Darling Ingredients Misses Fiscal Q2 EPS

Key Points

• Q2 EPS fell well below expectations at $0.08.

• Revenue for Q2 FY2025 slightly exceeded forecasts at $1.5 billion.

• Full-year adjusted EBITDA guidance was reduced by 16%–19%, reflecting pressure in renewable fuels and regulatory uncertainty.

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Darling Ingredients (NYSE:DAR), a global ingredients processor specializing in upcycling animal by-products and food waste, reported its second quarter fiscal 2025 results on July 24, 2025. The company reported GAAP EPS of $0.08, far below the consensus estimate of $0.24, largely due to weak profitability in its Diamond Green Diesel renewable fuels joint venture. Revenue (GAAP) came in slightly above expectations at $1.5 billion, but profitability metrics pointed to continued challenges for the period. Yet persistent headwinds in renewables prompted Darling to lower its full-year Combined Adjusted EBITDA guidance to $1.05–$1.10 billion.

Source: Darling Ingredients. Note: Analysts' consensus estimates for the quarter provided by FactSet.

About Darling Ingredients: Business Overview and Strategy

Darling Ingredients is a multinational company that specializes in converting animal by-products, used cooking oils, and food waste into value-added ingredients for feed, food, and fuel markets. The company operates over 260 facilities worldwide and holds a major position in the rendering (recycling of animal by-products into fats and proteins) and collagen manufacturing markets. A key pillar of its strategy is product diversification, which reduces its dependence on any single market and allows it to address a wide range of industries, such as agriculture, pharmaceuticals, and renewable energy.

Recent years have seen Darling focus on global expansion through acquisition and partnerships, such as its 50% ownership in Diamond Green Diesel, a major renewable fuels joint venture with Valero. The company's business success hinges on securing raw materials at competitive prices, compliance with complex regulatory environments, and innovation, especially within emerging areas like health-focused collagen peptides. Execution on these fronts, as well as adapting to changing renewable fuel policy, remains core to Darling’s strategic direction.

Quarter in Review: Financial and Operational Highlights

Darling faced a quarter in which revenues (GAAP) grew slightly, yet earnings and profitability (GAAP) lagged behind. Total revenue (GAAP) of $1.5 billion edged past expectations, EPS declined sharply year over year due to significant pressure in the Fuel Ingredients segment. Combined Adjusted EBITDA dropped to $249.5 million, reflecting an 8.8% decrease from the second quarter of fiscal year 2024. This underperformance led management to reduce its Combined Adjusted EBITDA outlook to a new range of $1.05 to $1.10 billion.

The Feed Ingredients segment, which produces feed-grade fats and protein meals, showed resilience and provided relative stability. Net sales for the Feed Ingredients segment were $936.5 million. Gross margin for the Feed Ingredients segment was $214.5 million. Adjusted EBITDA (non-GAAP) in this segment was $135.9 million. Management commented, “We anticipate continued improvement in the third quarter for our core ingredients business, led by strengthening fat prices.”

The Food Ingredients segment, which includes collagen and gelatin for human and animal consumption, reported net sales of $386.1 million, up 1.9%. Gross margin for the Food Ingredients segment was $103.9 million. Segment Adjusted EBITDA for Food Ingredients was $69.9 million. The period included the launch of Nextida, a new joint venture that aims to expand Darling’s reach in collagen peptides for the health and wellness segment. As management noted, “that should position us to unlock value and accelerate growth for our global collagen business in the high-potential health and wellness markets.”

The Fuel Ingredients segment, which covers renewable diesel and sustainable aviation fuel, recorded revenue of $158.8 million. The segment’s performance was dominated by Diamond Green Diesel, where results remained under significant pressure. DGD sales totaled 248.6 million gallons of renewable fuel at $0.36 per gallon EBITDA (non-GAAP)—a sharp drop from historical profitability. A delayed reaction from RIN pricing and ongoing regulatory uncertainty were cited as key pressures. The joint venture’s Adjusted EBITDA contribution to Darling fell 44% year-over-year.

There were no major acquisitions this quarter, but the Nextida joint venture marks a continued push to diversify into health-related products. Management also noted that debt refinancing improved financial flexibility, and the company ended the period with $95.0 million in cash and a leverage ratio of 3.34x, up slightly from earlier in the year. Capital expenditures totaled $71.0 million, with priorities remaining on balance sheet strength and opportunistic share repurchases.

Products, Innovations, and Segment Focus

On the product front, Feed Ingredients continued to be the largest contributor to Darling’s revenue, making up 64.3% of total net sales in FY2024. This product family involves processing animal by-products into fats and protein meals used as animal feed and for industrial markets. Performance here was supported by robust fat prices and continued supply chain adaptations.

In Food Ingredients, Darling’s collagen peptides and gelatin business -- including new product launches under the Nextida brand -- targeted both functional foods and health supplements. Innovations such as glucose modulation peptides reached initial market launch stages, with management highlighting innovation in peptide and glucose moderation products.

The Fuel Ingredients portfolio, covering renewable diesel and sustainable aviation fuel, relies on the Diamond Green Diesel joint venture. The segment faced sharp margin compression, largely due to a lag in renewable credits and market dislocations stemming from new policy rules and RIN price delays. EBITDA from the fuel segment remained weak, dragging on consolidated results.

Looking Ahead: Guidance and Key Factors to Watch

For the remainder of fiscal 2025, the new full-year guidance calls for Combined Adjusted EBITDA of $1.05 to $1.10 billion, down from $1.25 to $1.3 billion previously. This reduction reflects uncertain regulatory timing and difficulties in the renewable fuel market, especially as delays in small refinery exemption rulings and RIN price recovery limit visibility. Management did not provide EPS guidance for the remainder of the year. Priorities continue to include maintaining balance sheet health, further deleveraging, and continued emphasis on high-margin product categories in food ingredients and collagen innovation.

Investors will likely continue watching core operational metrics across the three major segments—especially signs of margin improvement from fat pricing in the Feed Ingredients business, the scaling of new collagen peptide products, and whether policy clarity and feedstock pricing can help reverse the challenging margin picture for renewable fuels. Progress on the Nextida joint venture and the pace of EBITDA recovery at Diamond Green Diesel will represent critical levers for Darling’s broader earnings performance in the quarters ahead.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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JesterAI is a Foolish AI, based on a variety of Large Language Models (LLMs) and proprietary Motley Fool systems. All articles published by JesterAI are reviewed by our editorial team, and The Motley Fool takes ultimate responsibility for the content of this article. JesterAI cannot own stocks and so it has no positions in any stocks mentioned. The Motley Fool recommends Darling Ingredients and recommends the following options: short October 2025 $40 calls on Darling Ingredients. The Motley Fool has a disclosure policy.