What Darling Ingredients (DAR) Said on Its Q3 Earnings Call

Key Points

• Strong Q3 results: Darling Ingredients reported net income of $267 million, up from $19 million a year earlier, while sales increased to $1.8 billion and adjusted EBITDA more than doubled to approximately $514 million.
• Balance sheet improved: The company reduced net debt by about $420 million, lowered leverage to roughly 1.7 times, repurchased $76 million of shares and reaffirmed full-year adjusted EBITDA guidance of $2.2 billion to $2.3 billion.
• Renewable diesel outlook remains positive: Diamond Green Diesel generated $204 million of Darling’s share of EBITDA despite temporary production and hedging issues. Management expects stronger fourth-quarter margins and approximately 325 million gallons of production.

Darling Ingredients NYSE: DAR reported third-quarter 2026 net income of $267 million, or $1.67 per diluted share, compared with $19 million, or $0.12 per share, a year earlier, as contributions from its Global Ingredients operations and Diamond Green Diesel increased earnings and cash flow.

Third-quarter net sales rose to $1.8 billion from $1.6 billion in the prior-year period. Combined adjusted EBITDA totaled approximately $514 million, compared with $245 million in the third quarter of 2025. The total included about $310 million from the Global Ingredients business and $204 million from Darling’s share of Diamond Green Diesel, according to Chairman and Chief Executive Officer Randall C. Stuewe.

For the first nine months of 2026, Darling posted net income of $789 million, or $4.91 per diluted share, on sales of $5.1 billion. Combined adjusted EBITDA for the nine-month period exceeded $1.6 billion, up from $690 million a year earlier.

Balance Sheet Improves as Cash Flow Increases

The company reduced net debt by approximately $420 million during the quarter and repurchased about $76 million of shares. Its leverage ratio improved to roughly 1.7 times at quarter-end, compared with 2.9 times at the end of 2025, Chief Financial Officer Bob Day said.

Darling received approximately $170 million in cash from Diamond Green Diesel during the quarter, including roughly $33 million in dividends and $138 million from production tax credit sales. Day said the core business generated more than $300 million in cash through current earnings, the sale of most non-core grease trap assets, and the sale of its European casings business.

The company reaffirmed full-year 2026 combined adjusted EBITDA guidance of $2.2 billion to $2.3 billion. Stuewe said Darling remains on track to reduce net debt to $3 billion or less by year-end, with additional production tax credit monetizations expected in the fourth quarter.

Management said it expects its 2026 effective tax rate to be about 25%, with approximately $35 million of cash taxes expected for the remainder of the year.

Timing and Accounting Items Affected Core Results

While Global Ingredients generated approximately $310 million of adjusted EBITDA in the quarter, Day said sequential results were affected by increased long-term incentive accruals and inventory-related accounting adjustments expected to reverse, at least in part, during the fourth quarter.

About $15 million was tied to the deferral of half the profit on Darling feedstock sold to Diamond Green Diesel. Because Darling owns 50% of the joint venture, accounting rules require the company to defer half of the margin until the feedstock is processed into fuel and sold by the venture. Day said that deferred profit should return to Darling’s results when the associated fuel is sold in the fourth quarter.

A lower-of-cost-or-market adjustment in the Feed Segment also weakened late in the quarter because an unusually high volume of products remained in transit at quarter-end. Combined with other timing items, the effects totaled approximately $30 million, Day said. Excluding those effects, core ingredients EBITDA was at the high end of the company’s prior guidance, at around $340 million.

Darling said protein demand and prices remained strong, while it expects fat prices to strengthen in the fourth quarter. Stuewe said tariffs in Canada and Brazil continue to challenge some trade flows, though the company is working to develop alternative markets. In the Food Segment, strong collagen sales in China partially offset tariff-related pressure on South American shipments.

The company also said its Nextida collagen portfolio continued to gain repeat and new orders. Darling recently launched NxCogni, a collagen product aimed at mental clarity and cognitive resilience. Its planned joint venture with Tessenderlo continues through the regulatory process, with a targeted closing in the first quarter of 2027.

Diamond Green Diesel Volumes and Margins

Diamond Green Diesel sold 315 million gallons during the third quarter and generated Darling’s share of EBITDA of $204 million, equivalent to an average margin of approximately $1.30 per gallon. That compared with a $2.9 million loss for Darling’s share in the year-earlier quarter.

Management attributed the difference between realized margins and higher replacement margins to several temporary factors, including hedging losses on feedstock that had not yet been converted into fuel, lower production tax credit capture from a heavier use of foreign feedstocks, declining RIN values during the quarter, and a short-term third-party hydrogen outage in the Gulf Coast.

The hydrogen outage reduced production volumes, with Diamond Green Diesel producing below the company’s prior 335 million-gallon expectation. Management expects the venture to produce approximately 325 million gallons in the fourth quarter.

Day said the feedstock hedge losses should reverse when associated products are sold, either through higher renewable diesel or sustainable aviation fuel prices and margins or through cash returns if futures prices decline. He also said production tax credit value should improve as the company returns to a more typical domestic feedstock mix.

Management said fourth-quarter replacement margins are strong and that Diamond Green Diesel is realizing margins closer to spot-market conditions. Stuewe said the company expects Diamond Green Diesel’s full-year performance to reflect capture of roughly $1.50 to $2 per gallon on about 1.2 billion gallons.

Capital Allocation and Policy Outlook

During the question-and-answer session, Stuewe said management and the board are considering the company’s financial policy once net debt reaches approximately $2.5 billion. Possible uses of excess cash could include additional share repurchases or a dividend, though no decision has been made.

Management also discussed the regulatory outlook for renewable fuels. Day said the company expects the Environmental Protection Agency to complete its supplemental Set 2 ruling and small-refinery-exemption reallocation process before advancing its Set 3 rulemaking. He said Darling expects the Set 3 process to begin after that, potentially resulting in a rule by the middle of next year covering two or three years, with management favoring a longer period for greater market certainty.

About Darling Ingredients (NYSE:DAR)

Darling Ingredients Inc NYSE: DAR is a global developer and producer of sustainable ingredients and renewable energy solutions. The company collects and transforms animal by-products, used cooking oil, food waste and other organic materials into value-added products, helping divert waste from landfills and recover materials for reuse.

Its products include fats, proteins, meals, collagen, gelatin and specialty ingredients used in animal feed, pet food, food, pharmaceuticals and industrial applications.

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