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Darling Ingredients Inc. Reports Third Quarter 2015 Financial Results: Sequential Adjusted EBITDA Growth, Continued Debt Reduction

IRVING, Texas, Nov. 12, 2015 /PRNewswire/ -- Darling Ingredients Inc. (NYSE: DAR), a global leader in converting edible and inedible bio-nutrient streams into a wide range of ingredients and specialty products for customers in the pharmaceutical, food, pet food, feed, technical, fuel, bioenergy, and fertilizer industries, today announced financial results for the third quarter ended October 3, 2015.

For the third quarter of 2015, the Company reported net sales of $853.8 million, as compared with net sales of $978.7 million for the third quarter of 2014. The $124.9 million decrease in net sales is attributable to lower finished product prices, primarily in the global competing ingredients prices and the foreign exchange rate impact of a weaker euro and Canadian dollar. Overall, global raw material volumes were stronger year over year.

Net loss attributable to Darling for the three months ended October 3, 2015, was $(9.1) million, or $(0.06) per diluted share, compared to a net income of $14.3 million, or $0.09 per diluted share, in the three months ended September 27, 2014. This decrease is attributable to the impact of foreign exchange rates as a function of the strengthening U.S. dollar as compared mainly to the euro and Canadian dollar and the impact of tax expense, which includes discrete items that do not have a direct relationship with pre-tax earnings and a deferred tax asset write-down in a foreign jurisdiction, which were partially offset by improvements in operations. If extenders legislation is passed this year which is the same or similar to last year's package including the Biofuel Tax Credit and the Look-Through Rule, we expect the effective tax rate for the year to be about the same as last year, which was 16%. The results for the three months ended October 3, 2015 and three months ended September 27, 2014, respectively, include the following after-tax costs:

Fiscal 2015

  • $0.4 million ($0.00 per diluted share) associated with the integration of VION Ingredients and Rothsay and the implementation of internal controls over financial reporting per the Sarbanes-Oxley Act of 2002 for VION Ingredients; and

Fiscal 2014

  • $1.3 million ($0.01 per diluted share) associated with the acquisition and integration of Rothsay and VION Ingredients during the period.

Comments on Third Quarter 2015

"Despite a difficult pricing environment, we continued to execute in the third quarter on our long term strategy of building our global platform to create sustainable feed, food and fuel ingredients for a growing world population. Our Feed segment continues to perform well, with global rendering recording strong volumes and predictable earnings. Scheduled plant turnarounds at 3 gelatin factories during the quarter significantly impacted the Food segment earnings. The Fuel segment delivered as expected but was down sequentially due to the tough environment in the US bio-diesel industry. We remain confident that the reinstatement of the US Tax Extenders will retroactively deliver the blenders tax credit as expected," said Randall Stuewe, Darling Ingredients Inc. Chairman and Chief Executive Officer.

"Operationally, our global team continues to find ways to improve our cost structure and maintain our margins. Targets for working capital improvement, operating cost reductions and SG&A improvement are all being met. From a balance sheet perspective, we remain focused on delivering and setting the stage for future growth," concluded Mr. Stuewe.

Reconciliation of Net Income to (Non-GAAP) Adjusted EBITDA and (Non-GAAP) Pro forma Adjusted EBITDA

Darling Ingredients Inc. reports Adjusted EBITDA results, which is a Non-GAAP financial measure, as a complement to results provided in accordance with generally accepted accounting principles (GAAP). The Company believes that Adjusted EBITDA provides additional useful information to investors. As the Company uses the term, Adjusted EBITDA, calculated below:



Three Months Ended - Year over Year

Adjusted EBITDA


October 3,


September 27,

(U.S. dollars in thousands)


2015


2014






Net income/(loss) attributable to Darling

$ (9,087)


$ 14,318

Depreciation and amortization

67,327


67,311

Interest expense


24,828


25,355

Income tax expense


7,859


11,136

Foreign currency loss/(gain)

2,461


(1,522)

Other expense/(income), net

(1,004)


(2,053)

Equity in net (income)/loss of unconsolidated subsidiaries

12,021


1,055

Net (loss)/income attributable to noncontrolling interests

1,730


1,636


Adjusted EBITDA

$106,135


$ 117,236






Acquisition and integration-related expenses

1,280


2,191


Pro forma Adjusted EBITDA (Non-GAAP)

$107,415


$ 119,427






DGD Joint Venture Adjusted EBITDA (Darling's share) (1)

$ (8,309)


$ 2,907

For the three months ended October 3, 2015, the Company generated Adjusted EBITDA of $106.1 million, as compared to $117.2 million in the same period in fiscal 2014. The decrease was primarily attributable to lower finished product prices attributable to lower global competing ingredients prices and the impact of foreign exchange rates as a function of the strengthening U.S. dollar as compared mainly to the euro and Canadian dollar, which were partially offset by an increase in raw material volumes. On a Pro forma Adjusted EBITDA basis, the Company would have generated $107.4 million in the three months ended October 3, 2015, as compared to a Pro forma Adjusted EBITDA of $119.4 million in the same period in 2014. The decrease in the Pro forma Adjusted EBITDA is attributable to lower finished product prices, the impact of foreign exchange rates as a function of the strengthening U.S. dollar as compared mainly to the euro and Canadian dollar, lower acquisition and integration-related expenses, which were partially offset by an increase in raw material volumes.

As a result of the strengthened U.S. dollar, the above Pro forma Adjusted EBITDA results for the three months ended October 3, 2015 would have been $118.0 million when taking into consideration the change in average foreign exchange (FX) fluctuations of $10.6 million as compared to $119.4 million for the same period in fiscal 2014, a reduction of $1.4 million.

Reconciliation of Net Income to (Non-GAAP) Adjusted EBITDA - Third Quarter 2015 to Second Quarter 2015



Three Months Ended - Sequential

Adjusted EBITDA


October 3,


July 4,

(U.S. dollars in thousands)


2015


2015






Net income/(loss) attributable to Darling

$ (9,087)


$ 3,080

Depreciation and amortization

67,327


66,245

Interest expense


24,828


34,285

Income tax expense


7,859


4,665

Foreign currency loss/(gain)

2,461


(1,622)

Other expense/(income), net

(1,004)


1,199

Equity in net (income)/loss of unconsolidated subsidiaries

12,021


(4,172)

Net income attributable to noncontrolling interests

1,730


1,857


Adjusted EBITDA

$106,135


$105,537






Acquisition and integration-related expenses

1,280


1,208


Pro forma Adjusted EBITDA (Non-GAAP)

$107,415


$106,745






DGD Joint Venture Adjusted EBITDA (Darling's share) (1)

$ (8,309)


$ 7,909

On a sequential basis, for the three months ended October 3, 2015, the Company generated Adjusted EBITDA of $106.1 million, as compared to $105.5 million for the three months ended July 4, 2015. On a Pro Forma Adjusted EBITDA basis, the Company would have generated $107.4 million in the three months ended October 3, 2015, as compared to a Pro forma Adjusted EBITDA of $106.7 million in the three months ended July 4, 2015, an increase of approximately $0.7 million.

As a result of the strengthened U.S. dollar, the above Pro forma Adjusted EBITDA results for the three months ended October 3, 2015 would have been $107.6 million when taking into consideration the change in average foreign currency fluctuations of $0.2 million, as compared to the Pro forma Adjusted EBITDA of $106.7 million for the three months ended July 4, 2015, an increase of $0.9 million.

Operational Update by Segment

  • Feed Ingredients - Solid performance overall, with consistent sequential improvement and stable margins. Global rendering continues to have strong volumes and predictable earnings. Fat prices remain pressured in the USA, but are stabilizing in Europe. Protein felt some pressure worldwide as large grain supplies and strong slaughter resulted in market surpluses. Restaurant services continued to improve spreads, but pricing pressure continues. Bakery Feeds and Specialty Proteins continued strong performances. The new bakery feeds plant in Bryan, Texas is in operation. Two new pet food plants are now running and are well positioned for 2016.
  • Food Ingredients - Scheduled extended downtime at three gelatin plants for expansion and modernization accounted for the majority of segment declines. Edible Fats performance improved as margins stabilized. CTH endured an Asian border closure, resulting in an inventory write down.
  • Fuel Ingredients - Ecoson faced operational challenges during the quarter that have since been resolved. Canadian biofuels continue to operate at a loss without tax credits. Segment margins have normalized and adjusted. Renewable Volume Obligations (RVO) are expected to be ratified in late November, while we anticipate that the biofuels tax credit will be awarded in December.
  • Diamond Green Diesel Joint Venture - Continued strong operational performance in the third quarter, producing 41.5 million gallons of renewable diesel. The Company remains optimistic that the U.S. Biofuels Tax Extenders package will be reinstated, retroactively adding approximately $20.0 million to Darling's share of income in the third quarter.

Third Quarter 2015 Segment Performance

Feed Ingredients

Three Months Ended

($ thousands)

October 3, 2015

September 27, 2014

Net Sales

$ 525,213

$ 607,271

Segment operating income

$ 35,619

$ 46,398




EBITDA

$ 76,465

$ 84,118

  • Feed Ingredients operating income for the three months ended October 3, 2015 was $35.6 million, a decrease of $10.8 million as compared to the three months ended September 27, 2014. Lower earnings for the Feed Ingredients segment were due to significant decline in proteins, fats and used cooking oil finished product prices as a result of the global record-setting grain production and increased volumes from the slaughter industry which increased supply above demand levels. In addition, the Company's Feed Ingredients segment operating cash flow was negatively impacted by foreign exchange translation by approximately $4.4 million when using prior year average exchange rates.
  • Feed Ingredients reported lower earnings and net sales year over year resulting primarily in the United States operations, related to lower finished product prices in proteins, fats and used cooking oil, particularly in the Company's non-formula business. The $82.1 million decrease in net sales includes sales of proteins $(39.5) million, fats $(35.7) million, Used Cooking Oil $(0.1) million, Bakery $1.8 million and other sales of $(8.6) million as compared to three months ended September 27, 2014. Increased sales volumes in Bakery due to the Custom Blenders acquisition in the fourth quarter of fiscal 2014 contributed to Bakery's increased net sales.

Food Ingredients

Three Months Ended

($ thousands)

October 3, 2015

September 27, 2014

Net Sales

$ 269,230

$ 301,398

Segment operating income

$ 11,562

$ 14,046




EBITDA

$ 28,706

$ 32,549

  • Food Ingredients operating income was $11.6 million for the three months ended October 3, 2015, a decrease of $2.4 million as compared to the...

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