Darling Ingredients Inc. (DAR) Earnings & Analysis

Latest quarter

Darling Ingredients reported second-quarter revenue of $1.7 billion, up from $1.5 billion a year earlier. Diluted earnings per share rose to $2.41 from $0.08. The company reported gross margin of 29.2%, compared with 23.3% a year earlier, and free cash flow of $407.3 million, up from $77.1 million.

In its filing, Darling attributed the increase in Feed Ingredients gross margin to higher fat and protein prices, improved quality and consistency, and more sales into higher-margin markets. The filing said Food Ingredients sales rose primarily as collagen demand increased, while net tariff recoveries contributed to the segment’s margin increase.

Darling said Fuel Ingredients operating income increased as Diamond Green Diesel produced more, recognized more production tax credits and benefited from higher renewable fuel credit values and diesel prices. CFO Bob Day said Darling’s share of Diamond Green Diesel EBITDA was $389 million in the quarter, compared with $43 million a year earlier.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

On the second-quarter call, CEO Randall Stuewe said finished-product markets strengthened as the quarter progressed, with fat and protein prices rising and trade developments improving the operating environment. He attributed the Feed Ingredients results partly to biofuel demand for fats and tighter global fish meal supplies that supported protein values.

Stuewe said collagen sales increased as customers found new applications in food, nutrition and health. Asked about competition with whey protein, CFO Bob Day said collagen could compete with whey on cost and that Darling was finding demand beyond its traditional customer base. Day said the company was using existing factories to make more collagen and targeted health ingredients, which he said carry higher margins than gelatin.

For Diamond Green Diesel, Day said renewable diesel margins relative to sustainable aviation fuel depended on the market. He said existing U.S. aviation fuel sales carried a premium over renewable diesel, while the advantage in Europe was less pronounced. Asked about renewable fuel policy, Day said he did not expect changes in small-refinery exemptions to materially alter the overall supply-and-demand picture for renewable fuel credits.

Day said Darling received approximately $280 million in cash from Diamond Green Diesel during the second quarter, helping reduce net debt. He added that the company had built feedstock inventories to support production and expected a significant portion of that working capital to return as cash by year-end.

Asked about acquisitions, Stuewe said Darling was prioritizing expansion and operational optimization rather than another large deal. He said rendering capacity in Brazil was full and that the company needed to prepare its plants for faster U.S. chicken processing lines. Looking to the third quarter, Stuewe said demand for proteins and specialty products remained supportive, and Darling intended Diamond Green Diesel to produce approximately 335 million gallons.

Guidance

In its October results release, Darling said it anticipated ending fiscal 2026 with net debt at or below $3.0 billion and a leverage ratio below 1.5X. On the second-quarter call, Bob Day had said net debt would be very close to or below $3 billion by year-end and leverage well below 2x.