DARLING INGREDIENTS 2026 Q3 Earnings Call

Please go ahead. Thank you for joining the Darling Ingredients third quarter 2026 earnings call.

Here with me today are Mr. Randall C. Stuewe, Chairman and Chief Executive Officer, and Mr. Bob Day, Chief Financial Officer. Our third quarter 2026 earnings news release and slide presentation are available on the investor page of our corporate website, and it will be joined by a transcript of this call once it is available. You can also find reconciliations and disclosures with respect to non-GAAP financial measures in our earnings news release and slide presentation. During this call, we will be making forward-looking statements, which are predictions, projections, and 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 10-K, 10-Q, 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.

Thanks, Suann. Good morning, everyone, and thanks for joining us today. Our third quarter results showcase the capability, performance, and resilience of our global ingredients business. Sequentially, our performance was slightly impacted by timing of sales, accounting treatment of North American fat sales to Diamond Green Diesel, and global compensation expense. Otherwise, it was another robust quarter. This financial strength, bolstered by substantial cash from Diamond Green Diesel, has allowed us to continue to make significant progress toward achieving our debt targets and significantly strengthening our balance sheet by reducing net debt by approximately $420 million in the quarter. Additionally, we continue to return capital to our shareholders via stock buybacks. For the quarter, combined adjusted EBITDA was approximately $514 million, including about $310 million from our global ingredients business and $204 million from Diamond Green Diesel.

Now, turning to our feed segment, we delivered stable and solid margins during the quarter. This performance underscores the value of the operational improvements we have made and our team's focus on commercial execution. Protein prices and demand remain strong, and we expect fat prices to strengthen in the fourth quarter. Canadian and Brazilian tariffs remain challenging, but we are working hard to develop alternative markets. While our results this quarter reflect the timing of some accounting and inventory adjustments that Bob will detail a little later, the underlying commercial momentum of this segment remains strong into the fourth quarter and next year. In our food segment, Brazilian tariffs continue to complicate some of our South American shipments. However, strong China collagen sales partially offset this temporary headwind.

Our Nextida portfolio continues to gain momentum via repeat and new orders, and we have expanded it now with the recent launch of NxCogni, a targeted collagen designed to support mental clarity and cognitive resilience. Additionally, our joint venture with Tessenderlo continues to progress through the regulatory process, and we are targeting a close hopefully in the first quarter of 2027. Now, turning to our fuel segment, Diamond Green Diesel faced a series of temporary operational and logistical headwinds this quarter. We had a short-term third-party hydrogen outage in the Gulf that impacted our volumes, alongside a delayed SAF shipment and imported feedstock timing and hedging impacts. Once again, Bob will walk you through some more details in a moment. However, even in a slightly noisy quarter, DGD remains a massive cash engine.

During the quarter, we received $171 million in cash distributions from Diamond Green Diesel from both dividends and PTC sales. For the fourth quarter, we expect DGD to produce approximately 325 million gallons. While we remain conservative in our full-year modeling assumptions, the reality is that Q3 timing and hedging headwinds have reversed, and we are currently realizing DGD margins that are moving much closer to today's stronger spot market conditions. Now with that, I would like to turn the call over to Bob, take us through the financials. Then I will come back and discuss my thoughts on the fourth quarter and our full-year outlook.

Bob? Thank you, Randy. Good morning, everyone.

As Randy said, again, this quarter, we generated significant earnings in cash, and we substantially strengthened the balance sheet. Net income was $267 million, or $1.67 per GAAP diluted share, compared to $19 million or $0.12 per GAAP diluted share in the third quarter last year. For the first nine months of 2026, net income was $789 million, or $4.91 per GAAP diluted share, compared to $6 million or $0.04 per GAAP diluted share a year ago. Net sales in the third quarter were $1.8 billion compared to $1.6 billion for the third quarter of 2025 and $5.1 billion for the first nine months of 2026 versus $4.4 billion for the same period a year ago. Third quarter combined adjusted EBITDA was $514 million, compared to $245 million in third quarter 2025.

For the first nine months of 2026, Combined Adjusted EBITDA exceeded $1.6 billion versus $690 million a year ago, reflecting strong contributions from both our core ingredients business and Diamond Green Diesel. Meanwhile, the core ingredients EBITDA experienced a sequential decrease from the second to third quarter, which was primarily driven by two items. The first was an increase in long-term incentive accruals, an indirect outcome of strong year-to-date results from both core ingredients and DGD, and the second was driven by inventory adjustments that we expect to reverse in the fourth quarter. To give more detail on the inventory items specific to the sequential decline in the feed segment, approximately $15 million was associated with the accounting treatment of two items. The first was the deferral of half of the profit on Darling feedstock sold to Diamond Green Diesel.

Because Darling owns 50% of the DGD JV, GAAP accounting rules require that we defer 50% of the margin earned on products sold until that product is processed and sold at DGD. This is purely a timing issue. Once DGD processes and sells this fuel in the fourth quarter, this deferred profit will flow back to our bottom line. Additionally, late in the quarter, a lower of cost or market adjustment, or LCM, in our feed segment turned negative from what had been positive and finished much lower than expected. This was caused by an unusually high volume of product in transit at quarter end, the margins on which cannot be recognized until title has transferred. Altogether, these items totaled approximately $30 million, which explains the difference in the core ingredients EBITDA reported versus what had been expected.

Notwithstanding those items, core ingredients EBITDA finished at the high end of last quarter's guidance at around $340 million. Moving to Diamond Green Diesel. By historical measures, DGD delivered a very strong quarter. Darling's share of DGD EBITDA was $204 million on 315 million gallons sold, an average margin of around $1.30 per gallon, and a massive turnaround compared to negative $2.9 million in the third quarter of 2025. Meanwhile, replacement margins during the quarter were higher than $1.30 per gallon, so I would like to provide some color to help bridge the difference. Two items in particular, hedging losses and production tax credit capture, are expected to come back positively in the fourth quarter.

Specifically for feedstock hedged in the third quarter that was not yet converted into fuel and sold during the third quarter would have experienced a hedge loss that will either come back in the form of a higher RD or SAF sales price and margin, or if futures prices drop, the hedge will return cash. Either way, those hedge losses come back once the associated feedstocks are converted into fuel. Regarding production tax credit capture, late in the quarter, Port Arthur experienced challenging weather, forcing it to use a disproportionately high amount of foreign feedstocks, earning less production tax credit value than a normal feedstock mix. This had a double impact for Darling, because while it lowered the average RD and SAF margin, it also caused DGD to hold a higher percentage of Darling domestic feedstocks than normal, contributing to the increased deferred profit accrual mentioned earlier.