Darling Ingredients Inc. (DAR) Earnings

Management highlights

- Overall Financial & Balance Sheet Progress * Net income for Q2 2026 was $387 million, with $2.41 GAAP diluted earnings per share. * Year-to-date (H1 2026) combined adjusted EBITDA exceeded $1.1 billion, up from under $450 million in H1 2025. * Net debt was reduced by over $220 million in the quarter, bringing the leverage ratio down to 2.3x from 2.9x at the end of 2025. * $280 million in DGD distributions were used for debt paydown ($223 million), the Potense Brazil acquisition, and $73 million in share repurchases. * Subsequent to quarter end, Darling closed the sale of the majority of its trap business for ~$90 million, and signed an agreement to sell its European casings business expected to close by end-2026. * Effective tax rate for the quarter was ~22% excluding discrete items and production tax credits, 27% including those items; full-year 2026 effective tax rate is expected to be ~25%. - Core Business Value Creation Levers * The core ingredients business has delivered progress toward the previously stated target of an additional $150-$300 million in adjusted EBITDA over three years, driven by contract renegotiations to offset construction cost inflation, global commercial optimization, and improved price risk management. * Acquisitions including Valley Proteins, Gelnex and Faza are already contributing to core business earnings power. * Portfolio optimization is ongoing to simplify the business and focus on higher-margin, higher-growth product lines. * DGD maintains its position as the world's largest advanced biofuel producer, with strong operational capabilities and a flexible supply chain that outperforms in volatile markets. - Strategic Positioning * Management highlighted that the quarter's strong results are not a one-time event, and the company has reached an inflection point with a strengthened balance sheet that enables new shareholder return and growth opportunities.

Guidance

- Third quarter 2026 core ingredients adjusted EBITDA is expected to be between $325 million and $340 million. Excluding the $18 million one-off IEPA tariff benefit from Q2, this outlook represents underlying performance consistent with Q2 2026's strong level. - DGD is targeting production of approximately 335 million gallons of renewable fuel in Q3 2026, with margins expected to remain attractive. - Management expects net debt will fall to ~$3 billion or below by the end of 2026, with a leverage ratio well below 2.0x, meeting the company's stated target earlier than originally planned. - Management remains confident in strong performance for the full year 2026 and into 2027, with current market conditions representing an up-cycle environment (vs the mid-cycle framework shared at Investor Day) that is expected to remain supportive for the foreseeable future. - 2026 capital expenditure guidance was revised slightly upward from $400 million to $450 million, primarily to cover deferred maintenance from prior periods, small debottlenecking projects, and modest capacity increases to support growing demand.

Segment performance

For Q2 2026, Darling reported total combined adjusted EBITDA of $742 million, up from $250 million in Q2 2025. 1. Feed Ingredients Segment: Delivered improved results driven by a rally in fat prices from strong biofuel sector demand, and strengthening protein values from tightening global fish meal supplies and growing U.S. poultry production. The segment contributed to core global ingredients adjusted EBITDA of $353 million, which accounts for 47.6% of total company adjusted EBITDA. The acquisition of three Pentense Group rendering facilities in Brazil closed during the quarter, expected to be immediately accretive. 2. Food Segment: Collagen sales improved year-over-year, supported by rising demand across food, nutrition and health applications, and substitution for increasingly expensive whey. The segment's Nextida glucose control product now has repeat sales and is launching in Asian markets. Product mix optimization toward higher-margin collagen (which generates 2.5-3x the margin of gelatin, with targeted health ingredients generating 7-11x the margin of gelatin) drives ongoing earnings expansion using existing factory infrastructure. Q2 2026 results included an $18 million net IEPA tariff recovery for the segment's Russolo business. 3. Fuel Segment (Diamond Green Diesel, DGD): DGD delivered $389 million in adjusted EBITDA to Darling, accounting for 52.4% of total company adjusted EBITDA, up from just $43 million in Q2 2025. DGD produced over 1.3 million metric tons (356 million gallons) of renewable fuel in the quarter, sold 350 million gallons at $2.23 EBITDA per gallon, including a $51 million favorable IEPA tariff recovery at the entity level. Non-DGD green energy businesses also performed well driven by elevated European energy prices. Darling received $280 million in cash distributions from DGD in the quarter.

Risks & headwinds

- Forward-looking statements are based on current expectations, and actual results may differ materially due to risks and uncertainties disclosed in Darling's SEC filings including Form 10-K and Form 10-Q. * Renewable fuel margins and RIN pricing are subject to volatility related to EPA policy adjustments (including finalization of 2025 renewable volume obligations) and changes in global conventional fuel prices. * Q3 performance faces typical seasonal risk from adverse summer weather impacts on operations in the U.S. and Europe. * Future protein and fat price momentum depends on sustained fish meal supply tightness and growth in global poultry production, which could shift unexpectedly.

Analyst Q&A

• Q: What is driving the recent strong rally in protein meal prices, and has this strength continued into Q3? /

  A: Global protein market strength is primarily driven by major fish meal supply tightness linked to El Nino weather patterns. Strong demand for protein is broad-based across all global regions, and management expects this strength to continue through the remainder of 2026 with no near-term factors expected to interrupt the trend.

• Q: Recent market nervousness around 2025 Renewable Volume Obligation (RVO) secondary renewable energy (SRE) volumes has impacted RIN prices. What is Darling's expectation for the final SRE result? /

  A: Management does not expect any material change to SRE volumes that would impact overall RIN supply and demand. The current RVO policy has already met EPA's core policy goals of higher farm gate prices and sufficient production to meet the mandate, so there is little reason for the EPA to enact major changes. Darling expects RIN supply will remain tight, supporting ongoing strong margins for renewable fuel producers.

• Q: Once Darling hits its net debt and leverage targets, will management consider new capital return initiatives like a dividend, and what is the target comfort level for debt? /

  A: The primary near-term goal is to reach the target of under $3 billion in total net debt, which will put leverage comfortably below 2.0x even in a mid-cycle operating environment. Once this debt target is achieved, the board will be able to evaluate expanded capital return strategies that have not been feasible in prior years, enabled by Darling's now more stable earnings profile and completed global network buildout.

• Q: What is the outlook for collagen use as a replacement for whey protein, and is this shift temporary or structural? /

  A: Collagen is currently cost-competitive with whey protein, and food manufacturers have increasingly recognized collagen as a viable complementary or replacement ingredient. Management expects ongoing protein demand tightness will sustain this trend, and this new demand stream represents a structural growth opportunity for Darling's food segment, moving beyond the segment's historical core demand base.

• Q: Will Darling resume large M&A once debt targets are hit, and are there more non-core divestitures coming? /

  A: Management will continue to review the portfolio and sell additional non-core assets if valuations meet internal targets. There is no plan to pursue large, transformative M&A; future growth will be focused on organic expansion and small, accretive tuck-ins that optimize the existing global network, including capacity expansions for collagen and rendering to meet growing poultry demand.