Darling International Q4 Profit Down 22%, Sales Miss View

(RTTNews) - Food waste recycling company Darling International Inc. (DAR) on Wednesday reported a 22 percent decline in profit for the fourth quarter from last year, reflecting higher costs and expenses that offset an increase in sales. However, sales for the quarter missed analysts' estimates.

Randall Stuewe, Chairman and Chief Executive Officer of Darling International said, "A sharp decline in the fats market during the fourth quarter resulted from large global crop production increases and uncertainty surrounding the U.S. government's RFS2 mandated biofuel volumes for 2014. Our contractual market-based formulas worked, but were hard-pressed to fully protect our spread in a difficult environment of rapidly declining prices."

The Irving, Texas-based company's net income for the fourth quarter was $22.49 million or $0.18 per share, down from $28.80 million or $0.24 per share in the same period last year. On average, eight analysts polled by Thomson Reuters expected the company to earn $0.27 per share for the quarter. Analysts' estimates typically exclude special items.

The decline in net income reflected lower finished product pricing, primarily in the Bakery segment; transaction costs of $14.4 million related to the company's acquisition of Rothsay in October 2013 and the Vion Ingredients business; the write-off of a $13 million bridge loan fee, and higher depreciation and amortization expenses.

These were partly offset by a $27.5 million gain on a foreign exchange contract related to the acquisition of Vion Ingredients; earnings resulting from the Rothsay and TRS acquisitions; and a tax benefit associated with the U.S. biofuels tax incentive.

However, sales for the quarter increased less than 1 percent to $428.75 million from $424.92 million in the year-ago period. Analysts had a consensus revenue estimate for the quarter of $431.71 million.

The increase in net sales is primarily attributable to the inclusion of two months of sales from the company's new Canadian subsidiary, Rothsay, a full quarter of sales from the recently acquired food residuals business, Terra Renewal Services, and improved raw material volumes in both the Rendering and Bakery segments.

For fiscal 2013, Darling International's net income decreased to $108.97 million or $0.91 per share from $130.77 million or $1.11 per share in the prior year. Net sales for the year rose 1 percent to $1.72 billion from $1.70 billion in the previous year.

Street expected the company to earn $1.00 per share for the year on revenues of $1.73 billion.

Darling International noted that the Diamond Green Diesel refinery it owned in a joint venture with Valero Energy Corp. (VLO) encountered "issues typically consistent with the shakedown phase for a new facility in the refining industry".

According to the company, the refinery operated below nameplate capacity, resulting in a fourth-quarter ownership position in higher priced feedstock relative to the rapidly declining fat prices that occurred during the quarter.

Thus, Diamond Green Diesel was unable to benefit from the favorable market conditions that existed for inexpensive fats. Currently, Diamond Green Diesel is operating at nameplate capacity.

Looking ahead to the first quarter of fiscal 2014, Darling International said it anticipates additional transaction-related costs. This includes $27.3 million redemption premium associated with the repurchase of the company's previously outstanding 8.5 percent Notes; about $14 million to $18 million of other acquisition-related costs; and a $12.6 million foreign exchange contract loss related to the acquisition of Vion Ingredients.

DAR closed Wednesday's regular trading session at $20.29, up $0.23 or 1.15 percent on a volume of 1.56 million shares. However, in after-hours, the stock declined $0.29 or 1.43 percent to $20.00.