Darling Ingredients Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 9, 2023

Key Takeaways

  • Record combined adjusted EBITDA of $508.3 million in Q2 2023 ($526.8 million excluding a one-time $18.5 million inventory impact) highlights the power of Darling’s vertical integration.
  • Feed Ingredients volumes rose over 15% year-over-year with flat gross margins Q2 vs Q1 despite lower fat prices, as integration efforts near completion ahead of summer rendering challenges.
  • Fuel segment achieved a record quarter selling 387 million gallons of renewable diesel at $1.28 EBITDA per gallon; all Diamond Green Diesel units are back online and the 1.2 billion gallon 2023 production target was reaffirmed.
  • Specialty Food Ingredients integration of Gelnex is progressing smoothly, delivering pro forma Food segment EBITDA of $89.8 million excluding the one-time purchase accounting adjustment.
  • Net debt climbed to $4.5 billion and interest expense surged from $24 million to $70.2 million year-over-year due to acquisitions, although liquidity remains strong with $956 million available on the revolving credit facility.
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Earnings Conference Call
Darling Ingredients Q2 2023
00:00 / 00:00

There are 18 speakers on the call.

Operator

Good morning, and welcome to the Darling Ingredients, Inc. Conference Call to discuss the company's Second Quarter 2023 Results. After the speakers' prepared remarks, there will be a question and answer period and instructions to ask a question will be given at that time. Today's call is being recorded. I would now like to turn the call over to Ms.

Operator

Sue Ann Guthrie. Please go ahead.

Speaker 1

Good morning. Thank you for joining the Darling Ingredients' Q2 2023 earnings call. Here with me today are Mr. Randall C. Stuewe, Chairman and Chief Executive Officer Mr.

Speaker 1

Brad Phillips, Chief Financial Officer Mr. John Bullock, Chief Strategy Officer and Mr. Matt Jansen, Chief Operating Officer of North America. Our Q2 2023 earnings News release and slide presentation are available on the Investor Relations page under Events and Presentations tab on our corporate website and will be joined by a transcript of this call once it is available. During this call, we will be making forward looking statements, which are predictions, projections or other statements about future events.

Speaker 1

These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results can materially differ because of factors discussed in yesterday's press release and the comments made during this conference call and in the Risk Factors section of our Form 10 ks, 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.

Speaker 2

Hey, thanks, Sue Ann. Good morning, everyone. Thanks for joining us for our Q2 2023 earnings call. By all accounts, Darling Ingredients Had a fantastic quarter with a record $508,300,000 in combined adjusted EBITDA, excluding a one time 18.5 inventory negative impact due to the Gelinexham acquisition, our combined adjusted EBITDA would have been $526,800,000 for the 2nd quarter. As I discussed in our last quarterly call, we told you lower fat prices translates into lower EBITDA on our Feed segment.

Speaker 2

However, it is more than offset by increased earnings in our Fuel segment due to the sheer scale of our platform. This quarter for the first time in our history, you were able to See the strength of the vertical we have built to leverage the Diamond Green Diesel machine. The power of our integrated waste fats and oils business combined with best in class Renewable diesel production capacity was clearly on display this quarter. Now turning to the Feed Ingredients segment in detail. Globally, raw material volumes were up just over 15% compared to Q2 2022, primarily due to our Eastern USA And South American rendering acquisitions that closed last year.

Speaker 2

While we saw a softening in global fat prices, protein prices and specialty ingredients demands Continues to be very strong. Despite lower fat prices, our gross margins held flat compared to Q1 2023 Due to our continued integration efforts, I'm pleased to report that these integration efforts are nearly complete. I feel very good as we head into Q3. While it's normal to experience some margin degradation due to the extreme summer heat, we are very well positioned to handle the challenges that summer rendering brings. Capital investments have been made, yield adjustments and raw material procurement modifications have also been put in place and completed, And we've now optimized our finished product sales opportunities.

Speaker 2

Turning to our Specialty Food Ingredients segment, the global collagen market and gelatin business remains If we exclude the one time purchase accounting inventory negative impact of $18,500,000 due to the Gelnex acquisition, Food segment EBITDA would have been $89,800,000 for this quarter. Our integration efforts are going very well. We have cross colonnaded our organizations to form 1 and we are excited about the scale and long term opportunities these markets offer us. Moving to our Fuel segment, Diamond Green Diesel had a record quarter with more than 387,000,000 gallons of renewable diesel sold at Approximately $1.28 per gallon EBITDA clearly benefiting from the lower feedstock prices. Darling We received $101,400,000 cash dividend during the Q2 and subsequent to the quarter close, we received another $62,200,000 in cash DGD completed its turnaround, DGD II completed its turnaround and is back to normal production And DGD 3 has been running very well and above nameplate capacity.

Speaker 2

We continue to believe 1,200,000,000 gallons of renewable diesels Hold in 2023 is very achievable. Construction is progressing very nicely for our first SAF And we anticipate completion during late 2024 if all things go as planned. Now with that, I'd like to turn the call over to Brad and then Come back and continue with an outlook for 2023. Brad?

Speaker 3

Okay. Thanks, Randy. Net income for the Q2 2023 Net sales were $1,760,000,000 for the Q2 2023 as compared to $1,650,000,000 For the Q2 2022 or 6.5% increase in net sales, operating income increased $78,100,000 or 28 percent to $356,700,000 for the Q2 of 2023 compared to $278,600,000 for the Q2 of 2022, primarily due to Darling's share of Diamond Green Diesel Earnings increasing $139,300,000 This more than offset a $20,800,000 decrease in the gross margin of our Global Ingredients Which as Randy mentioned included a one time $18,500,000 negative impact due to purchase accounting for inventory related to the Gelnex acquisition. Additionally, depreciation and amortization and SG and A each increased about $29,000,000 as compared to the Q2 of fiscal 2022, primarily due to the Gelnex and Fazza acquisitions. Now moving to Donah operating results.

Speaker 3

Interest expense increased From $24,000,000 in Q2 2022 to about $70,200,000 in Q2 2023, Primarily as a result of increased indebtedness due to the acquisitions. Other income increased $5,400,000 primarily due to insurance proceeds received for the Ward, South Carolina facility fire. Now turning to income taxes, the company recorded income tax Expense of $40,700,000 for the Q2 of 2023. The effective tax rate for the 2nd quarter is 13.8%, which differs from the federal statutory rate of 21%, due primarily to biofuel tax incentives and the relative mix of earnings among jurisdictions with different tax rates. The company also paid $49,000,000 of income taxes in the 2nd quarter.

Speaker 3

For the 6 months ended July 1, 2023, Darling recorded income tax expense of $67,700,000 and an effective tax rate of The company has also paid $88,000,000 of income taxes as of the end of the second quarter. For 2023, we are projecting an effective tax rate of approximately 14% and cash taxes $50,000,000 for the remainder of this year. The company's total debt outstanding at 2nd quarter 2023 was $4,500,000,000 as compared to $3,400,000,000 at year end 2022. Our bank covenant leverage ratio at the end of the second quarter was 3.11 times. We continue to maintain strong liquidity with $956,000,000 available on our revolving Credit facility as of quarter end.

Speaker 3

Capital expenditures totaled $123,000,000 for the Q2 20 $23,000,000 $234,300,000 year to date. The company repurchased approximately 153,000 shares of its common stock $9,100,000 during the Q2. Stock repurchase year to date is approximately 926,000 shares for a total of $52,900,000 With that, Randy, I'll turn it back over to you.

Speaker 2

Hey, thanks Brad. Our business remains robust around the world. Fat Prices have bottomed and are moving up and I expect continued improvement in the back half of twenty twenty three. Protein demand and pricing remains consistent with Q2 And Q3 volumes for Diamond Green Diesel will be lighter compared to Q2 due to the planned turnaround at Diamond Green Diesel 2. For the year, we are once again reconfirming our guidance of $1,875,000,000 combined adjusted EBITDA.

Speaker 2

Our global ingredients business is strong and DGD has completed all turnarounds and should be operating above nameplate for the balance of the year. So with that, let's go ahead and open it up to Q and A.

Operator

We will now begin the question and answer session. And also we ask that you please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. The first question is from Manav Gupta with UBS. Please go ahead.

Speaker 4

Good morning, Randy and team. So we saw a lot of commodity price volatility during the quarter. Still when we look back, You gave a guidance of $485,000,000 to $525,000,000 on your 1Q call for 2Q and you actually came in at the top end of Meeting the guidance. So the question is help us understand the integrated business model a little better and how And again, with this beat and higher fats and UCO prices Is the decision not to raise guidance here just being conservative?

Speaker 2

Okay. No, I appreciate the comment Manav. And I think that was one of the 2 or 3 points we wanted to leave the stakeholders with today was we provided the guidance. We came in at the high end Ultimately, fat prices were down somewhere between $0.05 $0.07 a pound, A little more actually in Brazil and a little more in Europe. And that translates on an annualized basis to $70,000,000 to $80,000,000 of EBITDA run rate into our system, divide that by 4 and you're down about $20,000,000 in the quarter.

Speaker 2

And if you look The Feed segment, volume was about 100,000 tons lighter than prior sequential quarter and earnings were off, I think about $26,000,000 So it was all fat price. Now, as we said, the reason we were comfortable in trying to put out the guidance there was Because the Diamond Green Diesel machine is about 4 times larger than the Darling machine and it originates from around the world and was able to Both benefit from the lower fat prices that Darling provided, but also from around the world. And so It was very seemed pretty straightforward to us. John, you want to add anything to this?

Speaker 5

Yes. I think the interesting thing and probably the hard Part looking on the outside into Darling is the Q2 of this year is really the Q1 that you've been able to see Darling, with the vertical integration at Renewable and its scaled state now where we've added so much extra feedstock Supply around the world with our acquisitions and diamond is scaled from essentially 300,000,000 to 400,000,000 gallons to 1,200,000,000 gallons to 1,200,000,000, 1,300,000,000 gallons. This is your first look at that. And what you see is quite frankly when fat prices go up, Darling wins, when fat prices go down a little bit, Diamond wins, But the bottom line is now we're consistently hitting on that $450,000,000 to $550,000,000 EBITDA run rate, which is Exactly where we told The Street we were going to be when we went into the scaling process a couple of years ago.

Speaker 4

Thanks, sir. My quick follow-up here is you are moving ahead with the SAB projects, positive updates there. It's still early, But do you think on a per gallon profitability basis, you will be more profitable in SaaS than RD? So I'm just trying to understand if you make like $1 in EBITDA margin in RD, do you actually think you can make like $1.75 or $2 Per Gallatin SaaS fully understanding it's very early in the process.

Speaker 5

Yes. Manav, this is John. Absolutely. I mean, we think that The SAF market is a market that there is an insatiable demand for and an extremely limited supply and quite frankly most of the alternatives That have been promised to the airline industries around the world for SAF are pie in the sky don't exist ideas. So we're going to have insatiable demand for our SAF.

Speaker 5

We already see that coming to us. We're going to be receiving a premium for this product.

Operator

The next question is from Derrick Whitfield with Stifel. Please go ahead.

Speaker 6

Good morning and congrats on another solid quarter.

Speaker 2

Thanks, Derek.

Speaker 6

For my first question, I wanted to ask A question on your prepared comments on the record temperatures we're seeing across several of your operating areas. As you noted, Your feed margins have historically compressed during the summer due to lower fat yields. What have you experienced so far in Q3? And how should we think about your general preparedness this year versus last year?

Speaker 2

Yes. Always the challenges in summer I'm rendering are that the free fatty acids go up, meaning that the raw material degrades as quick or quicker than you can get it processed into the plants. And so therefore, some of the premium markets that you're serving, you're not able to achieve that. So far, we've made it through I think we're in the month of August now. So we've made it through almost 1 third, a little over 1 third of the summer with very Limited issues around the world so far.

Speaker 2

So at the end of the day, we're watching, as I said, Derek, we're watching fat prices. They bottomed, they're coming back up. I mean, the U. S. Is moving a little quicker up than the rest of the world.

Speaker 2

I think we've just completed a Board meeting yesterday. The European side Feels like it's moving up now. Clearly, there's been some unplanned downtime throughout Europe in the RD business That made that available and made it available to Diamond Green Diesel. And then obviously Brazil got a little bit Behind here the system and we've been bringing in a lot of Brazilian. But at the end of the day, it's a normal summer.

Speaker 2

It seems hot. What we're seeing a little bit more just color for everybody out there is just the slaughterhouses, the animal numbers Are not as large as they were last year. And so at the end of the day, the extra tonnage that sometimes we get in the summer times from The integrated slaughterhouse is breaking down, has not been as great as it was last year. But at the end of the day, I would tell you that's good news and bad news. The bad news is The good news is it's less stress on the system here for us and we've been able to kind of survive a little better than we got punched in the nose last But Q3 is not over yet, but that feels pretty good right now.

Speaker 2

Matt, anything you want to add?

Speaker 7

Yes. Thanks, Randy. I would just say that compared to same quarter last year on Q3, over the last 12 months, the team has worked really hard in getting some of the wrinkles ironed out and And getting some of the efficiencies improved, especially in some of the Valley assets. And so we're in as good a position as we can be To go through this warm and seasonal period.

Speaker 6

Great. And then as my follow-up, I wanted to ask if you could elaborate in your comments on the fat market as you look into the second half and even beyond. How would you frame the supply demand fundamentals over the next several quarters? While global collection efficiency has improved, I Can't imagine it's improved to the level where you could cover 1,000,000,000 gallons of RD demand that's already in construction in the U. S.

Speaker 6

And existing SVO focused operators that would likely want to lower CI feedstock to qualify for a CFBC credit.

Speaker 5

Let me answer the question this way. As long as you have the most efficient best machine in the industry, you're always going to be able to The fat you need and quite frankly that's what we have at Diamond Green Diesel. So the supply of fat is always out there for us Because we're in the right place with the right pretreatment capabilities and the ability to market to the different markets to maximize the value of our finished product, we're going to get the fat. And so we're not worried about the fat supply. And what's interesting about it is this, we operated at production levels of 330,000,000, 340,000,000 gallons in Q2, which quite frankly, if you take 340,000,000 and multiply it by 4, you get a number that's Over $1,300,000,000 gallons and we've sourced the fat for that into our machine without a problem.

Speaker 5

So the reality is The shortage is a problem for people in bad places with bad machines. It's not a problem for a person in the right place with the right machine.

Operator

The next question is from Dushyant Alani with Jefferies. Please go ahead.

Speaker 8

Hi, team. Thank you for taking my questions. My first one is on free cash flow with DGD distribution is coming in. Could you just remind us on how you would prioritize free cash flow for the next year possibly?

Speaker 3

Yes, Deshant, this is Brad. Yes, so the 164 we've now received as of today year to date, we do additional distributions between now and the end of the year. As we said before, We our number one priority along with integration is really to continue through the end of this year at a minimum to delever. So we do anticipate, you see we were at we decreased our leverage slightly here in Q2 And we'll see the cadence of that continued through the end of the year to where it will be clearly below 3 times at year And if not before.

Speaker 8

Brilliant. Thank you. And then my second question was just on the DGD capacity. I You guys have mentioned that barring the turnarounds, you have been operating above nameplate capacity. So is there a new, I don't know, limit that we can think of for DGD in terms of what's the capacity you can think of?

Speaker 5

Yes, this is John. Well, I mean, if you take a look at what we did in Q2 and multiply by 4, you get a number well in excess of 1,300,000,000 We're always going to have operational hiccups. It's never going to allow you to run at 100% pure capacity. But the reality is Diamond Green Diesel, I think we've had 1,200,000,000 gallons out there as the capacity for Diamond on an annualized basis, even taking into account Scheduled downtime and some operational inefficiencies from hiccups here or there. It's pretty easy for somebody to do the math and figure that $1,200,000,000 Gallons a year is way low for what that machine can produce on an annualized basis.

Speaker 5

Certainly 1.25 Shouldn't surprise anybody on our capacity on what we can produce this year. And I wouldn't be surprised if there are years that Diamond can't do well in excess of 1,300,000,000 gallons.

Speaker 2

We're always trying to make sure we're aligned with our partner, but I think in their call about 10 days ago, they actually acknowledged that it can run-in excess $1,200,000,000 but they didn't raise it. So I don't want to be the guy that raises it. But as John says, 4x340 kind of gives Gives you the reality of what's out there.

Operator

The next question is from Sam Margolin with Wolfe Research. Please go ahead.

Speaker 9

Hey, good morning, everybody.

Speaker 2

Good morning, Sam.

Speaker 9

So you guys always have a really good perspective on competitive capacity. We're Sort of the 8th inning of commissioning or startups on some of these high profile projects. I think what's interesting is that The margin spread between an advantaged facility like the DGD system versus sort of a marginal Facility that might be using pretreated soybean oil is very wide. It's reminiscent of like 2021. So are you seeing anything like as far as feedstock competition or I guess Are there facilities in the market sort of pulling away the advantaged feedstocks?

Speaker 9

Or do you think that the startups we're seeing now are mostly on the Pre treated side and aren't really affecting you right now?

Speaker 2

Well, I think there's a couple embedded Relevant points here that you pointed out. Number 1, feedstock markets are moving up a little bit for us right now. They probably move up more if there wasn't so much resale material out there available from the guys that can't run, that bought it and they have to resell it. You've seen a compression in the RBD soybean oil versus the crude spread right now because they're having to resell RBD out there because they can't even Operate with what I'm going to call champagne in the sense of processing. The other thing that becomes very and should be very Obvious to the listeners is that Diamond Green Diesel is a real estate play.

Speaker 2

It's a real estate play on the Gulf Coast that gives it access To all feedstocks in the world and allows the commercial team to optimize the lowest price fat in the world. Today, the lowest price fat in the world is Brazil. And so more boats are coming in from Brazil, Europe's moving back up and given some turnarounds over in The eastern part of the world, we're moving feedstock from there too. So ultimately is it affects when I think about the whole Business model for us, it's allowing us as Darling specialty ingredients supplier to provide fat To some that can try to pre treat, there aren't many out there yet today. And so ultimately, we own the arbitrage that we've always talked about.

Speaker 2

I think about a year ago, if I reflect everybody on here said there was going to be a feedstock shortage and how we were going to allocate it. And I think I've made the comment, it would be okay if I didn't supply a pound of Diamond Green Diesel because it means they can buy it for cheaper and I can sell it for more. And so ultimately that arbitrage exists today and we're moving product both from the world Into the DGD system and we're selling our quality products out to other people. John, do you want to add to that or Yes.

Speaker 5

I think it's always interesting to read all the press reports About all of the capacity that's going to be coming up in the next quarter. We've read those press reports now for 3 years. And quite frankly, every quarter, the same companies come out and talk about how well next quarter we're actually going to get there. It's hard to run a renewable diesel machine. It's like Riding a unicycle.

Speaker 5

These things are much more difficult to operate. I think people find that out over a period of time. I think it's also interesting that everybody always adds up the stated Capacity that's coming online and assuming that those guys are going to run efficiently, many of those people are running 2 and 3 catalyst turnarounds a year. And they've got to figure out their machines. These guys are smart.

Speaker 5

Some of them will figure it out over a period of time. And then when you shorten the list On the amount of people that actually have put in pretreatment systems or put in pretreatment systems that are actually capable of pretreating the material to protect the Catalyst in the machine, that list starts to shrink really, really, really fast. So there's a lot of discussion about capacity out there. Quite frankly, most of the Capacity that's being discussed aren't competing with us. They're in an entirely different business than we are.

Speaker 5

We're comfortable The business we're in and we love the vertical walk that we have between Darling Feedstock and Diamond Green Diesel. It allows us, as Randy says, we own the arbitrage. It allows us to maximize profitability regardless of what happens in the marketplace. And that's the position we're in. It's exactly where we said we were going to be.

Speaker 5

We're extremely comfortable with the machine. They're extremely proud of all the hard work from the people in Darling and the people in Valero that have allowed us to create this machine.

Speaker 9

Understood. That's super helpful. I actually don't have a follow-up. So thanks very much.

Operator

The next question is from Andrew Strelzik with BMO. Please go ahead.

Speaker 10

Hey, good morning. Thanks for taking the questions. My first one, I guess, I'm hoping that maybe you could compare and contrast kind of The back half of the year outlook with the front half of the year. And I guess where I'm coming from is if I annualize that first half EBITDA, take out that Gelmex charge, You'll be running ahead of the guidance, which is great. You also had in the first half lower fat prices, only 1 quarter at Gelmex, Valley is getting better, DGD's ramp.

Speaker 9

So I guess,

Speaker 10

is there anything where you expect things to get worse in the back For some of the strength to not hold, I'm just trying to make sure that I understand the back half

Speaker 11

outlook relative to the front half.

Speaker 2

I think, Number 1, it's very difficult to try to predict this thing segment to segment quarter to quarter. And so I think we've been Pretty darn close in the last couple of fiscal years. Clearly, as I would point out to you, I think Q3, I would suggest to you is going to be weaker than Q2. Why? Because fat prices may be moving up, but the quality of Summer rendering is always weaker.

Speaker 2

And historically over my 20 years that's just proven out. Gelnex We'll contribute fully in Q3. And so the Feed the Food segment is going to be strong, if not stronger. The Feed segment should improve Slightly, from where it's at today. And then ultimately the question is, what how many gallons can we get through the DGD System in Q3, DGD2, I believe went down in July and just Yes, and came back up in the 1st week of August here.

Speaker 2

So, we missed 20 something, 24, 27 days of production there Against the, as John said, the 344 production clearly in Q2. So clearly, The contribution of DGD by pure volume with margins holding or improving in DGD, it will be less in Q3 and that's Where we kind of say the core business, specialty ingredients business right now, 40 days into the quarter look Stronger than Q2 and DGD just has less gallons. So that would be the way that I would frame it. Johnny, anything you want to add to that or? That's exactly right.

Speaker 9

Okay.

Speaker 10

That's super helpful. Thank you. And then maybe just one follow-up on the DGD margins. Obviously, there's been A lot of volatility, there's always a gap relative to what we would calculate or other numbers out there. You're talking about Brazil being The cheapest, kind of feedstocks right now.

Speaker 10

So can you just from a level setting perspective, like how should we think about the VGG economics today Or through the back half, just there's always that gap and so any help would be helpful. Thanks.

Speaker 2

Yes, I think and John and I'll tag this. I mean, clearly, We've watched heating oil or crude oil and heating oil move back up sharply here. Hopefully, that will widen a little bit of margin. There's No lack of volatility, as John says, in that business. Spot margins have ranged from 1 point 2 To $1.50 in there and I think for the end of the balance of the year, I think somewhere I don't know, John, what do you want to put out there, dollars 1.20, dollars 1.25 for the balance of the year is what looks pretty achievable?

Speaker 5

Yes. I mean at the end of the day, we're always going to see volatility on Diamond's margins on a quarter by quarter basis Because you have a massive amount of feedstock going to it, a lot of different markets that we're selling into and then we've got heating oil moving around, we have Moving around and by the way, the disastrous news on the RIN pricing that came out after the RBOs came out, the RIN market is up about $0.08 a gallon Since that point in time. So all that's right in play with what we thought it was going to be. The margins move around a little bit. You kind of see because of the supply chain Being so huge and fairly long, kind of a lead lag type of a thing that happens on a quarter by quarter basis.

Speaker 5

I've said in the past, Don't get too excited about really high earnings from Diamond on a quarterly basis or a little less per gallon from Diamond on a quarterly basis Because when you even that out over the last 12 months, you kind of come to the conclusion that Diamond's running about that $1,000 $1.25 a gallon. The only difference is we used to make 300,000,000 gallons of this stuff and now we're making 1,200,000,000 to 1,300,000,000 gallons of this stuff and that math adds up quite differently.

Operator

The next question is from Ryan Todd with Piper Sandler. Please go ahead.

Speaker 12

Thanks. Maybe a question on margins. As we think about your Feed and Food business, You've had material acquisitions in both of those, it's Valley Protein and a couple others on the feed side and the Gelnex on the food side. You held margin gross margin flat in the feed business sequentially. Food was down a little bit, but adjusted for the inventory charge, it looks like it would have been still around 26%.

Speaker 12

As we think about those post these acquisitions, should we still expect is the food the right way to think about the food margin still kind of in the 25%, 26% and maybe the same on the feed side or are there post acquisition or are there things that would drive those margins one way or the other?

Speaker 2

Yes. I mean, I think take the feed segment, I think the gross margin percentage held quarter over quarter. Clearly, that's Indicative of the progress that has been made in the North American Valley proteins integration acquisition. I mean, there were many things as we said that had to happen there from changing of raw material formulas to yield adjustments to Labor attrition and just operating reliability and efficiency and many of those things are happening. Still some work to do there while we feel that we've got our plan complete.

Speaker 2

As we reminded people, some of the raw material formulas are not changeable in that system You told the end of this year, one more next year and then 1 in 2026. So that was always the 1,000 day integration plan that lay But long story short, the margins in that business have now improved quite a bit. You've seen that. So I think we're pretty consistent there. In the Food segment, yes, I think what you're seeing is pretty Symbolic of what's achievable there.

Speaker 2

We continue to move our product mix more towards the collagen peptide. That's Meaning that that's what's driving those margins there. And clearly, as we told people, the Gelnex margins were consistent or better And many of the different products and geographies that we didn't operate in and you'll see over time that work its way through. So, no, I think Ryan, I think it's pretty symbolic and that would be consistent with my comments of Q3 core ingredients being Better than Q2 core ingredients.

Speaker 12

Great. Thank you. And then Maybe one follow-up on you just made some comments about it briefly, but the final RVO guidance came out during the quarter. Any thoughts on takeaways from that final guidance, what it means for your business and maybe the biofuels sector in general as you look forward over the next few years?

Speaker 5

This is John. Yes, I mean at the end of the day, it was interesting because when we saw that RVO rule come out internally, we were like, well, that's great, Kind of in line with what we were hoping for. And then all of a sudden the marketplace had all sorts of headlines about disappointing, terrible, awful, rotten. And of course, the RINs market has gone up since that RBL dipped for a couple of days and went right back up. The reality is this, While the 6 50 page document that the EPA puts out every year is massively painful to read through, when you do so what you see is this.

Speaker 5

They've been fairly effective at managing to a 20% RINs Bank on a forward look basis And that will keep the marketplace in $1.25 to $1.75 RINs prices depending on what the psychology of the moment is. The only time that didn't run is when the EPA came right out of left field with the small refinery exemptions and hit the marketplace with a big Destruction of demand for RINs that the EPA was unable to predict in their previous rule makings. So at the end of the day, This thing has been condition stable right where the EPA has managed it to or wants it to be it seems like, which is a very nice market for us. It's a very adoptable market for the marketplace. The cost out there is not too great for folks and we're able to market the product And have a nice margin out of it.

Speaker 5

So it works very well. We're very pleased with how that RVO came out. And renewable diesel in particular, It's great positioning within that RVO profile that just came out. So we liked it a lot. We were surprised when the marketplace didn't.

Operator

The next question is from Adam Samuelson with Goldman Sachs. Please go ahead.

Speaker 13

Yes. Thank you. Good morning, everyone. Good morning. Good morning.

Speaker 13

Maybe John, if I could maybe follow on that last Kind of a comment that you just made. And if you think about 2025 and the shift to the 45Z where existing renewable diesel producers And existing conventional biodiesel producers won't get kind of either the full or partial portion of The biodiesel tax credit that they currently enjoy. Do you see risk or potential that that changes the paradigm on rent pricing as You move out, as ultimately that kind of that gap that people are now earning on the BTC Has to get filled by other parts of the different credits in the marketplace.

Speaker 5

So the 45 is a very interesting piece of legislation. I think it surprised people when they went back to the producer Late in the game as they were deciding how to extend. At the end of the day, you're exactly right. You do see I adjust On that cash credit, so when you look at it on an absolute basis, you can say, well, you're going to get less than the dollar. Here's what we loved about it for Darling.

Speaker 5

Fact of the matter is, we produce in Darling low CI feedstocks. Diamond Green Diesel is capable of taking that low CI feedstock and Turning it into the highest value renewable diesel in the world. What that all adds up to is we've always enjoyed in the LCFS programs the CI adjusted concept that maximizes the value of our FAT and maximizes the value of what Diamond Green Diesel can produce. What we just saw in the 45z was that same concept is now implemented into the federal incentive structure. That's advantage for Diamond Green Diesel over time.

Speaker 5

And at the end of the day, our margins are going to be defined By our competitive advantage versus the alternatives that can supply biomass based diesel into the marketplace, that advantage just got greater with this piece of legislation. And one other thing to consider is it's a producer's tax credit. That means the product has to be produced in the United States of America. And we are the largest producer in the United States of America. Again, another huge win for Team Darling.

Speaker 2

And also, John, I I think relative to and Adam to by then when that when the producers tax credit hit or 45z comes into We're going to be in the SAF market and we hold that arbitrage at the same time that Absolutely favors low CI feedstock and low CI SAF. So I think for anybody to say this is a static, Oh, it's less than $1 will be as we call it internally, the green premium have to adjust to keep the marginal producer profitable? Maybe. But I think I don't know that we spend a lot of time thinking about that right now. We just think that optimizing margins between the R and D SAF Markets are going to be what drives the future profitability here and whether or not you're getting $0.75 or $1 I don't think that plays into The thinking of us around here.

Speaker 3

And Adam, since the spread, since the last time we spoke or last quarter, They've ruled on or allowed transferability as well under that rule. So that gives it more flexibility From a tax incentive perspective.

Speaker 9

Okay. Now that's helpful.

Speaker 8

And if I could just have

Speaker 13

a follow-up on capital allocation and Obviously, there's a DGD distributions happened in June, another one in Q3, whether that was July or August. Should we look at kind of the cumulative kind of total that you've received in the last few months and kind of against the operating kind of Earnings power of the business at current production rates and that being a reasonable indication of kind of how distributions will progress Moving forward, obviously, some volatility in cash spend for CapEx in the SAF plant at the JV. But Is there anything that would kind of alter that kind of payout in a material way moving forward?

Speaker 2

Yes. And I think Brad and I'll tag team this a little bit. I mean, obviously, it was important To me, important to our Board and also to The Street to show you the earnings power of Diamond Green Diesel and to Start to bring those dividends. And so $101,000,000 in Q2 subsequent in July here Well, it's another $62,000,000 Clearly, Diamond Green Diesel 2 down on a major turnaround for most of the month. We'll use the excess cash.

Speaker 2

But cash comes and goes from that joint venture as the blenders tax credit check comes in. And so what Brad's been able to do is Move this to a monthly calculation instead of a quarterly calculation. And ultimately that calculation gets made at

Speaker 3

That's the only thing I was going to point out Adam is what Randy just hit on and I think you know it, but Big picture, I think you're right on for the year. The cadence here should continue. But if you look at it in a real short period With a calculation each month and you hold back some cash, you repay the if there's Working capital on the revolving line outstanding. So when we get to the end of the year, what's the total exactly going to be? It's hard to say, Randy mentioned big BTC flows in that and John's big machine of DGD 1, 23, Those are big cash movements, but in the big scheme of things for this year, I'd say what we've seen ball Depending on timing, particularly at the end of the year is kind of how we're seeing it for the rest of the year.

Speaker 2

Yes. And I think Trying to put a number on it's hard, Adam. I mean, clearly, we're just speaking at the ultimate number of being below 3 times leverage by the end of the year. And then I think you can kind of back into that number against I've given you all the bread crumbs of the EBITDA and all of that.

Speaker 3

And so our leverage, we've said will be clearly below 3 times. That's factoring in some additional distributions, Put it that

Speaker 14

way.

Operator

The next question is from Ben Kallo with Baird. Please go ahead.

Speaker 15

Hey, good morning guys. Congrats, John. I know you're around until next year, Congrats on everything. Maybe just going to Gelnex, Maybe everything together, Randy. You had the one timer here and the question we get a lot is just Are we going to see more of those?

Speaker 15

And so I know you don't have a crystal ball, but as you look out, Most of or we kind of see the light in the tunnel with the acquisitions, they kind of one time things related to them.

Speaker 3

Yes. Ben, this is Brad. I'll just speak up here. We had smaller amounts for the other significant acquisitions, Didn't really speak to them as clearly because they were about a third this amount. What will have Q3 is Just de minimis.

Speaker 3

It's really in the month of July. So it's we want to really be even speaking toward it. So that 18.5% is, I don't know, 90% of it.

Speaker 2

Yes. That's so yes, I answer to you, Ben, we do have a crystal ball and we got another 1,000,000,000 and a half Then that's over and it's we're operating now as we said, Our focus is laser on finishing the integration, moving some moving to one operating computer system around the world And just paying down debt.

Speaker 15

And one thing I think you answered some of this in the previous question or Previous question on Gelmex. But could you just talk to us about just because collagen is becoming a bigger part of your business about Your customer base or who customer is, and just how you guys kind of envision growth in that business? I know you talked about margin a bit, which is Top line growth as well.

Speaker 2

Yes. I mean, clearly, the decision to acquire Gelnex was, A, it became available, B, we were out of capacity in our system as we moved our product mix around from straight gelatin to a collagen gelatin mix. And so it became a pretty interesting opportunity as we closed on the business and got to look or deep dive into The sales ledger, what we started to see was it was one of the more fascinating things for me and my food and ag career was As always, they were doing a lot of business in geographies and also North America with customers that we weren't. So we had very little, I mean, when I say little, very little overlap. So our customer base grew.

Speaker 2

The fun part with Brazil is where 4 plants are. They're very efficient, 1 in Paraguay and then 1 up in Portage, Indiana, Gives us a chance to optimize our product mix around the world and geographic movements Of those products. I think the other thing in my earlier comments was Ricardo Cabrillo was the operating Operations Manager of the Gelmex operations, he's now in charge of all of Darling Rousselot Worldwide. And their sales manager has moved out of the North America and he's moved to run our European operations. Clearly, the cross pollination Of the team there is something that we're very, very bullish on.

Speaker 2

In my case and I get to Sit at the in the big seat here. Our team has a lot to learn from them and I'm very proud of that. And I think the integration is going to go very, very well. It is Very, very well right now. The sales ledger is really solid.

Speaker 2

The other thing I would comment about our global collagen business is where This is kind of the completion of Phase 1. Phase 2, you're going to hear more about over the coming year is as we move into the active peptide area And we'll be talking more about the potential growth vehicles in that and we needed the capacity of the Gelmex System to help us move to Phase 2 of active peptides. The other piece that's underneath this business is Our continued strong performance in China and ultimately we're going to add a little bit of capacity in China over the coming year in our Northern China plant And ultimately grow that business. Clearly the pharmaceutical or the pharma business as we call it from bone gelatin in China It's growing very rapidly as that population looks to nutraceuticals and supplements for healthcare. Johnny, anything you want to add to this?

Speaker 5

No, I mean the wonderful part about Joe and that's besides having a fabulous system in a fabulous location is at the end of the day, it's always people that makes money and we picked up a fabulous, fabulous, fabulous set of talent And with the Gelnax Group in South America, that's going to benefit us not only in the Gelnax organization, but as it already has and as Randy has mentioned, Throughout the entire Darling and Russela organization in years to come. We're really excited about it.

Operator

The next question is from Ben Bienvenu with Stephens. Please go ahead.

Speaker 14

Hey, good morning. Thanks for taking my questions. I want to maybe ask a little bit of in the context of, As you all highlighted, the benefits of vertical integrations of the model, despite what was a lot of volatility in the first half of the year, You demonstrated really solid earnings power from the business and some consistency, that I think is quite remarkable. And so as you think about This business now being a cash machine and wanting to grow it over the next decade, do you like the proportions Of the various segments of the business today and how they intertwine? And how do you think about allocating capital in a balanced

Speaker 2

Yes. This is Randy and I'll tag team with the team here. I mean, I think a little bit, I spent a lot of time looking at geographic concentration. I mean, clearly we placed a Pretty sizable bet in Brazil. I think we've been bullish Brazil for a lot of years here and waiting on the right opportunity to Into the core rendering and the gelatin collagen business and grow it there.

Speaker 2

So clearly, we've increased our exposure there. Why? Because we continue to believe that that country possesses land, water And the ability and people and the ability to produce more animals and that's where we want to be. So I mean clearly we placed that bet. We will continue to grow in Brazil.

Speaker 2

We'll continue to expand the rendering business. I mean, it's a very, very large country, north to south, east to west. And so it will give us a lot more opportunity. We're bringing on a couple more plants as we speak right now there. I mean as I look at our total portfolio, Clearly, I still think as political tensions potentially ease over time, China deserves a deeper look and then ultimately Africa Over time.

Speaker 2

So the question becomes what is our growth strategy? Clearly, green energy in Europe. You'll see some additional digester growth from us Potentially this year in that area, both expansion in Greenfield. And then ultimately SAF 2.0, I mean clearly Diamond Green Diesel 1 and 2 were not laid out as aptly as number 3 for of a unit, but we're studying that right now for seeing where it fits and ultimately that decision will depend on how the market develops. I love John's word insatiable demand.

Speaker 2

I'm hoping for insatiable margins and then we'll build number 2.0 there. Core rendering, I mean you saw the Butterball announcement. There's a couple more out there that we're working on right now both domestically and internationally for Rendering plant growth and then ultimately as the gelatin collagen, we talked about the active peptide market and where we're moving there. So, we feel really good about the trajectory of growth for this business. Ultimately, The real estate side, you have to remember, as we said on the Gulf Coast, I mean, no announcement here on DGD 4.0 or DGNIC 4, But clearly our confidence now in originating global feedstocks gives us the opportunity as that market grows or as the SAF market grows To consider that investment.

Speaker 2

And then ultimately, Brad, as we get back to 2.5x leverage is where we want to be, which Should be nearly achievable by the end of 'twenty four. We've got to start evaluating cash Allocations and what we're going to do with it and that once again puts the dividend on the table as a Board decision That could be made at that time. Brad, John, anything you guys want to

Speaker 5

add? Perfect.

Speaker 14

Okay, very good. Thanks, Randy. My second question is just related to LTFS markets. What you think the runway ahead is for potentially Changing compliance standards and what the considerations are as you look to like the California LCFS Market and what they're thinking through to make that determination?

Speaker 5

This is John. I mean, See, they're going through the mapping process right now to try to figure out where they go. I think one of the things that's great news out of California is CARB has figured out that their program works That they have the ability to accelerate the mandates going forward and that they know that quite frankly it's $75 to $85 a ton credit that's Probably a little low to create the type of additional incremental low CI feedstock they want in the marketplace. We would anticipate that they'll Come forward with a rulemaking that's going to show a very good demand increase in California. And we really like the direction that that's going.

Speaker 5

I think Carbs had all the right signals sent to us that it can substantially increase those mandates going forward and we would anticipate that they would. They do a nice job on evaluating the future and capabilities of supply and what the demand looks like, but the pattern really seems set that we're in a good position to have growth there.

Speaker 9

Hi, can you hear me?

Speaker 8

Yes, go ahead. I think I lost our

Speaker 1

operator, but go ahead, Matt.

Speaker 9

My apologies. I want to follow-up on the recent Butterball It sounds like you'll be building a new poultry rendering plant that would raise your feed volumes by about 3%. Could you talk about how this deal came about and Whether there might be additional opportunities to Thunderball? Thanks.

Speaker 2

Well, this is a model that we've started. I think it's Probably somewhere between 5 7 years ago now, with PECO Foods in Pocahontas, Arkansas and Case Foods in Winesburg, Ohio. And ultimately it gets to as we said, this is a transportation logistics business on one hand with a perishable item That's half water to 2 thirds water in some cases. And so we were hauling Butterball a long way and it just made To our factory, as you know, clearly a year ago today, we had Armageddon in the sense of trying to handle all the 3 tonnage in the new Valley system. And so we were either going to have to build some additional capacity in the Delmarva or on the East Coast I handled it, the tonnage and Butterball just became a candidate because of their tonnage internally and then our ability to 3rd party tonnage into a site, take some pressure off of our site, give them improved economics And help them grow.

Speaker 2

So these are just really fabulous deals. I mean, you saw us announce what heritage cattlemen or cattlemen's heritage Up in Nebraska, that's the same type of deal and it's just really it gets down to a transportation savings. Trucking is not as cheap as it used to be. So as you look at the concentration of tonnage and we're always looking to optimize our And say, okay, who's spending what money on freight and then does it make sense to build a plant and in this case, their land, They're building our equipment and a long term agreement and better economics with our expertise to both operating, Rendering capacity and our marketing of our product line around the world.

Speaker 9

Sounds good. And then do you have more color on the food segment in Q2? I guess we were a little Pardon to see it down quarter over quarter even with Gelnex rolling in. I understand there was the inventory hit, which would just be one time. But Is the Gelnex annual run rate still in the $110,000,000 to $120,000,000 EBITDA range?

Speaker 9

And Could you talk about how things are going so far in Q3 for food?

Speaker 2

Yes. I mean Q2, I mean you got to add back the 18.5% and you would see that It was up nicely, quarter over quarter representative of the Gelnex contribution. Remember, there's 3 components in the food segment. There's the Rousselot business, there's the edible animal fats business and then there's the casings and heparin business. And edible fats followed the rest of the animal fat complex down.

Speaker 2

So there's a little bit of reduction there. And then the casings business This was a little bit lower quarter over quarter. That's related to the Russian Ukraine issue and the Russian Sales that aren't in there right now. So Q3, we're I can tell you that we're back at operating levels that we thought We would. And yes, we said that the Gelnex would contribute on the final quarter at the $75,000,000 rate post The $18,500,000 inventory charge and we're at that run rate at least what I saw in July here.

Speaker 2

So that's about the only color I can give you at this time with 30 days into the quarter.

Operator

The next question is from Tom Palmer with JPMorgan. Please go ahead.

Speaker 16

Good morning and thanks for squeezing me in. I just wanted to ask on CapEx expectations at Diamond Green Diesel. The Q2 figure It was below your depreciation expense, but I know you've got the SaaS project ramping up. So just any color on maybe how that Progressive in the back half would be helpful.

Speaker 5

I'm not sure I understand the question, Tom.

Speaker 16

Capital expenditures? Sure. Just your capital expenditure plans at Diamond Green Diesel in the back half, They were rather low in the Q2, but I know the SAPS project is starting to ramp up.

Speaker 5

I got it. So yes, no, we will see an increasing CapEx run rate out of the Saff project, but the majority of that still Next year is when we see the majority of the CapEx on that. But I think the bigger point on Diamond Green Diesel in terms of cash flow out of it is, It's true. We have a little money we're going to spend each year on turnarounds and we have some money that we're spending on the SAPP project. But compared to the cash Flow that we've had going out as we've been building Diamond Green Diesel 2 and Diamond Green Diesel 3, these aren't even drops in the pond.

Speaker 5

So The free cash flow of Diamond Green Diesel increases tremendously as we've stopped the massive expansion process within Diamond. And that gives us confidence that we'll continue to see dividends coming out of Diamond Green Diesel going forward.

Speaker 2

Okay. Thanks for that.

Speaker 16

Maybe I'll just follow-up on that That dividend comment. I know you covered some of this already, but in the past you had a more formal criteria to determine the magnitude of distributions. I think if we go back to like 2019, Maybe I missed it, but it doesn't seem like there's a policy to that extent in place at this point. Maybe what kind of determines the magnitude of payouts this time around and might we anticipate something Perhaps more formal at some point in coming quarters.

Speaker 3

Yes, Tom, this is Brad. So, yes, I think you're probably referencing A $50,000,000 number that we previously a couple of years ago when DGD was smaller in terms of kind of a cash hold, That number is up due to the size of the machine now. Won't really speak toward a specific number, but that's I think Maybe a bit of what you're driving at. So but the mechanics of that is largely, Randy mentioned, we went to a monthly rather than a quarterly. So that was a significant move a number of quarters ago.

Speaker 3

But by and large, other than those Items, it's still done the same way. And we pay that revolving facility down or we have And for it to be paid down to be factored in terms of what the distributions will be. And the other thing just to tag On what John was referencing on CapEx at Diamond, just I want to be clear, when we Think about and reference toward distributions the remainder of the year, we are factoring in the cap or the presumed or the projected CapEx Thanks there. So hope some of that helps you.

Operator

The next question is from Paul Cheng with Scotiabank. Please go

Speaker 8

ahead. Thank you. Good morning, guys. Randy, I want to go back. You mentioned about the Phase 2 on the Collagen business on the growth plan.

Speaker 8

Can you share with us that what kind of timeline and milestone that We should be

Speaker 14

watching. And also that,

Speaker 8

I mean, on that, I mean, that if you can talk about that the new business, what is the margin comparing to your legacy business so that at least we can have some idea then how the margin improvement may look like on the overall business?

Speaker 2

Yes, I mean, if you think about the product line that's being marketed today, The collagen peptides, that's just an aggregation of the peptide today, meaning they've not been separated. The work We're doing at the R and D level today that gives us a lot of excitement is And concentrating the different peptides and then doing clinicals and different studies on what kind of Reaction the body, the human body gets for taking those peptides. It is just way too early at This moment to even think about volumes or margin in that area, but clearly I believe it will be substantially better Over time then commodity gelatin, the applications that are being worked on today that we've released And discuss during some of our public innovation days are absolutely they're breathtaking. John, what do you want to add to that? I mean, you've been working in this area.

Speaker 5

I think what you think about in terms of active peptides, this is just a continuing example of Darling as an innovation company. We're constantly out there trying to figure out, know our customer base and figure out where these new products that are the demand is being created for, How we can develop supply chains at higher margins to be able to supply these market chains active peptides is a continuation of what we've been doing over It takes time to develop these and it's not always a straight line. Everything doesn't happen on this is going to happen this day and something else is going to happen this day. We've got a doggone good track record and we've got a phenomenal organization out there working on the innovation stream. We think there's just a tremendous Kennedy, in the Active Peptide world?

Speaker 2

Yes. I mean, Paul, if you think about it, I mean, today, you're seeing a really broad Product grouping out there that from vital proteins in the sense of just taking collagen peptide and putting it in solution Or in a protein bar, but it's just listed as collagen peptide. The stuff that we're seeing out here that's being worked It would be for a specific purpose, joint lubricity, nail growth, hair retention, gut health. I've heard it. I've even heard words dementia treatment.

Speaker 2

I've heard words of ultimately A1C management. And so what all that means is while it's Long runway to get there. We're working hard in that area, but it broadens the number of products That we can use our product or put our ingredient into around the world and given the specificity of those ingredients, it will command A premium to what we're doing today. And so how big those markets are, we'll see, but it wasn't 7, 8 years ago, we didn't know how big the collagen peptide market was, but it clearly from our research says this isn't a fad. This has absolutely got proven medical benefits out here and we're just excited about it and we'll see where it goes.

Speaker 8

Randy and John, I think you are doing research with some university on some of the products. When you think that the first product may go to the FDA for approval or then maybe go through the Phase 1? I don't know where they are at this point.

Speaker 2

There have been several patents received at this time. There are several petitions out there around the world for approval of these products, but I guess that's all we would like to comment at this time. Johnny, anything you want to add?

Speaker 5

No, that's exactly right. We Try not to discuss the stuff we're intending on patenting.

Operator

The next question is from Jason Gabelman with TD Cowen, please go ahead.

Speaker 17

Hey, good morning. Thanks for taking my questions. The first one is just on The impact of feed prices to the overall business. Randy, last quarter on the earnings call, you discussed the fact That lower feed prices were a net benefit to the company's earnings and I just want to Okay. Your understanding or your comments now that fee prices have kind of rebounded here and is the inverse true that higher Feed prices are going to be a net negative for the overall business or are there some offsets going on in the marketplace we should be aware of?

Speaker 17

And then my follow-up is just on EBITDA. As we think about next year, we could see if we annualize Second half twenty twenty three EBITDA, you get to about $1,900,000,000 Is that a fair benchmark to think about for 2024 assuming Pricing remains flat, which I know is obviously a big assumption to make or are there Some other things going on in the underlying business that we should think about as well? Thank you.

Speaker 2

No, I think good questions, Jason. This Might be where I say I got a fog in my crystal ball a little bit, but no, I think the thing that I just want to once again reiterate and try to say is, Okay. Fat prices globally were down 0 point 0 $5 to 0 point 0 $7 a pound depending on geography. And ultimately At the end of the day that translates into $70,000,000 to $80,000,000 annually of EBITDA, divide that by 4 and you get $18,000,000 to 20 And you look at the Feed segment and you say how much was it down? It was down $26,000,000 Then you say, well, what was volume?

Speaker 2

Volume was 100,000 tons lower than it was in the prior quarter. And so at the end of the day, it kind of makes sense. Now as we come into Q3, Remember the pipeline, whether it's coming out of Europe, Brazil or North America, it's been priced into CGD for 45 days to 60 days already. So we won't see the pickup in animal fat prices or yellow grease or EUCO until Probably September into our system because of the pricing lag. So yes, that's going to be that'll play Positive towards the end of Q3 and that'll carry momentum into Q4.

Speaker 2

The other thing that you look at as we talked About the food segment has a little bit of fat in it. So it's down, but it's coming back. And then you look at Diamond Green Diesel, it was offline For basically July, number 2 was and that's a 470,000,000, 500,000,000 gallon plant offline. It's going to it's back up at capacity and we're also watching crude oil is up $80 a barrel, quite a bit from what it was in Q2 and heating oil is back up. So they're not exactly perfectly offsetting each other in the sense, but I think at the end of the day, You could have a situation where you've got higher crude oil prices, improved feedstock prices and both businesses benefit.

Speaker 2

John, you want

Speaker 5

Trying to get that mess up. Well, no, I think at the end of the day what you see is this. There is not always a one to one correlation as fat goes up and fat goes down Darling core business profitability and Diamond's core business profitability. But what you have seen when we're producing 1,200,000,000 to 1,300,000,000 gallons out of Diamond Green Diesel, We've seen significant adjustments down in the feedstock price. And when you look at the combined vertical, what you see is We anticipate that's going to continue when you look at the combined vertical as we see fat prices rebound.

Speaker 5

Randy hit a very important point. RINs have been stable to slightly up. LCFS has been stable, but we've seen the heating oil market go up by $0.80 a gallon In the past 5 or 6 weeks. So yes, fat prices are going up, but the baseline in which we sell our renewables has been going up. So to To some degree, there are circumstances in which we benefit on both sides of the wall here as Darling and as and what's condition with Stable margins at Diamond Green Diesel.

Speaker 5

So the combined entity is going to see some flux back and forth, but because we own the vertical, We're going to benefit out of that vertical chain. I think that at the end of the day is the big message.

Operator

The next question is from Bill Baldwin with Baldwin Anthony Securities. Please go ahead.

Speaker 11

Yes. Good morning. Just two quick areas. With the I just wanted to See any color, Randy, regarding the issues that Tyson has with shutting down Some of their poultry plants, do any of your customers pick up volume in this and what's going on out there? I mean, could that potentially benefit your Poultry volumes, with them shutting down some plants here in the U.

Speaker 11

S?

Speaker 2

Yes, I mean, clearly, I'm not don't have the inside baseball on that, but the 4 plants that Tyson closed are What I would consider to be older higher labor cost plants and clearly speed up the chain speed at Some of their more efficient plants that have higher levels of automation. I mean, John and John R. Have been clear about their $1,000,000,000 Challenge and they're delivering on that. That's number 1. Number 2 is that yes, we have picked up some volume and move volumes around on the East Coast With some of the closures that are happening, we're still seeing a poultry expansion.

Speaker 2

I mean, by no means is this symbolic of the world. This has been Probably the longest most profitable poultry and meat cycle that I think this country has seen. And clearly, there is Bill and Clearly some you're hearing it from the food companies, you're feeling some inflationary recessionary pressures here and abroad. But at the end of the day, it's really it's not a giant deal for us. But yes, we have picked up some volume moved around as different people That we're going to some of these plants have now decided to move tonnage around.

Speaker 2

We're always looking to optimize tonnage out there and lower freight When it's available. So the answer is yes, we have benefited.

Speaker 11

And just Second question, Randy. I know you've got a number of initiatives going on with expanding your rendering capacity with new plants, Brazil and Other areas. Can you quantify or give some color as to what kind of impact this could have on your overall capacity when those Plants are completed, what kind of increase in volume processing capacity will take place and some kind of timetable and when you think all that will be completed?

Speaker 2

It's hard to put a real number on that at this moment. The one thing we We continue to wait on the Polish antitrust authorities to close on the 3 poultry plants in Poland. That should happen Hopefully this quarter. We've got a couple of plants coming online just starting up in Brazil, a couple more plants expanding in Brazil. Butterball won't until 'twenty five, cattlemen's heritage, and won't be on until 'twenty five.

Speaker 2

So It's a pretty good slug of growth around the country, but it's really a late 'twenty four, 'twenty five timeframe for most of that before it would be transparent. So I mean, you look at the last 5 years, I think acquisitions aside, we've been averaging growth between 5% 7%. It feels like we're back 1 to 2 right now as the world kind of retraces a little bit, but we're still growing.

Operator

This concludes our question and answer session. I would like to turn the conference back Over to Randy for any closing remarks.

Speaker 2

Hey, thanks everybody for your questions today. As you know, we'll be attending a few In September, which are listed on our website. As always, any questions, feel free to reach out to Sue Ann and stay safe,

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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