Darling Ingredients Inc Q3 2024 Earnings Call Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Tom Palmer - Citigroup, Inc. - Analyst : Thanks for the color on 2025, just starting out, but maybe we could touch first on kind of the implied outlook as we think about the fourth quarter, it does imply a pretty meaningful improvement versus what we saw in the third quarter. So maybe could we touch on some of the items that you see driving that inflection as we look at the fourth quarter? Because it would seem like we're getting close to that $1.5 billion into a run rate in the fourth quarter just based on the implied guidance.

Question: Tom Palmer - Citigroup, Inc. - Analyst : I wanted to follow up quickly just on the food segment, it sounded like some of the issues that we saw in terms of 3Q were more transitory and then some maybe as the competitive environment has changed a little bit. So maybe as we think through the coming year, you do have this, the new products rolling out. And I guess to what extent does that offset the competitive environment? Do you think we've kind of seen the full magnitude of some of the capacity coming online. And so from here at least stable to better would be the expectation?

Question: Paul Cheng - Bank of Nova Scotia - Analyst : Maybe this is for Brad. Brad, any idea that how the 2025 CapEx outlook? And also that you guys have been great success on the cost reduction. Could you give us some idea that how much left in the fourth quarter and also into 2025? That's the first question.

Question: Paul Cheng - Bank of Nova Scotia - Analyst : And also cost reduction.

Question: Paul Cheng - Bank of Nova Scotia - Analyst : And on the Food Ingredient business, you mentioned that still you are seeing some supply increase and you're seeing customer around the world destocking. Do you think that that's coming to an end? In other words, that other than the one that is supposed to be coming on stream, do you expect additional more facility or new supply going to come on stream? And whether that when you talk to your customers, what is the destocking because you've been going on for literally for a year on the destocking. I mean how much lower that you can get?

Question: Paul Cheng - Bank of Nova Scotia - Analyst : How about on the supply increase?

Question: Paul Cheng - Bank of Nova Scotia - Analyst : How about the supply increase, the new capacity increase?

Question: Dushyant Ailani - Jefferies Financial Group, Inc. - Analyst : One on SAF, just real quick. Could you share some color on your sales book? I know that you guys have announced some orders. Maybe could you share how much has been contracted thus far besides what you have announced? And maybe do you have a target split between contracted and spot, if any?

Question: Dushyant Ailani - Jefferies Financial Group, Inc. - Analyst : Awesome. And then just a follow-up on just your like debt targets going forward with a constructive kind of feedback that you guys have or all the constructive picture that you guys have painted for 2025. How do you think about your debt targets, especially as you have some maturities coming in, in 2026. Maybe it's too early to talk about it, but if you have any thoughts there?

Question: Heather Jones - Heather Jones Research - Analyst : Randy, you mentioned that you expect to have visibility on 45Z soon. And some of the conferences I've gone through lately and just people have talked to, there seems to be a very low expectation of having any visibility on that this year. So I was just wondering if you could share with us what is underpinning your confidence that we'll get that soon.

Question: Heather Jones - Heather Jones Research - Analyst : And when you say spillover into '25, like are you expecting the visibility to come in stages?

Question: Heather Jones - Heather Jones Research - Analyst : Okay. And then my second question was on Diamond Green. So looking at margins and I live the feedstock, et cetera. There has been a significant improvement in margins. But going from your Q3 to what seems to be implied in your Q4, I'm not seeing that kind of step up. So I was just wondering, was Q3 affected by any high-priced feedstocks that you had locked in or something like that? Just given that you're not embedding fast in those numbers, just wondering if you could help us understand why we're going to get such a big step-up in Diamond Green.

Question: Manav Gupta - UBS Group AG - Analyst : So as we are looking at the RIN prices, they are rebounding. LCS is also rebounding, which could be because of the November 8 meeting. But the way the RIN prices are rebounding, it seems that some low-quality biodiesel or renewable diesel production has already started to shut down. So I just wanted to understand if you are seeing that. And do you think this trend accelerates, once we go from BTC to PTC that some of the lower-quality nonprofitable BDRD production might continue to shut down in 2025.

Question: Manav Gupta - UBS Group AG - Analyst : Perfect. My quick follow-up here is, historically, the Feed segment margins could go in that 23% to 25% range. You're trending around that 21%. So any margin enhancement opportunities in 2025 as they relate to the Feed segment.

Question: John Royall - JPMorgan Chase & Co. - Analyst : So I was hoping you could update us on your expectations around the per gallon profitability uplift from running staff versus RD at DGD. And then what's baked into your $1.5 billion soft guide for '25 in terms of the contraction from SAF?

Question: John Royall - JPMorgan Chase & Co. - Analyst : Okay. And then I was thinking you could dig in a little bit on the imports you discussed that are dragging a bit on fat pricing relative to your expectations. Just any more color there? And do you expect that to continue? Or is that more of a transitory impact.

Question: John Royall - JPMorgan Chase & Co. - Analyst : I believe the comment was on fats in your opener, but correct me if I'm wrong.

Question: Andrew Strelzik - BMO Captal Markets - Analyst : Just first one, I just wanted to clarify your comments or take another stab at that around the framework for 2025. And does that $1.5 billion that you articulated include a SAF uplift? I guess it doesn't really sound like it since it's the run rate that's implied for the fourth quarter? And is there an assumption on tax credits and how that's going to shake out?

Question: Andrew Strelzik - BMO Captal Markets - Analyst : Got it. Okay. That's very clear. And then my other question, you've talked about RD margins having improved a little bit. Certainly, you've got the SAF tailwind for next year. But one of the things that we struggle with is kind of the capture rate relative to paper margins, which, by our math, keep kind of moderating. And so I guess maybe my math is wrong, but I guess what I'm asking is, is there something in the recent or current market environment that is limiting the ability to capture those paper margins or maybe on the flip side as we go into kind of a more favorable environment, is there the ability to increase that capture rate on kind of the base DGD margins going forward?

Question: Matthew Blair - Tudor Pickering Holt & Co LLC - Analyst : Could you talk a little bit about the market for RD exports? European RD margins are moving up in October here, and the British Columbia LCFS pricing has really rebounded after some pretty weak numbers in July. Would you expect that RD exports to be a source of improvement in the fourth quarter versus the third quarter?

Question: Matthew Blair - Tudor Pickering Holt & Co LLC - Analyst : Sounds good. And then I know your feedstock slate on the RD side is typically 1/3 fats, 1/3 corn oil, 1/3 used cooking oil, was there any feedstock switching in the third quarter? There were certain points during the quarter where it looked like RD from soybean oil actually was pretty attractive due to cheap soybean oil prices. So was there any unusual or atypical feedstock movements for DGD in the third quarter?

Question: Ryan Todd - Simmons Energy Services Inc - Analyst : Maybe a follow-up on the on the base business side, in particular, the Feed business. In the third quarter, with the base business right now running at a run rate of around $850 million in annual EBITDA. I know you've typically talked about that as kind of $1 billion a year business. And the 4Q and 2025 guide certainly seem to suggest that kind of improvement. So maybe how much improvement do you, are baked in that 4Q number? And to get back to the $1 billion level, I mean, based on your sensitivities, there's probably another $0.12 to $0.13 improvement in fat pricing. So what have you seen quarter-to-date that gives you confidence on kind of getting to those levels because it seems a little more than what we can see on the screen right now.

Question: Ryan Todd - Simmons Energy Services Inc - Analyst : And then maybe a follow-up on the SAF side. Any thoughts at a high level in terms of how you expect the European market to figure into things? Do you look at the European market as a potentially higher margin destination for your product as you think about kind of export versus domestic demand looking into 2025 and thoughts on maybe like relative supply/demand into that market?

Question: Ben Kallo - Robert W. Baird & Co. Incorporated - Analyst : Just on next year like possibility of shuttering capacity. Could you just talk about any kind of dynamics you think that people would run even at a loss in the marketplace? And then I have a follow-up question. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 24, 2024 / 2:00PM, DAR.N - Q3 2024 Darling Ingredients Inc Earnings Call

Question: Ben Kallo - Robert W. Baird & Co. Incorporated - Analyst : Just on the SAF front, we saw like loan guarantees, I think, announced and different pathways for SAF. How do you envision the market evolving? Do you think we're going to be in a period of where we get to oversupply? Or what keeps us out of that?

Question: Jason Gabelman - TD Cowen - Analyst : I'll just ask one since we're at the top of the hour. It looks like DGG's distribution outpaced the earnings from the company and the implied cash generation. Can you just talk about that dynamic? And there's a change of distribution policy there?

Question: Jason Gabelman - TD Cowen - Analyst : That BTC catch-up is now complete, though?