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spk24: And welcome to the Darling Ingredients, Inc. conference call to discuss the company's second quarter 2023 results. After the speaker's 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. Sue Ann Guthrie. Please go ahead.
spk00: Good morning. Thank you for joining the Darling Ingredients second quarter 2023 earnings call. Here with me today are Mr. Randall C. Stewie, Chairman and Chief Executive Officer, Mr. Brad Phillips, Chief Financial Officer, Mr. John Bullock, Chief Strategy Officer, and Mr. Matt Jansen, Chief Operating Officer of North America. Our second quarter 2023 earnings news release and slide presentation are available on the investor relations page under events and presentations tab on our corporate website. And we'll 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. 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 factor section of our Form 10-K, 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.
spk22: Hey, thanks, Sue Ann. Good morning, everyone. Thanks for joining us for our second quarter 2023 earnings call. By all accounts, Darling Ingredients had a fantastic quarter with a record $508.3 million in combined adjusted EBITDA. Excluding a one-time $18.5 million inventory negative impact due to the Gelnex acquisition, our combined adjusted EBITDA would have been $526.8 million for the second quarter. As I discussed in our last quarterly call, we told you lower fat prices translates into lower EBITDA on our feed segments. 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 second quarter 2022, primarily due to our Eastern USA and South American rendering acquisitions that closed last year. 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 third quarter. 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. Turning to our specialty food ingredients segment, the global collagen market and gelatin business remains robust. If we exclude the one-time purchase accounting inventory negative impact of $18.5 million due to the Gelnex acquisition, food segment EBITDA would have been $89.8 million for this quarter. Our integration efforts are going very well. We have cross-pollinated our organizations to form one 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 million gallons of renewable diesel sold at approximately $1.28 per gallon EBITDA, clearly benefiting from the lower feedstock prices. Darling received $101.4 million cash dividend during the second quarter, And subsequent to the quarter close, we received another $62.2 million in cash dividends from the joint venture. DGD completed its turnaround. DGD2 completed its turnaround and is back to normal production. And DGD3 has been running very well and above nameplate capacity. We continue to believe 1.2 billion gallons of renewable diesel sold in 2023 is very achievable. Construction is progressing very nicely for our first SAF plant in Port Arthur. 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 I'll come back and continue with an outlook for 2023. Brad?
spk13: Okay. Thanks, Randy. Net income for the second quarter of 2023 totaled $252.4 million, or $1.55 per diluted share, compared to net income of $202.4 million or $1.23 per diluted share for the 2022 second quarter. Net sales were $1.76 billion for the second quarter 2023 as compared to $1.65 billion for the second quarter 2022 or a 6.5% increase in net sales. Operating income increased $78.1 million or 28% to $356.7 million for the second quarter of 2023 compared to $278.6 million for the second quarter of 2022, primarily due to Darling's share of Diamond Green Diesel earnings increasing $139.3 million. This more than offset a $20.8 million decrease in the gross margin of our global ingredients business, which, as Randy mentioned, included a one-time $18.5 million negative impact due to purchase accounting for inventory related to the Gelnex acquisitions. Additionally, depreciation and amortization in SG&A each increased about $29 million as compared to the second quarter of fiscal 2022, primarily due to the GEL-NEX and FASA acquisitions. Now, moving on to non-operating results. Interest expense increased from $24 million in Q2 2022 to about $70.2 million in Q2 2023, primarily as a result of increased indebtedness due to the acquisitions. Other income increased $5.4 million, 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 $40.7 million for the second quarter of 2023. The effective tax rate for the second 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 million of income taxes in the second quarter. For the six months into July 1, 2023, Darling recorded income tax expense of 67.7 million and an effective tax rate of 13.2%. The company has also paid 88 million 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 of approximately 50 million for the remainder of this year. The company's total debt outstanding at second quarter 2023 was 4.5 billion as compared to 3.4 billion 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 million available on our revolving credit facility as of quarter end. Capital expenditures totaled $123 million for the second quarter 2023 and $234.3 million year to date. The company repurchased approximately 153,000 shares of its common stock for $9.1 million during the second quarter. Stock repurchase year to date is approximately 926,000 shares for a total of $52.9 million. With that, Randy, I'll turn it back over to you.
spk22: 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 23. 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 II. For the year, we are once again reconfirming our guidance of $1.875 billion combined adjusted EBITDA. 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&A.
spk24: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. 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.
spk01: Please go ahead. 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 million to $525 million on your 1Q call for 2Q, and you actually came in at the top end of that guidance, beating the guidance. So the question is, help us understand how the integrated business model a little better, and how DAR is able to withstand the volatility better than most other RD producers. And again, with this beat and higher FATs and UCO prices, is the decision not to raise guidance here just being conservative?
spk22: Okay. No, I appreciate the comment, Manav. And I think that was one of the two or three points we wanted to you know, leave the stakeholders what today was. We provided the guidance. We came in at the high end of it. You know, ultimately, you know, fat prices were down somewhere between five and seven cents a pound, a little more actually in Brazil, a little more in Europe. And, you know, that translates, you know, on an annualized basis to 70 to 80 million dollars of EBITDA run rate into our system. You know, divide that by four and you're down about 20 million in the quarter. And if you look at the feed segment, volume was about 100,000 tons lighter than prior sequential quarter. And earnings were off, I think, about $26 million. So it was all fat priced. Now, as we said, the reason we were comfortable in trying to put out the guidance there was because the Diamond Green diesel machine, you know, is about four 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 seemed pretty straightforward to us. John, you want to add anything to this?
spk05: Yeah, I think the interesting thing, and probably the hard part looking on the outside into Darling, is the second quarter of this year is really the first quarter that you've been able to see Darling with the vertical integration at Renewable in its scaled state now where we've added so much extra feedstocks. supply around the world with their acquisitions, and Diamond has scaled from essentially 300, 400 million gallons to 1.2, 1.3 billion 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 in that 450 to 550 million 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.
spk01: Perfect, sir. My quick follow-up here is you are moving ahead with the SAF projects, positive updates there. It's still early, but do you think on a per-gallon profitability basis, you will be more profitable in SAF 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 gallon in SAF? Fully understanding it's very early in the process.
spk05: Yeah, Manav, this is John. Absolutely. I mean, we think that the SAF market is a market that there's 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. We already see that coming to us. We're going to be receiving a premium for this product.
spk24: The next question is from Derek Whitfield with Stifel. Please go ahead.
spk09: Good morning and congrats on another solid quarter. Thanks, Derek. 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?
spk22: Yeah, always the challenges in summertime rendering are that the free fatty acids go up, meaning that the raw material degrades quickly. 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, you know, we've made it through, you know, I think we're in the month of August now, so we've made it through almost, you know, one-third, a little over one-third of the summer with very limited issues around the world so far. So, you know, at the end of the day, we're watching, as I said, Derek, we're watching fat prices. They've bottomed. They're coming back up. I mean, the U.S. is moving a little quicker up than the rest of the world. I think, you know, we've just completed a board meeting yesterday. The European side feels like it's moving up now. You know, clearly there's been some unplanned downtime throughout Europe in the RD business that made fat 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. It seems hot. What we're seeing a little bit more just color for everybody out there is just, you know, 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 less time. It's a 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 summer. But, you know, third quarter is not over yet, but that feels pretty good right now. Matt, anything you want to add?
spk25: Oh, yeah, thanks, Randy. You know, I would just say that compared to the 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 getting some of the efficiencies improved, especially in some of the Valley assets. And so, you know, we're in as good a position as we can be to go through this warm and seasonal period.
spk09: 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 billion gallons of RD demand that's already in construction in the U.S. and existing SBO-focused operators that would likely want to lower CI feedstock to qualify for a CFPC credit
spk05: 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 source the fat you need. And quite frankly, that's what we have at Diamond Green Diesel. So, you know, 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 and maximize the value of our finished product. We're You know, we're not worried about the fat supply. And what's interesting about it is this. You know, we operated at production levels of 330, 340 million gallons in Q2, which, quite frankly, if you take 340 and multiply it by four, you get a number that's over $1.3 billion gallons. And we sourced the fat for that into our machine without a problem. 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 at the right machine.
spk24: The next question is from Dushant Alani with Jefferies. Please go ahead.
spk03: Hi, team. Thank you for taking my questions. My first one is on free cash flow with DGD distributions coming in. Could you just remind us on how you would prioritize free cash flow for the next year, possibly?
spk13: Yeah, Deshaun, this is Brad. Yeah, so the 164 we've now received as of today, year-to-date, we do anticipate additional distributions between now and the end of the year. As we've said before, 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, you know, 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 three times, you know, at year end, if not before.
spk03: Brilliant. Thank you. And then my second question was just on the DGD capacity. I think 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, you know, what's the capacity you can think of?
spk05: Yeah, this is John. Well, I mean, if you take a look at what we did in Q2 and multiply by four, you get a number well in excess of 1.3 billion. We're always going to have, you know, 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 1.2 billion 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 1.2 billion gallons a year is way low for what that machine can produce on an annualized basis. Certainly 1.25 billion It shouldn't surprise anybody on a capacity on what we can produce this year. And, you know, I wouldn't be surprised if there are years that Diamond can't do well in excess of 1.3 billion gallons.
spk22: 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 of 1.2 billion, but they didn't raise it. So I don't want to be the guy that raises it. But as John says, four times 340 kind of gives you the reality of what's out there.
spk16: The next question is from Sam Margolin with Wolf Research.
spk24: Please go ahead.
spk19: Hey, good morning, everybody. Good morning, Sam. So you guys always have a really good perspective on competitive capacity. We're in sort of the eighth inning of commissioning or startups on some of these high-profile projects. I think what's interesting is that the margin spread between, you know, an advantaged facility like the DGD system versus sort of a marginal facility that might be using pre-treated soybean oil is very wide. It's reminiscent of like 2021. So are you seeing anything like as far as feedstock competition or, you know, I guess... other facilities in the market sort of pulling away the advantage feedstocks? 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?
spk22: I think there's a couple embedded relevant points here that you pointed out. Number one, 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 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. 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, you know, given some turnarounds over in the eastern part of the world, you know, we're moving feedstock from there too. So ultimately, as 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, you know, 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 products. quality products out to other people. John, anything you want to add to that?
spk05: Yeah, 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 three 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. 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 state of capacity that's coming online and assuming that those guys are going to run efficiently. Many of those people are running two and three catalyst turnarounds a year. And they've got to figure out their machines. These guys are smart. 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. We're comfortable with the business we're in, and we love the vertical lock 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. We're extremely comfortable with the machine. 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.
spk20: Understood. That's super helpful. I actually don't have a follow-up, so thanks very much.
spk24: The next question is from Andrew. Strelczyk with BMO. Please go ahead.
spk11: 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 know, you'd be running ahead of the guidance, which is great. You also had in the first half lower fat prices, only one quarter of Gelmex. Valley's getting better, DDD's ramp. So I guess, is there anything where you expect things to get worse in the back half or some of the strength to not hold? I'm just trying to make sure that I understand the back half outlook relative to the front half.
spk22: You know, I think, number one, 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 fiscal years. Clearly, as I would point out to you, I think third quarter, 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. And, you know, historically, over my 20 years, that's just proven out. Gelnex will contribute fully in Q3. And so the feed, you know, the food segment's 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, you know, what, how many gallons can we get through the DGD system in Q3. DGD2, I believe, went down in July and just, yeah, and came back up in the first week of August here. So, you know, we missed 20-something, 24, 27 days of production there against the, as John said, the 344 production in 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, you know, 40 days into the quarter looks 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? That's exactly right. Okay.
spk11: 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 feedstock right now. So can you just, from a level-setting perspective, how should we think about the DGD economics today or through the back half? There's always that gap, and so any help would be helpful. Thanks.
spk22: I think, and John and I'll tag this, I mean, clearly, you know, we've watched heating oil or crude oil and heating oil move back up sharply here. You know, hopefully that will widen a little bit of margin. There's no lack of volatility, as John says, in that business. You know, spot margins have ranged from $1.20 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? $1.20, $1.25 for the balance year is what looks pretty achievable. Right.
spk05: I mean, at the end of the day, we're always going to see volatility on diamonds 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 RENs moving around. And by the way, the disastrous news on the REN pricing that came out after the RVOs came out, the REN market is up about eight cents a gallon. since that point in time. So all that's right in play with where 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. 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, $1.25 a gallon. The only difference is we used to make 300 million gallons of this stuff, and now we're making 1.2 to 1.3 billion gallons of this stuff, and that math adds up quite differently.
spk24: The next question is from Ryan Todd with Piper Sandler. Please go ahead.
spk06: Thanks. 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 gel next on the food side. You held gross margin flat in the feed business sequentially. Food was down a little bit, but adjusted for the inventory charge, it looked like it would have been still around 26%. As we think about those post these acquisitions, Should we still expect, you know, is the food, the right way to think about the food margin still kind of in that 25, 26% and maybe the same on the feed side? Or are there post-acquisition, are there things that would drive those margins one way or the other?
spk22: Yeah, I mean, I think, take the feed segment. I think the gross margin percentage held quarter over quarter. Clearly that's, you know, 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, as we've reminded people, Some of the raw material formulas are not changeable in that system until the end of this year, one more next year, and then one in 26. So that was always the 1,000-day integration plan that laid out there. But long story short, the margins in that business have now, you know, improved quite a bit. You've seen that. So I think we're pretty consistent there. In the food segment, yeah, I think what you're seeing is pretty consistent. you know, symbolic of what's achievable there. We continue to move our product mix more towards the collagen peptide. That's what's driving those margins there. And clearly, you know, as we told people, the Gelnex margins were consistent or better in 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.
spk21: Great.
spk06: Thank you. And then maybe one follow-up, and you just made some comments about it briefly, but the final RVO guidance came out during the quarter. Any thoughts on you know, takeaways from that final guidance, what it means for your business and maybe the battlefield sector in general as you look forward over the next few years?
spk05: This is John. Yeah, I mean, at the end of the day, it was interesting because when we saw that RBO 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, you know, disappointing, terrible, awful, rotten products. And, of course, the RENZ market has gone up since that RBO dip for a couple of days and went right back up. The reality is this. While the 650-page document that the EPA puts out every year is massively painful to read through, when you do so, what you see is this. They've been fairly effective at managing to a 20% RENZ 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 work 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 rulemakings. 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. 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.
spk24: The next question is from Adam Samuelson with Goldman Sachs. Please go ahead.
spk14: Yes, thank you. Good morning, everyone.
spk13: Morning.
spk14: Morning. Maybe, John, if I could maybe follow on that last kind of comment that you just made and
spk15: If you think about 2025 and this 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.
spk05: So the 45Z is a very interesting piece of legislation. I think it surprised people when they went back to the producer tax credit, the income tax credit, late in the game as they were deciding how to extend it. At the end of the day, you're exactly right. You do CI adjust on that tax credit. So when you look at it on an absolute basis, you can say, well, you're going to get less than a dollar. Here's what we loved about it for Darling. The 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 this 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. 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.
spk22: And also, John, I think, you know, relative to, and Adam, to, you know, By then, when the producer's tax credit hit or 45Z comes into play, 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, you know, I think for anybody to say this is a static, oh, it's less than a dollar, will the, as we call it internally, the green premium have to adjust to keep the marginal producer profitable? maybe. But I think, you know, I don't know that we spend a lot of time thinking about that right now. We just think that optimizing margins between the RDSAF markets are going to be what drives the future profitability here. And whether or not you're getting 75 cents or a dollar, I don't think that plays into the thinking of us around here.
spk13: And Adam, since the spread, since the last time we spoke or last quarter, the They've allowed transferability as well under that rule, so that gives it more flexibility from a tax incentive perspective.
spk15: Okay, now that's helpful. If I could just have a follow-up on capital allocation, and obviously the DDD distributions happened in June, another one in the third quarter, whether that was July or August. Should we look at the cumulative 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 and 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?
spk22: Yeah, 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, you know, $101 million in Q2. Subsequent in July here was another $62. Clearly, Diamond Green Diesel, too, down on a major turnaround for most of the month. We'll use the excess cash. But cash comes and goes from that joint venture as the Blender's 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 the end of the month, and then we'll see.
spk13: Brad, what do you want to add? 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 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 John's big machine of DGD 1, 2, and 3. Those are big cash movements, but in the big scheme of things for this year, I'd say what we've seen, ballpark, depending on timing, particularly at the end of the year, is kind of how we're seeing it for the rest of the year.
spk22: Yeah, and I think trying to put a number on its heart, Adam, I mean, clearly we're just speaking at the ultimate number of being below three times leverage by the end of the year. And then I think you can kind of back into that number against, you know, I've given you all the breadcrumbs of the EBITDA and all of that. Yeah.
spk13: And, you know, yeah. And so our leverage, you know, we've said will be clearly below three times. That's factoring in some additional distributions. Let's put it that way. Yep.
spk24: The next question is from Ben Caller with Baird. Please go ahead.
spk23: Hey, good morning, guys. Congrats, John. I know you're around until next year, but congrats on everything. Maybe just going to gel next, maybe everything together, Randy. You know, you had the one-timer here, and the question we get a lot is just, you know, are we going to see more of those? And so I know you don't have a crystal ball, but as you look out, You know, it's mostly where we kind of see the light in the tunnel with the acquisitions. They kind of one-time things relate to them.
spk13: Yeah, Ben, this is Brad. I'll just speak up here. You know, 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 we'll have Q3 is just the minimus. It's really in the month of July, so we won't even – really be even speaking toward it. So that, that 18 and a half is, you know, I don't know, 90% of it.
spk22: Yeah.
spk13: Yeah.
spk22: That's so, yeah, I answered to you, Ben, we do have a crystal ball and, uh, you know, we got another million, million and a half of gel next step. Then, then that's over. And, you know, it's, uh, we're, we're operating now, as we said, our focus is laser on finishing the integration, um, you know, moving some, moving to one operating computer system around the world, uh,
spk23: and uh and you know just paying down debt and one one thing i think you answered some of this in uh the previous question or a previous question on gelnex but could you just talk to us about just because uh college is becoming a bigger part of your business about you know your customer base or who customer is um and just How do you guys envision growth in that business? I know you talked about margin a bit, but just top line growth as well.
spk22: Yeah, 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 for 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 in 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. The fun part with Brazil is where four plants are. They're very efficient, one in Paraguay and then one up in Portage, Indiana. It 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 Cabril was the operations manager manager of the Gelnex operations. He's now in charge of all of Darling, Rusillo worldwide. And their sales manager has moved out of 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. In my case, and I get to sit 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 isn't going very, very well right now. The sales ledger is really solid. The other thing I would comment about our global collagen businesses, this is kind of the completion of phase one. Phase two, 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 Gelnex system to help us move to, you know, phase two of active peptides. You know, the other piece that's underneath this business is our continued strong performance in China. And ultimately, you know, 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. You know, clearly... The pharmaceutical or the pharma business, as we call it, from bone gelatin in China is growing very rapidly as that population looks to nutraceuticals and supplements for health care. John, anything you want to add to this?
spk05: No, I mean, the wonderful part about GelNet, besides having a fabulous system and 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 with the Gelnex group in South America. That's going to benefit us not only in the Gelnex organization, but as it already has, and as Randy's mentioned, throughout the entire Darling and Roussel organization in years to come. We're really excited about it.
spk24: The next question is from Ben Bienvenu with Stevens. Please go ahead.
spk07: Hey, good morning. Thanks for taking my questions. I want to maybe ask a little bit in the context of, as you all highlighted, the benefits of vertical integration to 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 you know, 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 way to maintain this competitive advantage that you have down the road?
spk22: Yeah, this is Randy, and I'll tag team with the team here. I mean, you know, 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 enter the core rendering and the gelatin collagen business and grow it there. So clearly we've increased our exposure there. Why? Because we continue to believe that that country possesses land, water, 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. 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'll 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, you know, clearly I still think as political tensions potentially ease over time, China deserves a deeper look and then ultimately Africa over time. So the question becomes, what is our growth strategy? Clearly green energy in Europe. Um, you'll, you'll see some additional digester growth from us potentially this year in that area, both expansion and greenfield. Um, and then ultimately SAF 2.0. I mean, clearly diamond green diesel one and two were not laid out as, as aptly as number three for the addition of a unit, but, uh, We're studying that right now for seeing where it fits, and ultimately that decision will depend on how the market develops. You know, I love John's word, insatiable demand. 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, you know, as the gelatin collagen, we talked about the active peptide market and where we're moving there. So, you know, we feel really good about their trajectory of growth for, you know, 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 DG number four, 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. And then ultimately, you know, as Brad, as we get back to, you know, two and a half times leverage is where we want to be, which should be nearly achievable by the end of 24, you know, we've got to start evaluating cash, you know, allocations and what we're going to do with it. And that once again puts the dividend on the table as a board decision to that could be made at that time. Brad, John, anything you guys want to add? Perfect.
spk07: Okay. Okay, very good. Thanks, Randy. My second question is just related to LCFS markets. What you think the, you know, runway ahead is for potentially changing compliance standards and what the considerations are as you look to, you know, like the California LCFS market and what they're thinking through to make that determination?
spk05: So this is John. I mean, obviously, 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 spectacularly, 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. I think CARB's had all the right signals sent to it 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.
spk17: Matt? Hi, can you hear me?
spk08: My apologies. I wanted to follow up on the recent Butterball announcement. 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 with Butterball? Thanks.
spk22: Well, you know, this is a model that we've started. I think it's probably somewhere between five and seven years ago now with Pico Foods in Pocahontas, Arkansas, and Case Foods in Winesburg, Ohio. And ultimately, it gets to, you know, as we said, this is a transportation logistics business on one hand with a perishable item. that's half water to two-thirds water in some cases. And so, you know, we were hauling Butterball a long way, and it just made, to our factory, you know, as you know, clearly a year ago today, we had Armageddon in the sense of trying to handle all the poultry 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 to handle the tonnage, and Butterball just became a candidate for because of their tonnage internally and then our ability to third-party tonnage into a site, take some pressure off of our site, give them improved economics, and help them grow. So these are just really fabulous deals. I mean, you saw us announce Heritage Cattlemen's or Cattlemen's Heritage up in Nebraska. That's the same type of deal, and it's just really gets down to, a transportation savings, you know, 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 system 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, their building, our equipment, and a long-term agreement and better economics with our expertise to both operating
spk21: rendering capacity and our marketing of our product line around the world.
spk08: Sounds good. And then do you have more color on the food segment in Q2? I guess we were a little surprised to see it down quarter-by-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 million to $120 million EBITDA range? Could you talk about how things are going so far in Q3 for food?
spk22: Yeah, I mean, Q2, I mean, you've 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 three components in the food segment. There's the Russolo business. There's the edible animal fats business. And then there's the caseins and heparin businesses. And edible fats followed the rest of the animal fat complex down. So there's a little bit of reduction there. And then the casings business 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, 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, you know, at the $75 million rate post, you know, the $18.5 million inventory charge, and we're at that run rate, at least what I saw in July here. So that's about the only color I can give you at this time with, you know, 30 days into the quarter.
spk24: The next question is from Tom Palmer with JP Morgan. Please go ahead.
spk10: Good morning, and thanks for squeezing me in. I just wanted to ask on CapEx expectations at Diamond Green Diesel, the QQ figure is below your depreciation expense, but I know you've got the SAF project ramping up. So just any color on maybe how that progresses in the back half would be helpful.
spk05: I'm not sure I understand the question.
spk10: Capital expenditures? Yes. Sure. Just your capital expenditure plans at Diamond Green Diesel in the back half, they were rather low in the second quarter, but I know the SAF project is starting to ramp up.
spk05: Oh, I got it. So yeah, no, we will see an increasing CapEx run rate out of the SAF project, but the majority of that's 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 SAP 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. So the free cash flow out 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.
spk10: Okay, thanks for that. Maybe I'll just follow up on 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, 2020, 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.
spk13: Yeah, Tom, this is Brad. I think you're probably referencing a $50 million 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 to the specific number, but that's, I think, maybe a bit of what you're driving at. 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. 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 it in the calculation for it to be paid down to be factored in it. in terms of what the distributions will be. And the other thing, just to tag on to 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 presumed or the projected CapEx there. So I hope some of that helps you.
spk24: The next question is from Paul Cheng with Scotiabank. Please go ahead.
spk02: Thank you. Good morning, guys. Randy, I want to go back. You mentioned about the phase two on the collagen business on the growth plan. Can you share with us that what kind of timeline and milestone that we should be watching? And also that, I mean, on that, I mean, that if you can talk about that the new business What is the margin compared to your legacy business so that at least we can have some idea that how the margin improvement may look like on the overall business?
spk22: Yeah, I mean, active, you know, if you think about the product line that's being marketed today of the collagen peptides, that's just an aggregation of the peptide today, meaning they've not been separated. The work that we're doing at the R&D level today that gives us a lot of excitement is isolating and concentrating the different peptides and then doing clinicals and different studies on what kind of, you know, 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'll be substantially better than commodity gelatin. The applications that are being worked on today that we've released and discussed during some of our public innovation days are absolutely breathtaking. John, what do you want to add to that? I mean, you've been working in this area.
spk05: 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 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 the past 10 years. It takes time to develop these, and it's not always a straight line. Everything doesn't happen on a 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 opportunity in the active peptide world.
spk22: Yeah, and Paul, if you think about it, I mean, today you're seeing a really broad product grouping out there that, you know, from vital proteins, you know, in the sense of just taking, you know, collagen peptide and putting it in solution or in a protein bar, but it's just listed as collagen peptide. You know, the stuff that we're seeing out here that's being worked on would be for a specific purpose, joint lubricity, nail growth, hair retention, gut health. I've even heard words dementia treatment. I've heard words of ultimately A1C management. And so what all that means is while it's a 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 seven, eight 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. We're just excited about it and we'll see where it goes.
spk02: 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 one? I don't know where they are at this point.
spk22: 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. John, anything you want to add?
spk05: No, that's exactly right. We try not to discuss the stuff we're intending on patenting.
spk24: The next question is from Jason Gabelman with TD Cowan. Please go ahead.
spk12: Hey, 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 get your understanding or your comments now that feed 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? And then my follow-up is just on EBITDA. As we think about next year, you know, we could see if we annualize second half 23 EBITDA, you get to about $1.9 billion. 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.
spk22: 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, you know, I think the thing that I just want to once again reiterate and try to say is, okay, fat prices globally were down five to seven cents a pound, depending on geography. And ultimately, at the end of the day, that translates into 70 to 80 million U.S. dollars annually of EBITDA. Divide that by four and you get, you know, 18 to 20 million. And you look at the feed segment and you say, how much was it down? It was down 26 million. Then you say, well, what was volume? 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, you know, it's been priced into DGD for 45 to 60 days already. So we won't see the pickup in animal fat prices or yellow grease or Yuko 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. You know, the other thing that you look at is 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. You know, it was offline for basically July. Number two was. And, you know, that's a, you know, 475 hundred million gallon plant offline. It's going to it's it's back up at capacity. And we're also watching, you know, I see crude oils up, you know, 80 bucks a barrel. quite a bit from what it was in Q2 and heating oils back up. So, you know, 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. John, you want to try to clean that mess up?
spk05: 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. to Darling core business profitability and Diamond's core business profitability. But what you have seen, when we're producing 1.2 to 1.3 billion 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 extremely strong earnings. We anticipate that's going to continue when you look at the combined vertical as we see fat prices rebound. Randy hit a very important point. RENs have been stable to slightly up. LCFS has been stable, but we've seen the heating oil market go up by 80 cents a gallon in the past five or six weeks. So, yeah, fat prices are going up, but the baseline at which we sell our renewables has been going up. So, to some degree, there are circumstances in which we benefit on both sides of the wall here, as darling and with stable margins of diamond green diesel. 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.
spk16: The next question is from Bill Baldwin with Baldwin Anthony Securities.
spk24: Please go ahead.
spk04: Yeah, good morning. Just two quick areas. I just wanted to see any color rankings. Randy, regarding the issues that Tyson has with shutting down some of their poultry plants, do any of your customers pick up volume in 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.S.?
spk22: Yeah, I mean, clearly I don't have the inside baseball on that, but the four plants that Tyson has, closed are what I would consider to be older, higher labor cost plants, and clearly, you know, 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, you know, $1 billion, you know, challenge, and they're delivering on that. That's number one. Number two is that, yes, we have picked up some volume and moved volumes around on the East Coast with some of the closures that are happening. You a poultry expansion. I mean, by no means is this symbolic of the world. You know, this has been probably the longest, most profitable poultry and meat cycle that I think this country's seen. And clearly, you know, there is, Bill, you know, clearly 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 were going to some of these plants have now decided to move tonnage around. We're always looking to optimize tonnage out there and lower freight costs when it's available. So the answer is yes, we have benefited.
spk04: And just a second question, Randy. I know you've got a number of initiatives going on with expanding your rendering capacity with new plants in 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 on when you think all that will be completed?
spk22: it's hard to put a real number on that at this moment. You know, the one thing we continue to wait on the Polish antitrust authorities to close on the three poultry plants in Poland. That should happen hopefully this quarter. You know, we've got a couple plants coming online just starting up in Brazil, a couple more plants expanding in Brazil. Butterball won't be on until 2025. Cattleman's Heritage won't be on until 25. So it's a pretty good slug of growth around the country. But it's really a late 24, 25 timeframe for most of that before it would be transparent. So I mean, you look at the last five years, I think acquisitions aside, we've been averaging growth between 5% and 7%. It feels like we're back one to two right now as the world kind of
spk21: retraces a little bit, but we're still growing.
spk24: This concludes our question and answer session. I would like to turn the conference back over to Randy for any closing remarks.
spk22: Hey, thanks everybody for your questions today. As you know, we'll be attending a few conferences in September, which are listed on our website. As always, any questions, feel free to reach out to Sue Ann. And stay safe, have a great day, and appreciate everybody being on the call. That concludes our call.
spk24: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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