Darling Ingredients In Buy Range After Q2 Earnings Report

Darling Ingredients NYSE: DAR has been etching a consolidation for the past since mid-March, and is trading 1.3% below its March 15 high. 

The company develops and produces ingredients from edible and inedible bio-nutrients. It operates in four segments: Feed Ingredients, food Ingredients, and fuel ingredients.

Darling reported its second-quarter on August 10 after the bell, sending the stock 2.06% higher the following session. Trading volume was 26% higher than average.

Earnings came in at $1.17 per share, up 200% from the year-ago quarter. Revenue was just shy of $1.2 billion, a year-over-year increase of 41%. 

Digging into the details of the quarter, Darling repurchased approximately $76 million of common stock. Its trailing twelve-month combined adjusted EBITDA surpassed $1 billion for the first time in the company’s history.

CEO Randall Stuewe noted the quarter’s achievements. "We continue to see positive signs of strength in a recovering economy both here in North America and around the world which should provide for sustained demand for food, feed and fuel, empowering Darling to take advantage of our leadership position in the industry,” he said.

Regarding the share repurchase, Stuewe attributed the move to the company’s belief “that our Diverse Green Global business will continue to appreciate in value in the near future. We saw many records in Q2 in all segments and including our joint venture Diamond Green Diesel. In total, our Global Ingredients business generated approximately $222 million of EBITDA and DGD produced $132 million, which is our half, making our combined adjusted EBITDA just shy of $354 million for the second quarter.”

Creating Renewable Diesel Fuel

The Diamond Green Diesel unit is a partnership with oil-and-gas refiner and marketer Valero Energy NYSE: VLO. The business unit creates renewable diesel fuel from recycled animal fats. It’s not difficult to see how that is an attractive value proposition in an era where fossil fuels are under increased scrutiny. 

Darling says it’s building the capacity to expand the renewable diesel fuel production to 400 million gallons per year this year. Valero and Darling approved a new 470 million gallons-per-year renewable diesel plant near Valero's Port Arthur, Texas refinery. Operations are expected to get underway in 2023, increasing Diamond Green Diesel's total production to approximately 1.2 billion gallons of renewable diesel each year. 

Stuewe addressed the expansion plans in the earnings conference call. 

“We are very excited about the anticipated start-up of the new 400 million gallons renewable diesel expansion in Norco. We are approximately 60 days from the largest project of its kind to begin producing, one of the greenest hydrocarbons on the planet,” he said.

“Also, we are pleased that the start-up of the 470 million gallons renewable diesel plant located in Port Arthur, Texas has now moved through the first half of 2023 for start-up. Once Port Arthur is online, the DGD platform will have 1.2 billion gallons of renewable diesel production capacity and 50 million gallons of Green gasoline capability,” he added. 

Forming First Base Since 2020

Darling’s chart has been exceptionally strong since emerging from the great 2020 meltdown. As the stock traveled higher, it tagged its 10-week moving average along the way, but this is the first actual base it’s formed.

That’s good news, as more than three or four bases can indicate that a rally is overextended, and often due for a reset.

Darling shares advanced 3.13% in the past three months, 36.08% year-to-date and 140.69% in the past 12 months.

However, it’s up 18.30% in the past month, as the stock carved the right side of its current base. The current upside trend began on July 20, when the stock zoomed 5.86% in above-average turnover. 

Since then, the stock notched four weeks in a row of upside trade. 

The stock is currently in what could be called a buy range, as it’s just slightly below its prior high. Of course, there’s always a risk the stock could reverse lower before rallying to a new high. Over time, the company’s emphasis on renewable fuels should bode well for its future growth prospects.