Darling Ingredients Results Boosted by Solid Rousselot Performance
11 Aug 2014 --- Darling Ingredients Inc., a global developer and producer of sustainable natural ingredients from edible and inedible bio-nutrients, creating a wide range of ingredients and customized specialty solutions for customers in the pharmaceutical, food, pet food, feed, technical, fuel, bioenergy, and fertilizer industries, has announced financial results for the second quarter ended June 28, 2014.
Net sales for the second quarter of 2014 increased to $1.0 billion, compared with $423.6 million in the same period of 2013, attributable to newly acquired operations. Operating income in the second quarter of 2014 was$75.5 million reflecting an increase of$24.7 million or 49% as compared to income for the same period of 2013. Results include a$5.0 million increase to cost of sales related to the inventory step-up associated with required purchase accounting for the VION Acquisition and$4.2 million associated with continued acquisition and integration costs of Rothsay and the VION Acquisition.
Comments on the Second Quarter “We posted a respectable second quarter performance, which now reflects full contributions from our newly acquired operations around the world,” said Randall Stuewe, Darling Ingredients Inc. Chairman and Chief Executive Officer.
“During the second quarter, the Feed Ingredients Segment delivered a solid performance lead by North American operations. Protein and fat values remained strong around the globe. Our Bakery Feeds unit delivered a nice performance sequentially but continues to feel the pressure of eroding corn prices. Canada delivered notable earnings and Europe remained a steady contributor to operating income,” continued Mr. Stuewe. “In general, our raw material volumes were steady around the globe and margins remained healthy.”
“The Food Ingredients Segment continued to perform as anticipated. Rousselot, a global leader in gelatin, turned in a solid performance. Demand remains steady however prices were marginally lower in some geographies due to competition and tight raw material supplies. Our European edible fat business delivered lower earnings driven by compressed margins as a result of the increased supplies of raw materials primarily in Germany due to ongoing trade restrictions with Russia. CTH, our casings business, improved marginally over the first quarter of 2014.”
“Our Fuel Ingredients Segment, anchored by Diamond Green Diesel, reported a weaker performance compared to first quarter 2014 on low RIN (Renewable Identification Number) values due to the continued uncertainty of the U.S. mandated renewable fuel volume obligation (RVO) and whether there would be an extension of the existing federal alternative fuel blenders tax credit. The DGD Joint Venture operated at name plate capacity during the second quarter of 2014 and continues to be one of the lowest cost producers of biomass based renewable diesel in the world.” Mr. Stuewe added, “Our European operations within the Fuel Ingredients Segment proved to be steady contributors with Rendac and Ecoson delivering solid returns. This quarter marked the starting of operations at our new biogas facility in Son, Netherlands; built to generate green electricity and bio-phosphate fertilizer.”
“With respect to the incident at our DGD facility in Norco, LA on August 3rd, no one was injured and the firefighting teams and Valero emergency response teams responded rapidly. The fire was isolated and extinguished. Preliminary damage assessment is underway and we hope to have the facility operational within 60 days. Most notably, the downtime will allow us to perform additional maintenance and debottlenecking to increase name plate capacity by 10% when we start back up.”
“Overall to date, we are pleased with the integration success of our new global ingredients company and look forward to bringing greater value to our customers and shareholders,” concluded Mr. Stuewe.
Second quarter 2014 net income was $32.8 million, or $0.20 per diluted share, compared with net income of$26.4 million, or $0.22 per diluted share, in the second quarter of 2013. The Company’s second quarter 2014 results include the following after tax costs:
For the second quarter of 2014, the Company generated Adjusted EBITDA of $143.0 million, as compared to $72.9 million in the same period a year ago. The increase was primarily attributable to the inclusion of the newly acquired businesses. On a Pro Forma Adjusted EBITDA basis, the Company would have generated$158.0 million in the second quarter 2014, as compared to a Pro Forma Adjusted EBITDA of$70.9 million in the year ago period. The increase in Pro Forma Adjusted EBITDA is attributable to the inclusion of the newly acquired businesses.
Feed Ingredients operating income increased by $16.1 million to $74.5 million compared to the second quarter of 2013. Results reflect $1.5 million related to the non-cash inventory step-up associated with the required purchase accounting for the VION Acquisition. Adjusted operating income for the Feed Ingredient Segment without the inventory step-up costs would have been$76.0 million or $17.6 million higher than the second quarter 2013. * Higher earnings were predominantly related to earnings attributable to newly acquired operations. The U.S. operations contributed$2.7 million less in Feed Ingredients operating income relative to the second quarter of 2013. This reduction was principally related to lower earnings in the bakery feeds division and higher selling, general and administrative costs, depreciation and amortization expenses.Canada operations performed better than expected, while operations inEurope and China generally performed as expected.
Ingredients operating income was $11.3 million for the second quarter of 2014 compared to no prior reporting segment or activity in the Food Ingredients business lines in the second quarter of 2013. Results reflect$3.4 million related to the non-cash inventory step-up associated with the purchase accounting for the VION Acquisition. Adjusted operating income for the Food Ingredients Segment without the inventory step-up costs would have been $14.7 million. On an adjusted sequential quarter basis, the Food Ingredients operating income decreased by $5.1 million from $19.8 million in the first quarter of 2014. This reduction from first quarter was principally related to the European edible fats business which was adversely impacted by the closure of the Russian trade border resulting in higher raw material supply and increased production that put pressure on selling prices and resulted in lower margins for the Company’s finished products. Global demand for gelatin was generally steady with the exception of China, which saw a slight reduction in demand. The Company’s casing business improved marginally over the first quarter 2014 as a result of increased sales volume of sheep casings.
