Darling Ingredients Q3 2025: Contradictions in RIN Policy, DGD Margins, and RVO Clarity Emerge

Date of Call: October 23, 2025

Financials Results

• Revenue: $1.6B total net sales, up from $1.4B in Q3 2024
• EPS: $0.12 per diluted share, up from $0.11 in Q3 2024 (net income $19.4M vs $16.9M)
• Gross Margin: 24.7% for the quarter, compared to 22.1% in the prior year

Guidance:

• Full-year 2025 core ingredients EBITDA (excluding DGD) expected to be $875 million to $900 million.
• No guidance provided for Diamond Green Diesel (DGD) due to RVO/policy uncertainty; guidance focused on controllable core business.
• Expect to monetize ~ $300M of PTCs in 2025 with ~ $200M cash receipts in Q4; anticipate reducing net debt by year-end.

Business Commentary:

• Core Ingredients Performance:
• Darling Ingredients' Global Ingredients business reported a strong performance with Global Ingredients business EBITDA at $248 million.
• The Feed segment saw EBITDA improve to $174 million from $132 million a year ago, with total sales of $1 billion.

• The growth was driven by robust demand for fats and proteins, exceptional execution across operations, and solid marketing strategies.

• Renewable Fuel Segment Challenges:

• Diamond Green Diesel (DGD) reported a negative EBITDA of $3 million, a significant decline from the positive $39 million in the previous year.
• The challenges were due to higher feedstock costs, lower RINs and LCFS pricing, and a DGD3 catalyst turnaround that limited production.

• Uncertainty around policy delays, including the RVO and small refinery exemptions, also impacted the renewables market.

• Regulatory and Policy Uncertainty:

• The company awaits clarity on public policy, specifically the renewable volume obligation (RVO), which it expects by year-end.
• Policy delays, such as enforcement dates for RVO obligations and small refinery exemptions, affected market stability and biofuel environment.

• Clarity on the RVO ruling is expected to enhance DGD's earnings potential.

• Debt Management and Financial Strategy:

• Total debt net of cash increased slightly to $4.01 billion, despite contributions to DGD and earn-out payments.
• The company is committed to paying down debt and aims for a leverage ratio of 3x by year-end.
• The financial strategy includes deleveraging while maintaining investment in core business expansion and sustainability initiatives.

Sentiment Analysis:

Overall Tone: Positive

• Management: "core ingredients business delivered its strongest performance in 1.5 years" and "we're confident"; combined adjusted EBITDA improved to $245M (vs $237M prior year) and gross margin rose to 24.7% (vs 22.1% prior year). Company characterized DGD weakness as temporary and policy-driven.

Contradiction Point 1

RIN Policy and Market Dynamics

It involves changes in expectations regarding RIN policy and market dynamics, which are critical for Darling Ingredients' pricing and competitive strategy.

Can you outline the pros and cons of RIN policy protectionism on the feed side? - Conor Fitzpatrick (BofA Securities, Research Division)

2025Q3: We are not sure if foreign feedstocks will face penalties, impacting the overall supply and demand for fats and oils in North America. The picture remains uncertain until we know how penalized foreign feedstocks will be. - Robert Day(CFO)

What are the policy benefits of the revised RVO, 50% RINs for foreign feedstock, and no PTC on imported RD for Darling Ingredients? - Manav Gupta (UBS Investment Bank)

2025Q2: This will result in a more domestic-oriented market. We expect a drop in imported raw material. Our focus is on maximizing U.S. fat production for the RD market. The policy changes are supportive of U.S. or North American fat values, which benefits Darling. The 50% RIN policy dynamic, if it holds, could eliminate access to foreign feedstocks, but the positive impacts on U.S. fat pricing outweigh this. - Matthew J. Jansen, Robert W. Day

Contradiction Point 2

DGD Margins and Market Conditions

It involves differing perspectives on DGD margins and market conditions, impacting financial expectations and strategic focus.

Will a rebound in waste fat prices be necessary for Q4 to match Q3's performance? - Thomas Palmer (JPMorgan Chase & Co, Research Division)

2025Q3: If prices do not rebound, we are still looking for a similar range for the business as we have a fairly narrow range for the core ingredients. We expect DGD margins to improve, and SAF margins are better than classic renewable diesel. - Randall Stuewe(CEO)

How does the $1/gal cap on SAF affect margins compared to RD? - Derrick Lee Whitfield (Texas Capital Securities)

2025Q2: Our strategy remains flexible to produce RD or SAF in line with market conditions. SAF benefits from a better and stable margin profile, which we believe will become even better as we move forward. - Matthew J. Jansen

Contradiction Point 3

RVO Clarity and Timeline

It involves the anticipation of clarity on regulatory items like RVO, exemptions, and reallocations, which directly impacts business strategy and planning.

What is the expected timeline for clarity on RVO, exemptions, and reallocations? - Thomas Palmer (JPMorgan Chase & Co, Research Division)

2025Q3: We are optimistic that with the government shutdown, we expect some clarity by the end of the year. The EPA is working on proposals, and the comment period closing or submission to the Office of Management and Budget is expected by December. - Robert Day(CFO)

Do you have clarity on when RVO discussions might be resolved and how they relate to the guidance? - Thomas Palmer (Citi Group)

2025Q1: We expect to see something out of D.C. in the next 45-60 days, but it's not exact. The discussions are clear and constructive, with broad alignment on what should happen. - Randall Stuewe(CEO)

Contradiction Point 4

RIN Values and Renewable Diesel Capacity

It involves the expected RIN values needed for RIN capacity to restart, which impacts the business outlook and production plans.

Would a facility shutdown increase the attractiveness of the RIN balance? - Manav Gupta (UBS Investment Bank, Research Division)

2025Q3: RIN values need to rise to $1.50 to $1.55 for capacity to restart, and Darling remains optimistic about RIN values improving. - Robert Day(CFO)

You need about $250 million in EBITDA from the renewable diesel business to meet your EBITDA guidance. What are your expectations beyond the PTC, and what factors could help achieve the remaining $250 million? - Manav Gupta (UBS)

2025Q1: RIN values need to rise to $1.70 to $1.75 for capacity to restart. - Robert Day(CFO)

Contradiction Point 5

DGD Margins and Feedstock Mix

It involves the expected impact of feedstock mix changes on DGD margins, which affects financial performance and strategic decision-making.

Has DGD increased its use of vegetable oil? - Matthew Blair (Tudor, Pickering, Holt & Co. Securities, LLC, Research Division)

2025Q3: DGD hasn't shifted significantly. Our best margins are on UCO and animal fats, and we're reliant on Darling's supply. Randy Stuewe: We've redomesticated our supply chain, reducing reliance on foreign feedstocks. - Robert Day(CFO), Randall Stuewe(CEO)

好的，我现在需要处理用户提供的这个任务。首先，用户希望我作为专业的金融文章作者，总结并精简来自美股上市公司财报电话会议中的问题。用户特别强调要保留原意，同时让问题简洁、精准，去掉多余的装饰词，并且符合美式英语习惯。首先，我需要仔细阅读用户提供的原始问题：“As I understand, DGD was not able to optimize feedstocks for 45Z policy in Q1. What is the value of an optimized feedstock slate? And what is its composition today?” 接下来，我要分析这个问题的结构。第一个句子是一个背景说明，指出DGD在Q1未能优化原料以符合45Z政策。然后提出两个问题：优化原料组合的价值是什么？目前的组成是什么？用户的要求是简化问题，去掉冗长的部分。比如，“As I understand”可以去掉，因为问题本身是直接的，不需要解释背景。同样，“was not able to optimize feedstocks for 45Z policy in Q1”可以简化为“failed to optimize feedstocks for the 45Z policy in Q1”，这样更直接。然后，第二个问题“What is the value of an optimized feedstock slate?”可以简化为“What is the value of an optimized feedstock slate?”，但可能需要更简洁的表达，比如“What is the value of optimizing feedstocks for the 45Z policy?”这样更明确地关联到政策。第三个问题“What is its composition today?”可以简化为“What is the current feedstock composition?”，这样更直接，且符合美式英语习惯。需要注意的是，用户要求输出仅生成简化后的问题，且每个问题以问号结尾。因此，我需要确保两个问题都被正确简化，并且格式正确。同时，检查是否有重复或冗余的词汇，比如“feedstocks”是否可以合并，但这里可能需要保持两个问题的独立性。最后，确认是否符合美式英语的拼写和语法，比如“optimizing”而不是“optimising”，以及正确的标点符号。确保没有遗漏任何关键信息，比如45Z政策和DGD公司的名称是否正确保留。总结下来，简化后的问题应该是：1. Did DGD fail to optimize feedstocks for the 45Z policy in Q1? 2. What is the value of an optimized feedstock slate for the 45Z policy? 3. What is the current feedstock composition?但用户可能希望将两个问题合并为一个连贯的提问，所以可能需要调整结构。例如，将两个问题合并成一个复合问题，但根据用户提供的例子，可能需要保持两个独立的问题。不过用户提供的原始问题中有两个问题，所以简化后也应该有两个问题。因此，最终的简化版本可能是：1. Why was DGD unable to optimize feedstocks for the 45Z policy in Q1? 2. What is the value of an optimized feedstock slate, and what is its current composition?不过用户可能希望更简洁，比如：1. Did DGD fail to optimize feedstocks for the 45Z policy in Q1? 2. What is the value of an optimized feedstock slate, and what is its current composition?或者更进一步简化，可能将两个问题合并为一个，但根据用户提供的例子，可能需要保持两个问题。但用户给出的原始问题中有两个问题，所以可能需要保留两个。最终，根据用户的指示，输出应仅包含简化后的问题，每个问题以问号结尾，并且符合美式英语。因此，正确的简化应该是：1. Did DGD fail to optimize feedstocks for the 45Z policy in Q1? 2. What is the value of an optimized feedstock slate, and what is its current composition?但可能用户希望更简洁，比如：1. Why didn't DGD optimize feedstocks for the 45Z policy in Q1? 2. What is the value of an optimized feedstock slate, and what is its current composition?不过需要确保不改变原意。原始问题中的“was not able to optimize”可以简化为“fail to optimize”，但“why”可能更直接。但用户可能希望保持原意，所以“Did DGD fail...”可能更准确。最终决定使用用户的例子中的简化方式，即：1. Did DGD fail to optimize feedstocks for the 45Z policy in Q1? 2. What is the value of an optimized feedstock slate, and what is its current composition?但用户可能希望将两个问题合并为一个，所以可能需要调整。不过根据原始问题的结构，可能需要保留两个问题。因此，正确的简化应该是：1. Did DGD fail to optimize feedstocks for the 45Z policy in Q1? 2. What is the value of an optimized feedstock slate, and what is its current composition?但用户 - Derek Woodfield (Texas Capital)

2025Q1: We think our margins get better based on the type of mix, and it's a reflection of -- which is about 22%, 23% of our mix. Randy Stuewe: We're seeing some value as we're doing more animal fats. Some of the vegetable oil has been more expensive. - Matthew Jansen(CFO), Randall Stuewe(CEO)

Q&A:

• Question from Thomas Palmer (JPMorgan Chase & Co, Research Division): What is the most likely timeline to get clarity on the outstanding RVO items, exemptions and reallocation?
  Response: Bob: Optimistic timeline—EPA to submit to OMB and close comment period in December with potential approval by year-end, but significant uncertainty remains.

• Question from Thomas Palmer (JPMorgan Chase & Co, Research Division): On Feed outlook for Q4 — do waste fat price dips mean prices must rebound for Q4 to resemble Q3?
  Response: Randy: Core guidance range reflects modest downside risk; weaker North American fat prices may be offset by strength in Brazil/Canada so Q4 should be close to Q3.

• Question from Conor Fitzpatrick (BofA Securities, Research Division): How might protectionist RIN policies and foreign feedstock treatment net out across U.S. fuel and feed businesses?
  Response: Bob: EPA treatment of foreign feedstocks is unclear; domestic oils could meet demand but foreign feedstocks will likely be needed depending on the rules.

• Question from Dushyant Ailani (Jefferies LLC, Research Division): What drove the DGD capture/margins in 3Q and what are the puts/puts for 4Q?
  Response: Randy/Bob: Apparent capture differences partly due to peers' accounting; margins have improved in-quarter but final RVO clarity is required to confirm sustainability.

• Question from Manav Gupta (UBS Investment Bank, Research Division): What factors drove Feed segment margin improvement and outlook into 2026?
  Response: Randy: Higher fat and protein prices, better execution and acquisitions drove margin gains; momentum should carry into Q4 and likely into 2026, with seasonality caveats.

• Question from Pooran Sharma (Stephens Inc., Research Division): If foreign feedstocks get half RINs/no PTC, what RIN level is needed to incent production to meet 2026 mandate?
  Response: Bob: Rough estimate: RINs would need to rise about $0.40 to incentivize enough additional production if SRE reallocation is 50%.

• Question from Pooran Sharma (Stephens Inc., Research Division): What are your plans to pay down debt and where do covenants kick in?
  Response: Bob/Randy: Not near covenants; expect bank-view leverage ~3x by year-end with headroom on revolver; board target is ~2.5x leverage longer term.

• Question from Ryan Todd (Piper Sandler & Co., Research Division): Beyond RVO sizing/reallocation, what other policy items remain and could affect outlook (imports, CI/land use etc.)?
  Response: Randy/Bob: Multiple items remain (foreign feedstock treatment, origin tariffs, CI/land-use issues); EPA proposed 50% RINs for foreign biofuels and momentum exists to limit foreign participation, but final form unknown.

• Question from Ryan Todd (Piper Sandler & Co., Research Division): How is the PTC monetization market evolving—are discounts stable and proceeds ratable?
  Response: Bob: Market has matured; more counterparties familiar, discounts stabilized, and company expects to sell the majority of 2025 credits with ratable monetization into 2026.

• Question from Derrick Whitfield (Texas Capital Securities, Research Division): Given improving feedstock margins, could DGD post its best quarter in 2025?
  Response: Bob: That is fair—Q4 could be strongest given margin improvement, but management is cautious to be precise because of policy uncertainty.

• Question from Derrick Whitfield (Texas Capital Securities, Research Division): If accessing European RD market, how do spreads, shipping and tariffs affect economics?
  Response: Bob: Europe is addressable but duties (~$1/gal) reduce net economics; DGD sells there when net of duties is attractive.

• Question from Matthew Blair (Tudor, Pickering, Holt & Co., Research Division): Has DGD shifted feedstock mix toward veg oil or remains low-CI feedstocks?
  Response: Bob/Randy: Mix hasn't materially changed; DGD still prioritizes UCO, yellow grease and animal fats for best margins; DGD1 offline keeps soybean share lower.

• Question from Matthew Blair (Tudor, Pickering, Holt & Co., Research Division): Why has Darling contributed cash to DGD this year?
  Response: Bob: Contributions reflect timing (PTC payments go to partners), catalyst turnarounds and higher maintenance CapEx—timing issues rather than structural weakness.

• Question from Andrew Strelzik (BMO) — (Ben on for Andrew): Outlook for Food segment into Q4 after order pull-ins in Q3?
  Response: Randy: Q3 saw order timing weakness from tariff volatility; management expects orders to pick up and a stronger Q4 with continued recovery in hydrolyzed collagen.

• Question from Andrew Strelzik (BMO) — (Ben on for Andrew): Timeline for LCFS credit improvement?
  Response: Bob: Banked credits are being worked down and we expect S&D tightening with steady LCFS price increases beginning in 2026 rather than a sharp step up.

• Question from Heather Jones (Heather Jones Research LLC): Do you have floor/minimum pricing protections in protein contracts similar to fats?
  Response: Bob: Contracts vary; some include minimum processing fees and upside participation, but Darling focuses more on protecting against fat-price volatility.

• Question from Heather Jones (Heather Jones Research LLC): Will a full quarter of SAF production offset recent EU tariffs on U.S. feedstocks/exports?
  Response: Bob: Tariffs will affect new contracts going forward; current SAF volumes are largely contracted so near-term impact is limited, but future contracting may be affected.

• Question from Y. Zhang (Scotiabank Global Banking and Markets, Research Division): The core EBITDA range is lower than earlier in the year—what drove the shortfall and is 2026 growth comparable?
  Response: Randy: Range excludes DGD volatility and reflects uncertainty; core business looks similar or stronger for 2026 but clarity depends on RVO timing before providing guidance.

• Question from Y. Zhang (Scotiabank Global Banking and Markets, Research Division): What drove margin improvement in the Fuel Ingredients business excluding DGD?
  Response: Randy/Bob: Improvements driven by European mortality-destruction (Rendac) operations and green gas/digester businesses, plus favorable input/energy price movements.