob. In closing, the progress we shared with you today reflects the discipline and focus we have maintained through a challenging cycle. By controlling what we could control, driving operational excellence, prioritizing capital and focusing on balance sheet strength, we positioned darling ingredients to emerge stronger. With improved but volatile market conditions and a much improved regulatory framework, we believe the company is entering its next phase with momentum that we expect to build as the year progresses. We believe that as the year progresses, we’ll drive improved earnings, stronger cash flow, additional debt reduction and long term value creation for our shareholders. Ultimately, our improved performance will once again provide the company with many opportunities. This confidence is reflected in our core ingredients ebitda guidance for Q2, which we are now setting at 260 to 275 million for the quarter. With that, we’ll go ahead and open it up to Q and A.
OPERATOR
Thank you. We will now begin the Q and A session. If you would like to ask a question, please press STAR followed by one on your telephone keypad. If you would like to remove that question Press star followed by two again. To ask a question, press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking a question. We will pause here briefly as questions are registered. Our first question comes from the line of Heather Jones with Heather Jones Research llc. Heather, your line is now open.
Heather Jones (Equity Analyst)
Good morning. Thank you for the question. I was just wondering on first of all, on Diamond Green, should we expect the hedging and LIFO losses? Do you expect that to reverse in Q2 or will that take longer throughout the year?
Bob Day (Chief Financial Officer)
Thanks, Heather. This is Bob. So we did realize a lower cost of market benefit in the first quarter. And you know, I think just to make sure everyone’s aware, in order to have the opportunity to realize the benefit and lower of cost of market, you have to have previously taken, taken a loss from that this quarter, that $97 million at the DGD entity level. That exhausts all available lower of cost or market. So going forward, as long as the business is profitable, we do not anticipate any lower of cost or market benefits. And so then to your question of LIFO, you know the LIFO will be based on an average cost paid for feedstock during the period. And as the average price increases, if it increases then then we would realize a LIFO loss that is embedded inside of the results. If feedstock prices on average decrease, then there would be a LIFO gain. So really the answer to your question depends on your view of feedstock prices as the average cost of feedstocks paid and the period in question relative to the period prior. What about on the hedging side? Yeah, yeah. So hedges, I guess what I can say about that is at DGD we do hedge, we’re very disciplined about hedging. There is some flexibility in terms of which instruments we use to hedge our risk and we don’t disclose that for competitive reasons. I think what you can point to this quarter is that clearly we had a significant increase during the period in heating oil futures and crude oil futures in soybean oil,, whatever instrument you’re looking at. And you know, we managed to absorb the cost of whatever hedges we had and still put out a very positive result. And you know, I think it just, it just speaks to the risk management capabilities of the business.
Heather Jones (Equity Analyst)
Okay. And then my follow up is just given the volatility we’re seeing in the energy markets and the feedstock markets, this question seems pretty particularly relevant. So was wondering if you could update us on how we should be thinking about the LAGS in your model, both like, both Core Darling and Diamond Green. I remember at one point it was more like 30 to 60 days, and then I think it increased to 60 to 90. But if you could just update us on how we should be thinking about that.
Randall C. Stewey (Chairman and Chief Executive Officer)
Yeah. Heather, this is Randy. So clearly you’ve kind of framed it pretty well. I mean, what we saw in Q1, remember as we came out of Q4, if, remember we had forward sales into DGD getting ready to run full, that were put on in October as we anticipated the rvo. And then we saw prices softening as the RVO kept getting kind of delayed and delayed. And so ultimately, as we came into Q1, cash prices fob, most of the North American factories were actually flat or lower than Q4. Those have now accelerated. They started to accelerate really here in March. For us, that’ll start to flow through very nicely in Q2. When we look at our global rendering business, what we’ve seen is that the tariffs have impacted Brazil pretty sharply. We’ve had to adjust all of our formulaic or our pricing models down there. What we procure raw material from, that takes 30 to 60 days. So I think we’ve righted that now. So overall, the ingredients business will have a stronger Q2. How much of the acceleration in prices flow through that would be reflected in our kind of our conservative approach to guidance there. Remember, as I was telling the team here, this is the first call we’ve done where we haven’t ever seen, period, one of the next quarter. And we won’t see those numbers here for another week or two, week and a half. And ultimately, so really, we’re looking at basically a March run rate and extrapolating that with some improvement. And so you’ll see that conversely, as DGD has done a very nice job of getting out in front of this. I mean, we’ve had a strong bias that feedstock prices would accelerate once the industry wakes up. And so, you know, that should flow through and much better margins in DGD as we go through Q2 and through the balance of the year.
OPERATOR
Thank you. Our next question comes from the line of Tom Palmer with JP Morgan. Tom, your line is now open.
Tom Palmer (Equity Analyst)
Sorry, was on mute. Good. Hi, it’s Tom. Morning, and thanks for the question. Maybe start out with an industry question, especially when we, I think, think about the biofuel side. There’s probably a good amount of idle capacity. I wonder what you think the US Biofuels industry is. Is capable of producing currently, and then once kind of it fully Ramps and whether that’s going to be enough to kind of fulfill …
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