DAR - Earnings call transcript Q4 2017 | Darling Ingredients Inc.

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Operator

Good morning, everyone, and welcome to the Darling Ingredients Inc. Conference Call to discuss the company's Fourth Quarter and Year-End 2017 Financial Results. With us today are Randall Stuewe, Chairman and Chief Executive Officer of Darling Ingredients; and Brad Phillips, Executive Vice President and Chief Financial Officer. After the speaker's opening remarks, there will be a question-and-answer period and instructions will be given at that time. Today's call is being recorded. to of conference Communications Investor Ingredients. like Gaither, to for would President Vice Relations now turn over the Melissa Darling I and Global go Please ahead.

Melissa A. Gaither

our slide Randall us Financial and Thank the the call of discuss of for our presentations our refer focusing CEO IR some augment release overview and year-end Stuewe, December measures our will details you additional morning, Officer Vice management's Keith. business. financial and ended will on quarter trends Darling GAAP website everyone, in section will the both year financial Executive earnings impacting XXXX. our you, then for Please disclosure earnings of provide fourth Good performances fourth presentation. full and slide our see quarter the joining and for of to XX, Brad today's to fiscal results earnings our formal about discuss and Ingredients please presentation. Chief year-over-year thank Chairman results. the earnings begin To U.S. an presentation, and comparisons non-GAAP Phillips, operational President and with

year will remarks questions. Finally, the with After general of and prepared about be we ahead. the the the Randy some which, happy to business your call portion conclude will answer

recent forward-looking and for XX, Safe release results the that operations. Report on our the XX-K subject uncertainties anticipated is Many opportunities regarding of announced This these may filings mind and Harbor Annual Ingredients' conference yesterday, described statement. Darling is call press bear year to XXXX, are Now and in for projected. what Darling's Form and business from the our of materially and actual ending December information SEC. uncertainties with statements will differ contain the risks many forward-looking Please results risks in

call made and update current in we Forward-looking of the are take on beliefs, statements to duty this I'd forward-looking any call With like to or expectations statements conference otherwise. call turn Randy. any our based that, over not the this conference and in do to

Randall C. Stuewe

Thanks, Melissa. morning, for Thanks us. everyone. Good joining

begin, and his like I our well-deserved Officer. I'd Before welcome him Brad new congratulate Chief promotion on to Financial as Phillips

Darling XXXX company a has As many long culture, managed expertise, alongside with our our you and Brad back effort and for years intimately. to know, Investor has knows tenure has his He since our businesses role dating public proven Relations of our operations many XXXX. Treasury

retire we role CFO global our accounting, has while recall, streamlining responsible As HR, may management reorganized CFO Administrative roles Muse, Brad global Chief Officer, audit global internal opted you not tax. and treasury the and and to John veteran fill IT, for split and will global will be and the risk between our global XX-year integrating CAO for functions, and responsible

are We and strategy. leadership confident be contributions will execute the vital their individuals, of as long-term we growth both in our

Now, overall world performance. achievements, topping target off We strong for fourth operational marked our of turning XXXX and executed several with a on notable our strategy. financial to growth delivered quarter,

passed in legislation December. full from earnings significantly results $X.XX impact late year million reform benefit $XX tax benefited of a our net the quarter the reported, Fourth As share. of tax or reflect and a

financial our Brad's in a changes share million new $X.XX European about more laws going of little or tax detail provisions review. from a tax benefited also $XX.X share. you his We to during

operational of our and achievements let's XXXX. milestones some review most important Now, of

tax million Adding recorded blenders million Green to Diamond $X.XX system $XX.X tax total million credit. by credit. without or results. XXXX. raw additional our back of the grew American our entity X.X% delivered we gallon added without First, per blenders tax over an EBITDA North would Diesel the the EBITDA adjusted credit an volumes We have $XXX.X material $XX.X of

and we February, As million, retro noted, made we a spring. receiving have the claim this for which later $XXX.X submitted in anticipate BTC was

$X.XX or quarter BTC will likely of per share results first our the reflect most Our share. approximately

target sheet and to exceeding working from the loan We we our continued million million, borrowing balance debt-to-EBITDA year on utilization lowering to capital for Our maturity. improve lowered refinanced cost as XXXX. and X.XX $XX.X pay-downs and totaling X.XX the made in debt ratio million our fiscal extended improved $XXX XXXX. our We of net our term by $XXX.X B

and On expansions $XXX of strategy. our Food, our Fuel world funding new million the deployed across Feed, front, growth to we CapEx and segments support construction

You on call our earnings number can view projects of list this slide X.

China, rendering China. New demand company Jersey-based in cooking We remaining purchased We both interest business also in Recyclers in American called strong on Florida, completed capitalize our our to blood America for oil, and North for small Masters we By-Products Tallow a the and in small markets Medley, and services. products shareholders in minority a three acquisitions acquired used

a North deflationary American little turn raw while product saw X.X%, volumes. continued markets by and XXXX bit and slaughter performance. finished tonnage through by managed tonnage material with grew let's our consistent exceeding Now, delivered volumes X% segment strong Feed global pricing strong international We review on levels the segment margins.

prices duties feed-grade For also part Indonesian ingredients in biodiesel Argentine by California in weakened of the due prices strong to and supply fats imposed favorable demand year strong our improved, and anti-dumping was feedstocks. by Strengthened by on alternative low-carbon legislation protein the for during imports. biofuel supported and fat driven year,

specialty demand. continued Our proteins robust to see

wet and earnings. Our ran strong pet commissioned delivered XXXX two in plants projected food

a the stages in final planning We Cat Poland. new also (XX:XX:XX) Cat are of to X, plant in expansion X construction commence in

be is and quarter. plant our blood digester due online second in Our in Germany in January, to commissioned later came Belgium

protein the full facility. continues in to end coming black conversion later towards the anticipate first that be XXXX fly on online our soldier scale We construction Additionally, year. of

period the in in once and of North and EBITDA compared include gelatin On saw the segment segment, to China. and XXXX. a specially performance improved our the four-continent performance it Food Highlights (XX:XX:XX) America again strong consistent returns the strengthening throughout Rousselot, posted business,

than sales, which of tons Rousselot of sales XXX,XXX translates production year, growth metric During into XXXX. over X% more the than reached a record of more new

pricing For weak American XXXX, remain to – we be expect believe macroeconomic augmented are hide operations Headwinds currencies. and sales margins as we foreign South by hitting will market is stable. pricing gelatin and supply Peptan Rousselot and continue gelatin pressures ample pressures and to challenge that there strong,

business our also improved prices line CTH, edible the into carry Sonac, the palm earnings solid momentum results the and fats last business, business in strong expectations, with year, another couple stabilized during volumes of ending capitalized hog on pricing. were of again contraction and continued were as solid segment achieved casings company, our remained by in returns earnings strong during as the has XXXX once The business, blenders delivered Fuel back made demand. oil which has driven expected. consistent year of Chinese the natural and adding delivered quarters. performance million, the was Their with volumes tax global the when $XX.X XXXX. contribution disposal-rendering retro strong February XXXX, of Rendac, credit the supply. Throughout our very

Netherlands digester some at reduced continues Ecoson permitting resolve in issues. operating Our we until throughput the

HOBO Our fourth North improved the American results in XXXX, and recorded an Canadian with of pricing. biodiesel facilities in but and RIN spread improved most red quarter operated sequentially for

here it and to Ecoson of and new half under commissioning. complete during XXXX digester Denderleeuw, be the construction in Our (XX:XX:XX) begin as first will now is Belgium due

update a let's Green Diamond you little here. bit Now, on to turn like I'd Diamond to Green Diesel.

level well as adjusted Diamond would of or XXX.X gallons, million Green $XXX blenders EBITDA year, For on production per $X.XX tax EBITDA entity excluding benefit expectations. entity gallon million an and earned achieved the of an exceptionally in Green credit. Adding continues have DGD perform $XX.X our Operationally, the Diamond back of the to million. per the credit,

the the level quarter million for DGD For EBITDA or of share. XXXX, entity $XX.X generated about million Darling's fourth of $XX.X at

will blenders made tax include add will $X.XX the of the results earnings. benefit credit share retro per XXXX quarter and to Darling's approximately First

And at full at XXX the year position XXX earn cash the of anticipate expecting the level markets year, and end million. we're to JV The today, gallons. between the $XX.X total Diamond EBITDA. with For of the Green excess at given LCFS million of $XXX.X $X.XX million current stood debt per in producing gallon we the million

receipt senior and current million of the tax we'll credit capital have operating adequate blenders the the With expansion and reserves rates, the complete the retire debt. $XXX.X current to

can At run that days also it that maintain dividends rates to to of million and expansion $XX note to expect approximately to full so legacy this scheduled the we catalysts, the XX-day current completed (XX:XX:XX) that during take the the to downtime time, the tie-in margins January, XX issue we'll each production year. due successfully May. to will the anticipate leading facility in change up to like expansion be refinery. out able sometime tie-in approximately a partner late to given its mid rate We also I'd shutdown

to production expect per we online, to and million rate. up in tied gallon year XXX once However, ramp quickly

final facility continues With estimating cost XXX a later And expect to million make Brad Brad? the and gallons. engineering a have highlights. this we few that decision through let's take us Additionally, financial summer. expanding for to

Brad Phillips

It's strong balance million, at million XXXX. million. our the with exceeded $XXX debt the of million Thanks, quarter, pay total million At in of credit our ended referenced, down approximately of under were acquisitions sheet, with targeted begin spending where we position XXXX our able fourth Despite to down three pleasure all $XXX on we approximately our during down pay-down XXXX million $XXX our liquidity Randy. call. to I'll availability senior the year-end, facility. and with join loan for $XX this earnings million $XXX.X a remained the revolving $XX previously at you cash during Randy $XXX from end of pay

exceeding for plant position to for of on working In suppliers will from XXXX We the and cash new volumes and foreign reported million $XX capital expansions XXXX. of global focus $XXX CapEx million to $XX.X of of to new $XXX flows, year as year-end to million between $XX.X the impacts worth the excludes to positive in plant million which in continue several of $XX.X our million We year target flow CapEx the the with XXXX, further statement million, full of period the ended million constructions it by we since for year XXXX, for due working and continue as fourth improvements. capital exchange. meet compared to $XXX.X improved $XX expanding same full cash quarter the the target million was worldwide.

the during expect for $XXX the our driven period expansion more million continue bring projects fat higher anticipated by for prices to pricing margin of Gross the during an to total will challenges. significant where BTC. in protein in those margin compared global XXXX, offset volumes new compliance XXXX to million, a expenditures, the million weaker CapEx helped quarter another of the $XXX to higher was $XX.X of XX.X% year XXXX. XX.X% was We year. same to and the Totals construction, the last routine absence same SG&A the Increased and for compression quarter maintenance and portion were fiscal approximately last to compared XXXX. to we Gross year. fourth the in $XXX and was flow XXXX, sales quarter about up addition the expect million which $XX for period million from quarter year compared the fourth same for

versus million retirements, our hedge for full business rolling $XXX XXXX. some driven equity expenses currency the as to and to agreements benefits the to systems expenses changes SG&A year gains increased For international by fringe address were in domestic the upgrades well levels year, to employee to legacy reduction related U.S., in costs Hired were during a million the compared XXXX new in $XXX.X in IT IT XXXX. out award as

$XX.X we Interest on XXXX. the U.S. debt. provide enacted we higher and to Cuts in to color $XX.X reduce put bit of million a Depreciation results $XXX.X recent includes tax benefit expense XXXX as the $XX $X.XX amortization for million million quarter of into The deferred expenses the more tax XXXX, be $XX net changes expected due existing tax repatriation during Fourth liabilities to million offset declined fiscal included a range $XX on facilities expense the quarter. I'll in company XXXX. per and equipment deemed were service and realized result share. tax law now net earnings. net Tax we for XX, for million into our to SG&A look here also to the impact forward XXXX, as of the for December $X.X million the and year, the impact Act a benefit or by As loss mandatory $XX.X continue totals project France. write-down benefit law per of The is in Jobs tax one-time benefit cash of million No tax deemed a of repatriation non-U.S. to Belgium carry-forwards. due tax material from million

changes, various law XXXX tax for for effect approximately effective tax been negative As would rate changes, these XXXX. rate a Without fiscal the XX.X% from combined the effective XXX.X%. is result have these of the tax

for Lastly, we be estimate cash approximately XXXX million. taxes $XX will

Randall C. Stuewe

Brad. Thanks,

to our our diversify continue We prudently capital. and global well, deploy execute platform growth

During bringing we is forward online to facility to look to gallons. the expansion expanded Green The the Valero the to XXXX, gallons. XXX of capacity evaluating Diesel on forward move second million also XXX anxious quarter of boosting team million DGD's Diamond production production with

its stabilized, take expect gelatin those which this of us turned of is our which during have to three advantage business well the continents and regulations On to operates. we the XXXX. biodiesel company operations. take support to the to enable to full that growing in Rousselot the to now we provide on lend the in will products. We positioned basis, continue should returns with South credit also to have help even our the global markets absence improve appear state a blenders regulatory support in conditions in returns to – to continue other tax America XXXX robust for well Macroeconomic corner the positioned demand and federal

As to positions. aggressively to let's it our growth and balance we'll we earnings, reinforce financial and go With ahead Keith, our continue implement our that, our ways grow diversification strategies, questions. sheet, find open and manage up to

Operator

Thank Yes. you.

begin Samuelson Sachs. the And will now comes from the Goldman We session. first Adam question with question-and-answer

Adam Samuelson

Yes. Thanks. everyone. Good morning,

Randall C. Stuewe

morning, Good Adam.

Adam Samuelson

of Washington some RFS to questions. of seems first, Randy, XXXX. the we for landscape get cadence would LCFS today, changes of as couple credit kind in discussion perspective House your kind the in to on love maybe in here policy more lack of be to on ethanol the side, new recent a California, the the sit focused the So, White blunders on

as shaping Just how look is up next you the think XX you the XX regulatory to environment over months.

Randall C. Stuewe

to you want Okay. chime in us? Hey, here for John Bullock,

John Bullock

Yeah.

we CARB were recently they coming smoothing. XXXX going think as their just to have were the with the with think they LCFS, targets I to We I look did from that That's XXXX. essentially LCFS changed the it at In they as called out what knew targets them, announcing moved down XXXX, the before little the brought target and also up of market XXXX. a was process XX% XXXX, (XX:XX:XX) they slightly LFCS bit. XXXX now XXXX they for at that and to what

so situation The into we have could had That's for pricing more in would like a probably CARB were is that was program. meet up to potentially demand deficits address looming that it that way quickly ramping the not worked that a of deficit sustained think looked a good issue, credit in the have the available which to LCFS a I short we the being amount high the for where program have path. to ourselves needs growth California. what credits prudent The amount of versus created term. were was available excessively

they way (XX:XX:XX) schedule to is for a forward from bit so, up relationship from out the where XXXX we relationship increased market, to by in did actually And they in little all announcing fundamentally then the target and the good positioned targets how the all ramp are to doing. so what California LCFS what to XX% moving XX% XXXX good the

XX%, I biofuels all farmer, Washington, soybean critically four first to (XX:XX:XX) in RFS, it are remember policy end United exception continue has but of the the one-third of going for farmer The the now. can't important produced biofuel always it States, decline rule. there on look to as years of row farm to almost for As These there's has year They are the the general be corn in been important program it for the seems there's most quarter sees either represents stories this no a at this, be who regards or to know of and lots going you there. we last of It around is like oil today it the table farmer. and turmoil. out the important in is the is seen At be D.C. a always of day, lots obviously going the while that income their United rumors, and the American demand XX% the five a for demand States. and is, American represents to of that in the programs and critically fact

I the a be and demand creation American that you at those So, essentially farmer. as as near demand look programs, farmer Then, usage think demand see programs for to are they going force. that any strong politically programs and these powerful programs to – we of and will are programs domestic are advocate dear

all this element out different stories So, of of structural as RFSX. you that the end and at a there, that of lots go of forward, haze smoke government's kind in have end is we the pretty through the to that importance I and it'll mean and the – supportive the up think the it'll to of see to going wind American of of the day farmer going position political

Adam Samuelson

can it's of spreads RINs the LCFS to pricing if for you and of Thanks. the where quarter? kind you either just in Okay. credit were help feedstock fourth And between Randy Diamond the comments, on Green I inclusive appreciate just I $X.XX a or Diesel retroactive alluded above gallon. clarification that of the the is that was color. prepared that EBITDA think a components versus in And of kind to blenders to at (XX:XX:XX) way, get I just running margin margin level bridge to – first wanted something quarter? you key maybe, kind then that clarify,

Randall C. Stuewe

that to? want you to me or want you take John,

John Bullock

exclusive is $X.XX the mean the that is the tax on – the of I credit. $X.XX, Well, answer

think, kind don't I that tax your But the for the on want year, but you the quarter, may prepared during comments too. and what we have year or the was, $X.XX we of whether our better in expectation know. were anticipating Randy credit first comment to So,

Randall C. Stuewe

Yeah. of smoothing our provide curve values, QX. bit or RIN the mean inclusion or alluded, excess credit a the structured here there is come bills reduction we're That's one, we're counting tax the spring, the And that's blenders out. what John much where as with year, resurrected noise with or our number that, $X.XX, in last this of $X.XX still step we'll on appropriations crystal even there, it right. today we're March we're in that see be the us at the for current pretty around not end But I one that $X.XX plays in logistics, the little And have part how freight, they market, the for on achieved for day. current a though we LCFS ball like the around even said can of not the gallon. just XXXX. – out our whether political We with of Adam, that later year without we'd the $X good down

year function to now headed want combination production look to our make. whatever LCFS markets, low-carbon is you to And That's a able – achieve of value now assumption at Whatever you we we'll given so, to $X.XX. of RIN make. that all this want we be believe

to year. use we're the because go weather, we'll of higher XXX not if if million to in the – of possibly gallons then some at XXX we million telling don't down million, less ready Well, would to in back make gallons. construction related Why it delay be half mid-May rate we're the XXX gallons? So,

it So, as of that's today. forecast see we the kind

Adam Samuelson

logistics are any focus your a maybe then, a different about of And me, and transportation just costs, the in lot business? sectors seeing final quarter first you impacting for one been that of Okay. rising one big across

Randall C. Stuewe

And our I a here fleet Yeah. of contracts own difference We statements the in contracts America lot our out the have the in we our this North for of then out to I for absolutely those fuel mean at The of on are there at and some just that have route us, today people American our and North There's do, ability employment trucking want you're the run we – charges. is than skills of of facing those other those all rendering necessary full country majority to issue work there. read jobs. pass least shortage. driver rendering that business significant a biggest own

biggest is challenge for And system – today. so, within that's us our the

Adam Samuelson

Okay.

the color. it on. Okay. pass Appreciate I'll

Randall C. Stuewe

you. Thank

Operator

And you. JPMorgan. Palmer from the with next Tom Thank question comes

Thomas Hinsdale Palmer

Good morning. question. Thanks for my taking

Randall C. Stuewe

Good morning, Tom.

Thomas Hinsdale Palmer

looks both targeting I wanted And the at it year capital First, flow the reduction could like still deployment and this what Darling for then level. Is reduction? to about just through ask $XX debt (XX:XX:XX) that dividend you timing year? million the this priority level of are it

Randall C. Stuewe

Tom, mean, little answering like it's I was just bit I Yeah. a Adam.

just that's the You down sitting take there and Green. Diamond kind cash in million of sit you $XXX of

million and at You've of expansion gallons million there, the in and that's of throw got XXX balance running the look down you debt then then $XX you $X.XX. at

extra back way, some how about issues quarter it's year, timing, So, $X.XX the weighted all on second it of we're works. mix million But kind at how probably fourth a the whether quarter, the of end math quarter, in probably our that (XX:XX:XX). we'll (XX:XX:XX) of another And if of $XXX margin that's like napkin third correct the kind assumptions in along up generation you cash pot have, looks cash. the of and it's

down. You're to see de-lever going continue to us

new us That's We've several or XXX up – built plants. country, three don't I now. protein $XX building major (XX:XX:XX). talked a to think conversion expansions, in And right scale, Texas forgetting XX now another building People deploy of customer first years. stand-alone full to know, that years going the million, continue America Grapevine, and fully in the second construction. for think – I search the one XX XX, Angoulême, $XXX and integrated Nebraska nearly rendering for You're starting plant We're continue got the in up keep Wahoo, plant new we've I this South plant XX in an retail to for the new production announced capital. dryer we're plants. to about in that in That's got more script, know plus world million in And over opportunities then, a see last he there around then Peptan Peptan spray France. additional don't going we're other I that Brad's just

we that part So, we're that of take this with capital, $XXX down the X.X also Brad of will plan at knock expansion end robust at this but going got the day, At continue plant new year. improvements, about a the all to things to goal look talked of the million knock considered again capital the to year. big, payment, debt thing to working debt we'll hopefully dividends. We'll closer able be down end ratio deleveraging.

Thomas Hinsdale Palmer

quickly That's Okay. ask helpful. into really Diesel's XXXX. on Green to just cost structure we Thank head Also, Diamond as you. wanted

or You've a lower portion distribution and a progresses that XXXX is gradual contracts we step improvement green in roll of costs the off. talked year capture how opportunity markets, premium function along. as begin this also those larger as more coming to this are as about pipeline occurs like the LCFS the Is a negotiations

Randall C. Stuewe

Well, I in the we here off, think, pipeline of first last the contract. rolled off January,

So, we're XXXX. That a little guidance in lower discounts that forecast cetera. built a that assumption on et there, it LCFS, of freight, has bit there's and better negotiated for obviously $X.XX ramp-up of in

That the fuel low-carbon over Tom. time see that I and built standard growth we'll all and be successful, time. we portion and we higher of demand over at the world, would we're premium But think with in there, today. a there given the of that's even that if glean be expect in to around least the profile So, see California able we out what

Thomas Hinsdale Palmer

Okay. Thank you.

Operator

Vertical comes Heather of Thank you. from question Jones And the next Group.

Heather Jones

morning. Good

Randall C. Stuewe

Morning.

Brad Phillips

Good morning.

Heather Jones

quarter. Nice

of a I questions. couple So, guess

know don't if I First, missed I this.

apologize. us You And But XXXX, give weaker, what thinking of on obviously for Feed, started I and some about if lately. turned color fats XXXX? you Food and did, it to but Feed corner. the accelerate meal the meat complexes you're Rousselot, bone I So, could mentioned

XXXX? could segments some versus color So, give you're two for you about XXXX on us those thinking what

Randall C. Stuewe

said million. us predictable that, in the been added scripted here South year-over-year have the moving segment, little a there, to We have There of $XXX get turn of nice volume our business showed then, couple Sure. look (XX:XX:XX) the in more critical and were operating And, had end big and mean, experienced. some Rousselot yeah, talking in across we I a probably the comments. we've the casings to at gave Argentina. years, consistent, the for landed it's little really amazing challenges And and improvement. slaughterhouses more bit the some I a that million And business mass of allowed losses We should us a Street in very kind CTH back versus as a Food we that's that America. parts of there. offset $XXX in year of that in as bit really day,

refining provided here a a I in performances consistent business. For just And our I see see – fat – business. XXXX, very I derail doesn't improvement on edible then, see fat lot see That's Rousselot don't America pretty in the South much that's more of I managed the of Sonac same. us. spread

had system year, bones provide net-net business. able offset. the it think the grow nice Rousselot China Our bone business, grade off back they'll and I a a last we little CTH all think, year, I that bone we've overall, And such to where bit. to been may food But really

performance back very it's had that a premium If rendering kind We a and improved much amazingly a we so for optics I had given European performance U.S.A. look performance, And good to year-over-year had consistent really we for there. us. both if strong The proteins growth XXXX one is see, performance. you, an improved Feed to bakery rendering what me on just had XXXX. We blood segment performance. of a I a ask consistent performance, performance year-over-year today and XXXX had strong a you

of materials. pet to going year the challenges to hit bone higher prices XXXX. be off this as I've for really, meat fat higher nice we $X.XX, seen expected products. saw little December yet to meal So, overall, And fat really I'm saw The – what for the should down acid really some that puzzled. low-XXs, continue mean, challenged, really us aqua proteins our good prices and December premiums our still November, low we but a and and to is we into demand, momentum quality some that carried enjoying then are we in come those hard. I be $X.XX receiving are

little So, bit a bit a weakness. – the little they're offsetting of

weather to of up you're say, market, Now, sharply. okay, that What you're going a meal moved am saying, what Randy. – are I in is, saying kind to you soybean has

ton $XXX getting that a closer it's mark. to Now,

that oil closer Soybean mark. is $X.XX back to

a seeing improvement in still a U.S. cash fat. we're in within we're and protein values the So, weakness seasonal seeing the

So, Diamond that. you'll whipsaw see Green the little We build the half Year-over-year, Feed year. XX coming momentum the bit, the with second volume we'll more year. then larger, improving Obviously, segment. end towards should substantially potentially have of I to but at prices going think see days this the down day in of through for that's we'll up going this manage a us

at discounted waste of that's further margin look Green where take the going to the in to give advantage them. Once against one expand pricing once again, fat piece again and late get when Diesel hydrocarbons QX in more out that thesis early make U.S. those once you competing So, opportunity. biodiesel, what we're this. Heather, of it the oils you And – again, supports kind of Diamond to of we just, the and it QX soy-based

Heather Jones

for we then Feed, basis should as of you in expect full-year at a as headwinds start, to environment those currency sound be expect versus growth a steadily the improvement well have the the Feed given maybe we projects it like improving. year-on-year? half on year a you've XXXX, looking better and and XXXX, up are Feed least at tailwinds, capital these should Should got year-on-year sluggish full So,

Randall C. Stuewe

come at were Europe we the a January, I my we're Canada, As what start in in by last look it, seeing where going end of I'm be would at but year. to expectation to today out we're and here equivalent or that sluggish the in year

Heather Jones

discounted going And the glad mentioned waste products Okay. and to – then you all. I'm

correctly. some doing I you one, So, wanted just if see to, I'm math

short XXX Darling – interest to estimate long net go its expansion net fats million gallons, all to that I you So, net would Green. in this if from Diamond exposed via XX% would being do

wondering seemed math wondering given with market, And further it that guys there changes change is expansion, moving but their made your agree for as will is derail the CARB's to that? if as I our that one, far they calculus surprise if that that – make sense, that correct. forward So is does there any you given investment decision – I'm two, that thesis concern the that decision would

Randall C. Stuewe

no, derail But not answer let it go that. I'll positive more color thesis. investment please. more it will mean, and We're John, now. on the is the answer give John, actually you I ahead some

John Bullock

they was thinking does we programs which through nice California worried this environmentally little the that seeing any the CARB that in mean Yeah, guidance of commitment end in any or to friendly knew was smoother relationship go the I we their prematurely job shape think be a that were they they that to front but way. XXXX that front putting where all. environment, (XX:XX:XX) of all bit, would by were think LCFS by place. a going and numbers premiums believe XXXX a putting transition that place, seeing and probably CARB knew no, surprise we're the the We market less really does the smoothed be. were I to way Do end about in up, an to in has the they form smoothing What by coming not took at is

Heather Jones

Thank much. so Okay. you

Randall C. Stuewe

Thanks, Heather.

Operator

And of question next Bank Zaslow you. Thank Ken Montreal. from the with comes

Ken Zaslow

Hey. Good morning, everyone.

Randall C. Stuewe

Ken. morning, Good

Brad Phillips

Good morning.

Ken Zaslow

is, saying on XXXX to about questions. I about $XX case? of expansion and million $X be would – in two for bolt-on acquisition bolt-on million that expansion $X remember incremental the I the EBITDA Is guys is the you have One still million.

Randall C. Stuewe

so. ramp then Los and the Grapeland year think meat scale bringing me. year. in Angeles and Mering and brought online I at now Denderleeuw, to mean, fully the and Wahoo the of red right up back on we'll plant we the year, year. numbers this those will the ready this pretty they'll start-ups run during on be that's And Ken. on and I will end I or be then don't have of be are I close, front of half plant then mean, the several

close. pretty that's think I So,

Ken Zaslow

you as line were as the core well. saying then, should And also to Heather, businesses improve (XX:XX:XX)

the – expansion fair opportunities, market right businesses? the So, That's for some the getting in both bolt-on plus acquisitions, two improvement conditions. those you're

Randall C. Stuewe

a us, It's really for Yeah. it's – timing.

that North As (XX:XX:XX) $X.XX to I It's bone And and said, going winter we're protein just the December, least in November, that worried at America. back meat to believe me – if once at to soybean oil. pricing more in you discount had about is asked $X.XX, now, again I'm fat here. really come U.S.A. I was meal and hard worried

Ken Zaslow

included I back the How can was to logistics margin? on incorporate is that then know (XX:XX:XX) you in your a much of kind that? (XX:XX:XX). how And Okay. there of give us time LCFS of that explain actually of credit,

(XX:XX:XX), So, you of price about now How think is that? what renegotiated get everything. If the that you've we're contract, past LCSF do do that? of the XXX we

Randall C. Stuewe

answer to to that want you can? John, you the degree

John Bullock

this Yeah. I that's us who don't this not open market. negotiation and proprietary the that talk obviously, between would the And – we thing contractual in for product want the about to a a – we us. mean, buy is people

negotiation or we've come percentage don't the pipeline the materially year I because priced anything met as the under gotten year, What that this we is think $X.XX reasons simply a or one last this reasonably old well on supplier. and different I and a we've greater contracts make rent $X.XX negotiation LCFS of we of say out a year, have last $X.XX, think we time is markets, year only LCFS we've new every we substantially prices anymore. can to the versus what can with that LCFS supply of new is made why

that the the of the share of had So LCFS that greater full than essentially our have that of getting what pipeline. and then with folks to that January, a the we're and at least anymore, this issue that's to before, (XX:XX:XX) the there year. been the means was were percentage do customers year what we after it negotiated of last taking the reimburse we don't was LCFS issue we percentage we out as got We there was and of

direction, moving that be would to hesitate would I you to give our keep customers but because us information expect in right a that the confidential we're percentage giving would confidential. So, away

Randall C. Stuewe

John, our you share is XXX%, fair say that So, would right though?

John Bullock

Well, that's our perspective, but...

Randall C. Stuewe

Okay. that. Agree with

Ken Zaslow

Has you logistics. reduced the And California? And where to know logistics, structure? cost I that out that with changed is getting shipping really your

Randall C. Stuewe

ahead. go John, Yeah.

John Bullock

we the of California, to obviously, the bill greater at LCFS extent benefits are to cut freight our and efficient premium. the moving and us down that We the sharing that and more by to us much suppliers getting for can product our both allows suppliers

Ken Zaslow

leave of now? kind we and I'll think you much do do how that? (XX:XX:XX) they you at where that. How about And penalize are And it

John Bullock

Yeah, at thought $X.XX we was California. I I point in time one said think mean freight $X.XX we to had kind of to that the

So, that And that bit things working flag California. able prices were. as so to to capability a Diamond. Those half we we might old out somewhere to Obviously, was a forward, go on third U.S. the we're further big have of of reduce a other little going be rail to what primarily change. freights around we are that think vessel a

Ken Zaslow

you. Thank Great.

Operator

from with the And you. Canaccord. comes next Chip Thank Moore question

Chip Moore

then capital the little of efforts we Good you're organic pipeline, two how Thanks. Thanks. are at larger to maybe just de-lever, you a flexibility is Yeah. about seeing that what allocation you here Obviously that. just that type and continuing you'd and to Maybe shortage start extending years, M&A to go look thinking back to or if morning. more and buyback no can another bit. give deals, on

Randall C. Stuewe

three our mean our I you're been there. it has tried, we're taking true and very, We what tested confident, view Yeah. No, is to very – I (XX:XX:XX) core feel out model five-year business, how now. that it's think out a understand seeing I as we operates. have

hit it all continents, consistent improving the day cylinders doesn't at end the all on and it very return. on a but of Sometimes delivers

So,, able deploying Green I cap of what of I last if we've billion number consider million to don't think we've total the been in out you $XXX $XX dividends structure, – been million able X.X over Chip, whatever is only dividends de-lever, about X.X four with our – Diamond know, $X and years, $XXX (XX:XX:XX) top million-plus, to maintenance, almost on CapEx. growth of environmental, the to

the model cash. significant is So, generating

we'll borrowing on some over out the make saw We've cost move extended go out. decisions bonds B, year got the to term couple of here. LIBOR. We hundred You down loan in a us lowering as that our or on the refinanced of couple (XX:XX:XX) we there

of – debt a so, $X then billion, about cap $X of and a here disappear And term piece of it you've $X.X that over B in left out billion, little little little and pre-payable bit shortly. loan got the million billion under bonds structure here senior $X.X a a just a billion and $XXX will some (XX:XX:XX)

place that's out we're setting of So, kind as the there.

(XX:XX:XX), (XX:XX:XX). So, as rate we Diamond we on ability the the dividends, play us $X.XX coming dividends that future and in structure give of Green we capital to on out enough at to the wanted potential rate to the assumptions prepay sure up make $X.XX kept make then right the

is – the it you as the tell around opportunities of years. all pricing I look are we I would to world, wanted of not many may continents. be as we pipeline in So, the and the our full be but we're seen last on as five – opportunities on we have opportunities, where in that

process where is water Diesel system talked X.X, you America, and help million So, best if scale XXX a the or to – strategically, do chance you as X.X in decision say, the input about supply we about, like Europe, we as around Australia, the looking the around continents. X, that is Diamond grow up gallons margins the a We're geographic we're the pounds off within and one-third in continue think to (XX:XX:XX), to arbitrage And Heather returns for Green Green not take margins into help and X.X some portfolio times management here. whatever reasonable develop oil the to world. billion can continue to scrap, what we waste whatever, own South we'd three-continent X.X, fats logistically China, a there, of of the in U.S. ultimately Diamond

So, see opportunity of M&A. the there. that's lot about a really We comments

see that we and As we've and you'll been just you, couple keep forward the here. same prudent years, last behavior patient I moving over promise to continue

Chip Moore

That's Randy. Thanks, perfect. That's great color.

Randall C. Stuewe

Okay.

Operator

Katter from next David you. Thank Baird. the comes with And question

David Katter

morning, you much guys. front? wondering was how taking recent years, room Thank costs see reduce the all to acquisitions on OpEx for the guys Good you the question. I After in Yeah.

Randall C. Stuewe

per stretched guys operating That – you a each again, this ton year that they globally Once goals I and the continue. difficult were put in throw to year know. the U.S. set a get cost number pretty in we place Europe the don't are to goals. question some their to mean, in very team are I out. It's And challenged down.

tonnage up or You cost your can unit. get either your down per

what it's say, that's I'd to than on So, world. that �� year within more and to the quantify work we continue the Today, each normally business difficult goes so in just that on units. everywhere explain

David Katter

the (XX:XX:XX)? overall in Got queue. How it. percentage market? quick big one, then another is back I'll hop That makes And sense. What California Thanks. then in and LCFS

Randall C. Stuewe

Hey, John.

John Bullock

that most in California. folks market the is that lot significant There's size California LCSF of of because live of state. simply whole a the

about fairly individually add talking programs. take type to in we a demand much Columbia, having and program British of and potentially smaller, when you then as up well. as have they're Oregon, on Washington Ontario, good Canada coming And others a The State a Québec, while group national then though, with

are So, them smaller. product. demand demand much demand. than add When North much, significant the the to for compared all of to is you And or up up, this of is America fairly equal to Europe of start what they those add a California others in then, course, in to greater amount

David Katter

helpful. That's Great. guys. Thanks

Operator

with Thank you. ROTH Craig the from Capital question next Irwin And comes Partners.

Craig Irwin

thanks And morning. questions. for taking my Good Hi.

Green. Diamond the is first one So

You gave really quarter. a us this result healthy

the you quarter comment were like at recent last line mix? the in high And they your the feedstock you complete we issue, feedstock you improving first in end more to costs, rest trend the But when more XXXX? would whether of way You're the obviously conversion been timing March expect your the range costs be XXXX. quarter, and the of work something if fourth in at the about quarter, kind as through and strength couple you've pointing Can of where a of with is look to this years. in then

Randall C. Stuewe

do to you take want it? John,

John Bullock

not exactly what the was. sure I'm Yeah. question

spread is or what that – in our – one our our that what saying our and the our level that's at a QX, the we're think fats selling of healthy products were for to buying is is profitability. between finished that I pretty you're things contributed

we part in with essentially that but in fair to obviously, do have of small of a out think And you that, February, continue to no will that good to we're January, while what days to XX bit I have there, but longer we now. a trail first one do contract done had us still because see think the of little ourselves buy into I was we spread you in a of having saw a QX pipeline business.

out And that anymore. so, discount full we're pipeline of that the get of no negotiate significant a And you out the margin spread with partners about. to talked that's There getting contracts our is contributor as LCFS. to ourselves or we the incremental value

Craig Irwin

Great. Thank for that. you

and the is second about thing ask naphtha wanted LPG The contribution. I to

the of describe deep go this at can X nobody we maybe margins would more line XXX in to where deal based the naphtha, but some you out is or a that premium, larger good is for where commodity a naphtha once now expect market that that to LPG? get there we something a with price in gallons expect you continue be (XX:XX:XX) future, billion and you will be, can do very healthy contribution. math million on or this seems pretty price that see If products, you're it Can market. and we do a getting maybe there, prices basic Green on So, those naphtha profit we publishes healthy to you for potential

John Bullock

First of all, the intermediate gasoline huge. market is

(XX:XX:XX) proper basis, in long material. point a on it, an this demand supply-and-demand of unlimited for So, as there's the you terms as pressure got

a or our able we what potential much the as able the do downside bring gallon be I expansion think forward how premium as do we way, at we've but not might more with been potentially the it may naphtha, look so to we on to alternatives unit. And potential are to see going evaluating the with that product for XXX the other on our upside able naphtha. we to better million be what we

Craig Irwin

likely I question, timing? expansion third we see for sort What can And frame if the XXX Great. out side maybe should from of of together? investment about happening may. with to the are phase, look potentially million the to establishing you house how last comes financing us venture gallons, for your That that partner this then firm joint that conversations

Randall C. Stuewe

to successful us John. the was take a successful, very remind that's years, shortly. technology a be number and We piece the provided create Valero has repaid of I'll $XX.X will the there always a for partner been Yeah. special one, and make very of and that people been the for and the Valero financing venture last million here relationship. debt it's that

and equity you real going the us. tax if will, provide received adjacent We're going As of then opportunities infrastructure. to existing become railroad. so ability built XXX a the It's XXX if we by in bring say the in The go we here is water just let's forward, that. That predict finance then will engineering know here to will process. the Valero's implemented later that off Darling's decision-making presented this XX come water. the committee There's bring a gallon to piped minus or will it from have second reasonable costs. that Valero of a will a doubling the return to and gated very a what from and neat XXX the done. – proceeds And that's XXX it from built or down staged to board estimating to million to expansion by going be parallel part have the and accuracy. just the (XX:XX:XX) dividends takes exit cost rate, that it's plus water XX. has summer process of million, improved, the And operating serial of can to now so learn management to to And partners, We're to to we very, of the the million for improved get number be improvements plant in we've to then level these, pay we payout be and that It's operating to once we plant. lot it and nice percentage and in continue very that a the it this kind design are one blenders here. to into down by we being credit of rates million – given spring that

big inaccurate wanting buttoned to one expanded a million infrastructure gallons sure million, now. XXX pretty improvements But within make just XXX we're we very making the Valero we be because and – (XX:XX:XX) have with XXX we've we're from million there's feel got good in XXX other pride it cost Given to to that estimate. the this a and for that to right down organization their were million

XXX maybe hundred this a the plant. to a summer. site. unit will you at couple how happen gallon – we later It's it. there. the – XXX of attached up on We're we bucks, of have if to parallel That a here more operating cash flows over the on years. new went work. process it's set when million, little three conversations the probably in just more million the letting that we what to $X.XX not Craig, And incrementally, That's minus we're go level, with million gallon. to The (XX:XX:XX) the $X around next at day, predicted a the same from of that infrastructure plus a end essentially bigger (XX:XX:XX) we or So, equipment It look finance is

XXX following hook XXX to $X.XX And XXXX. the infrastructure We XXX more a say, that the into million remember, capital XXX million to calculate kind having little won't year, plant, extended as million than this of business one it look XXX the gallons we the So, it is we're operating million, incremental of we're in in (XX:XX:XX). using we have the million kind margin had. within downtime parallel that next year,

breadcrumbs. those are the So,

can here of all into diverted. You of a out be pencil XXXX half project. door to how and has the much much kind cash show in It's of it finish the the how XXXX matter back out goes and to

Craig Irwin

for for questions. you Thanks that. Thank again taking my

Randall C. Stuewe

Craig. bet, You

Operator

from comes Capital. the KC And Bauer next question with you. Thank Tyson

Tyson Lee Bauer

Good limelight, and welcome morning, gentlemen, Brad. to the

Brad Phillips

Thanks, Tyson.

Tyson Lee Bauer

of marketplace the your of regarding are Argentine disruptions questions (XX:XX:XX) naphtha other the in that forward, U.S.; news more you border. in other couple customers, your your view to Kind fuels And going of yourself They with so cause U.S. stance, supply back probably trade can than affecting out. the A come to naphtha obviously, and heading cautious some more taking outstanding. that with south protein distilled kicks than maybe clients kicks Europe. They being of the go volumes Europe maybe then, out. them for

of international to regards want turn to of see to Now, repercussions what figure are to And also, kind do what trade there. that naphtha be? try that's the with in volumes could their and going on Where those what feelings flood do those you fields? they your out

Randall C. Stuewe

– a beef, that's mean, soybean corn, take to monitoring it. bit I ultimately I Yeah. real all I'll little type it above, we're the hope issue, trade this, come pork, doesn't huge (XX:XX:XX). obviously, meal, a mean, I of potential Tyson. some trade of and naphtha,

the think, I being is has trade that closely leverage the we're U.S. played monitoring and it. obviously,

to being and we standpoint, Europe and see what exports produced North reliant diverted issue. right today it the Argentina while as to need Brazil as of how at from someone protein now. weaker parlayed say And our if (XX:XX:XX) heavily in that the dollar said day, I or watch? gets a look – Argentine your it would how Argentina at continue you've our Argentine America, we're I much of small on pricing issue The and on is out that do helping products you the back a into think, we the The of crushing end does. to support As it for proteins. exports, U.S. us crop look clearly big biodiesel keep eye improves. to here

you're deficit lower going day in and run And markets. oil to the once to protein, at means you're into that have to soybean in again to Argentina world's the be seeing going less the of that you're up crush with so, the going crush try the end move meal to

is on anticipate that (XX:XX:XX) Argentine the they can the swiftest move Europeans there. type again in tariff move, Now, I in the resurrect stuff we'll which debatable, of once some

back trade to advantage, just world moves, the bean a probably it will move is But this view to where as a it know got don't oil John discount happen and whether going it? into move Bullock, I ultimately it, on market. different our it So, not markets it give you year. into tax

John Bullock

No.

I think that's exactly right.

Randall C. Stuewe

Okay.

Tyson Lee Bauer

the between seen narrow fat where animal oil We've soy Okay. progression based and spreads corn fats.

and into formulas? where see paradigm we're are getting side, widening we as diets to a protein spread change animal-based proteins in a the proteins going between On plant-based the

Randall C. Stuewe

Yeah.

of today. child And that's (XX:XX:XX) we degree, a the system the global there all seeing for in a I portion soybean the market, there. couple At have to clearly out you've to ample seen meal, you own the a bone We're to the think meal feed and got and kind you a out veg. that's things. poultry end you've of reasons. a move been grains, within day, I industry remember got your there's answered the meat question today out a is sense – we're supply of – amounts mean it. that there seeing of ugly global In numerous chain

to toxic on Our onto to now been XX and the trying and for global bone European the was trying world are But years, market and out businesses meat stuff they're all everyone that. market meal re-classed. the that's they told now partners move

meal bone and meat hit that's So, prices.

on the meat is value veg the production. a back ultimately, just I for continued find find area will in now. poultry And a you to right matter year, Rim – them starting I (XX:XX:XX). a improvement calorie So, soybean pretty a European the Asia-Pacific came soybean after trade basis, little with It's won't I its improvement I'm got know going Year's the diets, product better nutrition. meal It numb meal the Chinese to now meal. prices, at about what a stay see ton But a way and don't that into seeing parity per to we bone and in $XXX but unit believe, remarketing we're under Pac its calorie. from and feel we'll the to worried globally, New Tyson, and into protein. that also I happen it's

will the slaughter ample start of said just but bone So, side aqua the the proteins. meat now, good market that's we up taking remember and find the and X%. home. we're are call, X%, on lot slaughter there. like high-quality that at to Europe, It's a news in is pet has for of in and The commodity the really There's fight the the U.S., ration food a of to share right amounts meal having economics low premium prevail (XX:XX:XX) the protein

Tyson Lee Bauer

Senator Okay. And is common Senator one EXX. theme in it's Cruz have or we whether Grassley seen, the headlines

have for a an biofuels of been Obviously, of towards and an with outside or feedstock eventually you business what as go also as corn DX. effect RIN that some your DX any the impact the you of able Have cost? obligated are far supply to as run on sensitivities but vacuum, your would EXX and parties some up, think oil. just impacts the would kind you at Looking there

Randall C. Stuewe

take to want it? you John,

John Bullock

DX if depend side, pool, will ethanol the the corn the think what the advanced on the to running pool. I in most move ethanol more industry of so Yeah, RIN move the flat possibility in demand on will an they although the and is out is of supply today. EXX, obviously, – it But DX, advanced didn't production,

The know in advanced anything, that, the that's we'd in depend are not the frankly, little the what a time. don't that answer in we quite oil the mandates a big So, we question diesel and whether to But and – supply cheaper oil. will corn or increase upon at biomass-based point from see corn see DX if this might category. DX

Tyson Lee Bauer

All right. Thank gentlemen. you,

Randall C. Stuewe

Thanks, Tyson.

Operator

Thank follow-up you. Zaslow question of Montreal. with a And next from the Ken is Bank

Ken Zaslow

Hey.

you're is what housekeeping, for for question rate quick XXXX? the a tax Just assuming

Randall C. Stuewe

the is what what? tax couldn't... I Ken,

Ken Zaslow

rate. Tax rate. Tax

Randall C. Stuewe

rate. tax The

Ken Zaslow

(XX:XX:XX).

Randall C. Stuewe

With the tax be... credit, to going it's blenders

Brad Phillips

XXXX. ...with

Randall C. Stuewe

around credit, without, In XX% XXXX, it'll our and around be with tax XXXX XX% in for estimate, the blenders XXXX. is

Ken Zaslow

Great. you. Thank Okay.

Randall C. Stuewe

Yes. bet. You

Operator

you. And like to present Thank at Stuewe as are to closing the comments. I there the any time, questions Mr. would return no call for

Randall C. Stuewe

and Thanks, Appreciate talking quarter end safe. XXXX into here forward questions right. we All Keith. the good after to in We questions. quarter. good of a We're May. you Take the and to care look be had turning today. Great everybody's momentum

Operator

Thank you concluded. for you. now Thank The conference has today's attending presentation.

may disconnect. You now

Darling Ingredients (DAR) 28 Feb 182017 Q4 Earnings call transcript