The Gemini Report – Investment Deep Dives

Darling Ingredients Inc. (DAR): An Analysis of a Vertically Integrated Waste-to-Value Enterprise

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The Gemini Report - Investment Deep Dives
The Gemini Report – Investment Deep Dives
Darling Ingredients Inc. (DAR): An Analysis of a Vertically Integrated Waste-to-Value Enterprise
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Executive Summary

Darling Ingredients Inc. presents a unique investment profile, operating as a global, vertically integrated platform that embodies the “waste-to-value” concept. The company’s core business involves the collection and transformation of inedible animal by-products and used cooking oils into a diversified portfolio of essential ingredients for feed, food, and renewable fuel. The investment case is characterized by a fundamental dichotomy: the company’s mature, stable, and cash-generative Feed and Food segments are currently juxtaposed with, and often overshadowed by, the significant cyclicality and regulatory-driven volatility of its high-growth Fuel segment. This dynamic is most pronounced in its 50% ownership of the Diamond Green Diesel (DGD) joint venture.

Recent financial performance starkly illustrates this contrast. Results for the second quarter of 2025 showed notable resilience in the core Feed segment, which benefited from favorable commodity pricing. However, this stability was completely eclipsed by a severe contraction in profitability within the Fuel segment, driven by adverse regulatory conditions and weak renewable fuel credit markets.1 This underperformance prompted a significant downward revision of the company’s full-year 2025 guidance, which has pressured the company’s equity valuation.3 Consequently, a valuation disconnect has emerged; trailing earnings multiples appear elevated due to depressed recent profits, while forward-looking estimates imply a sharp recovery. This anticipated rebound is heavily contingent on favorable policy resolutions and a normalization of market conditions within the renewable fuels sector.

Despite near-term challenges, Darling Ingredients is positioned to benefit from powerful secular tailwinds. The global push toward a circular economy and decarbonization provides a long-term strategic advantage, particularly for its renewable diesel and sustainable aviation fuel (SAF) operations. Concurrently, the trend of premiumization in both pet food and human nutrition, specifically the growing demand for collagen-based wellness products, offers a durable growth runway for its higher-margin segments.

The primary risks confronting the company are inextricably linked to policy and commodity markets. The profitability of the Fuel segment, a critical driver of future growth, is highly dependent on the complex and often unpredictable frameworks of the U.S. Renewable Fuel Standard (RFS) and California’s Low Carbon Fuel Standard (LCFS). Earnings are therefore acutely sensitive to regulatory shifts and the volatile pricing of associated environmental credits, such as Renewable Identification Numbers (RINs) and LCFS credits. This inherent regulatory risk is compounded by the cyclical volatility of feedstock and energy prices, which directly impacts margins across all three of its business segments.

1. Company Overview & Business Model

Darling Ingredients Inc. has established itself as a global leader in the sustainable transformation of bio-nutrients. The company’s business model is founded on the principle of a circular economy, repurposing what would otherwise be waste streams from the food and agriculture industries into valuable and essential ingredients.4 With a history dating back to 1882, Darling has evolved from a traditional rendering company into a diversified producer of sustainable ingredients for a global customer base.6

Core Operations and Scale

The company’s fundamental operation is the collection and processing of edible and inedible bio-nutrients, primarily animal by-products (such as fat, bone, and protein) and used cooking oil from restaurants and food service establishments.6 These raw materials are then converted into a wide range of finished products.

Darling’s operational scale is a key characteristic. The company operates more than 260 facilities across five continents and processes an estimated 15% of the world’s animal by-products.4 This extensive global footprint provides significant logistical advantages and geographic diversification.

Business Segments: Feed, Food, and Fuel

The company’s operations are organized into three distinct but interconnected segments:

  1. Feed Ingredients: This is the company’s largest and most established segment. It produces a variety of fats and proteins that serve as essential ingredients for animal nutrition. Key end markets include livestock feed (for poultry, swine, and cattle), aquaculture feed, pet food, and organic fertilizers. This segment forms the backbone of the company’s collection and processing network and provides a stable, cash-generative foundation.4
  2. Food Ingredients: This segment focuses on producing higher-value specialty ingredients for human consumption, health, and wellness applications. Its product portfolio includes gelatin, collagen peptides (marketed under the Rousselot brand), edible fats, natural casings for sausages, and hides for the leather industry.4 The primary customers for this segment are in the pharmaceutical, food, and health and wellness industries, which are increasingly seeking natural and functional ingredients.8
  3. Fuel Ingredients: This segment is central to the company’s growth strategy and exposure to the renewable energy transition. It processes fats and used cooking oils into feedstocks for biofuels and produces some green energy directly. The segment’s most significant asset is its 50% equity stake in the Diamond Green Diesel (DGD) joint venture with Valero Energy Corporation. DGD is one of the world’s largest producers of renewable diesel and a significant producer of sustainable aviation fuel (SAF), positioning Darling as a key player in the decarbonization of the transportation sector.5

Revenue Composition

An analysis of the company’s revenue composition underscores the relative scale of its segments. For the second quarter of 2025, which ended June 28, 2025, net sales were distributed as follows 3:

  • Feed Ingredients: $936.5 million, representing 63.2% of total net sales.
  • Food Ingredients: $386.1 million, representing 26.1% of total net sales.
  • Fuel Ingredients: $158.8 million, representing 10.7% of total net sales.

It is critical to note that these figures for the Fuel segment represent Darling’s wholly-owned operations and do not include the sales generated by the DGD joint venture. DGD’s financial results are accounted for using the equity method, and its contribution to Darling’s earnings is reported as “Equity in net income/(loss) of Diamond Green Diesel” on the income statement.

Vertical Integration and Supply Chain

Darling’s business model is characterized by a high degree of vertical integration. The company manages a sophisticated global supply chain that begins with the collection of raw materials from a diverse network of over 100,000 suppliers, including restaurants, supermarkets, and meat processing plants. This extensive collection network, which includes a fleet of specialized vehicles, represents a significant logistical moat.

Once collected, the raw materials are transported to Darling’s processing facilities, where they are transformed into finished ingredients. This control over the entire value chain, from collection to production, provides a distinct competitive advantage in both feedstock sourcing and cost management. A crucial element of this integration is the internal supply of feedstock from the Feed Ingredients segment to the Fuel Ingredients segment and the DGD joint venture. For example, in the second quarter of 2025, Darling reported $291.5 million in “Net sales to related party – Diamond Green Diesel,” highlighting the significant internal flow of materials.3 This internal hedging mechanism provides a degree of earnings stability that is not available to non-integrated competitors. When the market price for fats (a key feedstock for DGD) rises, it increases input costs for the joint venture but simultaneously boosts revenue and margins in Darling’s wholly-owned Feed segment, creating a partial offset at the consolidated level.

Customer Base

The company serves a broad and diversified customer base across numerous end markets, including the pharmaceutical, food, pet food, animal feed, technical, industrial, and fuel sectors.7 This diversification helps to mitigate the impact of economic downturns or cyclical weakness in any single industry.

2. Industry Analysis & Market Dynamics

Darling Ingredients operates at the intersection of several distinct global industries, each with its own unique growth drivers, cyclical patterns, and regulatory frameworks. The company’s performance is a composite of the dynamics within the mature rendering industry, the high-growth but volatile biofuels market, and the steadily expanding premium pet food and human nutrition sectors.

Global Rendering Industry

The foundational market for Darling’s Feed segment is the global rendering industry. This is a mature and stable market focused on recycling animal by-products. The global market for rendered products was valued at approximately $22.3 billion to $22.5 billion in 2023.10 Industry growth is modest, with forecasts projecting a compound annual growth rate (CAGR) in the range of 2.5% to 2.9% through 2032.10

Growth in this sector is fundamentally tied to global meat production and consumption trends, as well as the increasing emphasis on sustainability and waste reduction. As a recycling service, rendering prevents billions of pounds of animal by-products from entering landfills, contributing to a more circular economy.11 North America is the largest regional market, accounting for approximately 47% of the global total, reflecting its large-scale meat processing industry.10

Biofuels Market and Renewable Energy Policy

In stark contrast to the slow-growth rendering market, the global biofuels market represents a high-growth but highly volatile opportunity for Darling’s Fuel segment. The global biofuels market was valued at approximately $132 billion in 2024 and is projected to expand at a CAGR of around 6.9% through 2034.14

This growth is not primarily driven by traditional market forces but is instead almost entirely dependent on government policies and mandates aimed at decarbonizing the transportation sector. The profitability of biofuels like renewable diesel and SAF is determined by a combination of conventional fuel prices (e.g., diesel and jet fuel) and the value of environmental credits. Key policies shaping this market include:

  • U.S. Renewable Fuel Standard (RFS): A federal program administered by the Environmental Protection Agency (EPA) that mandates the blending of minimum volumes of renewable fuels into the U.S. transportation fuel supply. The program creates a compliance mechanism based on tradable credits known as Renewable Identification Numbers (RINs), the value of which can be highly volatile.15
  • California Low Carbon Fuel Standard (LCFS): A state-level program that requires a reduction in the carbon intensity (CI) of transportation fuels. It creates a market-based credit system where producers of low-CI fuels (like renewable diesel) can sell credits to producers of high-CI fuels (like petroleum gasoline and diesel).18
  • EU Renewable Energy Directive (RED II): This directive sets renewable energy targets for European Union member states, including a mandate for a minimum of 14% renewable energy in the transport sector by 2030. It includes specific sub-targets and sustainability criteria for advanced biofuels, creating demand for feedstocks like those produced by Darling.21

Pet Food Ingredient Market and Premiumization

Darling’s Feed and Food segments are significant suppliers to the global pet food ingredient market. This is a large and steadily growing industry, with market size estimates for 2023 ranging from $34 billion to over $60 billion and projected CAGRs between 4.9% and 6.8%.24

A dominant trend in this market is “premiumization,” driven by the “humanization” of pets. Pet owners are increasingly viewing their pets as family members and are willing to spend more on high-quality, nutritious, and functional foods that mirror human health and wellness trends.27 This shift fuels demand for premium ingredients such as specialty proteins, animal-based fats, and gut health ingredients like collagen, all of which are key products for Darling.26

Circular Economy and Sustainability Drivers

Underpinning all of Darling’s operations is the secular trend toward sustainability and the circular economy. The company’s core business of upcycling waste streams aligns perfectly with global efforts to reduce waste, conserve resources, and lower greenhouse gas emissions. The rendering process itself is positioned as a highly sustainable alternative to landfilling or composting, converting nearly 99% of raw material into valuable products.13 This alignment with ESG (Environmental, Social, and Governance) principles provides a long-term tailwind for the business.

The combination of these distinct market dynamics creates a unique portfolio effect within Darling Ingredients. The mature, stable cash flows from the rendering and animal feed markets provide a solid foundation, or “ballast,” for the company. This base supports the more volatile but high-growth “engine” of the biofuels segment. An investor’s perspective on the company often hinges on their assessment of this balance: whether the long-term growth potential of the renewable fuels engine can justify the inherent volatility it introduces to the entire enterprise, or if that volatility overshadows the stability of the core business.

3. Competitive Landscape & Market Position

Darling Ingredients occupies a strong competitive position as a global leader in its core markets, but it faces a diverse and fragmented set of competitors that vary by business segment and geography. The company’s competitive advantages, or “moats,” are built on its immense scale, extensive logistical network, and deep integration within the agricultural value chain.

Market Position and Share

Darling is one of the largest and most significant players in the global rendering and bio-nutrient transformation industry. The company estimates that it processes approximately 15% of the world’s animal by-products, giving it a substantial global market share.5 In the rapidly growing renewable diesel market, its Diamond Green Diesel joint venture is one of the largest producers in the world, with a capacity of approximately 1.2 billion gallons per year.5

Competitor Analysis

The company does not have a single direct competitor that operates across all of its product lines and geographic regions.30 Instead, it competes with different players in each of its primary segments:

  • Feed Ingredients (Rendering): In the rendering space, Darling’s primary competitors are the integrated rendering divisions of major meat processing companies. Tyson Foods, Inc. is a particularly formidable competitor, with one industry analysis firm estimating it holds a majority market share in the U.S. rendering and meat byproduct processing industry.13 Other major competitors include large, diversified agricultural companies such as
    Cargill, Inc. and Archer-Daniels-Midland Company (ADM), which have their own animal nutrition and processing operations.32
  • Food Ingredients: Competition in the food ingredients segment is more specialized and fragmented. Darling competes with various global and regional companies depending on the specific product, such as gelatin, collagen, or edible fats.
  • Fuel Ingredients: In the renewable fuels market, DGD competes with a growing number of producers. These include other specialized renewable fuel companies as well as the renewable energy divisions of major integrated oil and gas corporations that are expanding their presence in the sector.

A unique aspect of Darling’s competitive environment is the “co-opetition” dynamic it shares with its largest competitors in the rendering space. Meat processors like Tyson and Cargill are both competitors in the sale of finished rendered products and essential suppliers of the raw animal by-products that Darling processes. This complex relationship is a result of the massive scale of their meat processing operations, which often generate more by-products than their own rendering facilities can handle. Darling’s efficient and reliable collection services make it a critical partner for these companies, creating a symbiotic relationship that reinforces Darling’s supply chain and market position.

Barriers to Entry and Competitive Moats

Darling’s market leadership is protected by significant barriers to entry and durable competitive moats:

  • Logistical Network and Geographic Density: Rendering is fundamentally a logistics business. Raw materials are perishable and costly to transport. Darling’s extensive network of over 260 facilities is strategically located in close proximity to the sources of raw material (e.g., slaughterhouses, food processors, and urban centers with high concentrations of restaurants). This dense network creates a powerful competitive advantage by minimizing inbound freight costs and ensuring a reliable supply of feedstock. A new entrant would face prohibitive capital costs and logistical challenges to replicate this footprint.
  • Scale and Operational Efficiency: The company’s massive processing volume allows it to achieve significant economies of scale in production, procurement, and research and development. This scale translates into a cost advantage that smaller, regional competitors cannot easily match.
  • Regulatory Expertise: Operating in the rendering, food, and fuel industries requires navigating a complex and stringent set of regulations related to environmental protection, food and feed safety, and renewable energy mandates. Darling’s long history and global presence have endowed it with deep institutional knowledge and expertise in regulatory compliance, which represents a significant hurdle for potential new entrants.
  • Supplier and Customer Relationships: The company has cultivated long-standing relationships with a vast network of raw material suppliers and a diversified base of customers. These relationships, built on reliability and service, create high switching costs and further solidify the company’s market position.

Industry Consolidation

The rendering industry has been characterized by a long-term trend of consolidation, and acquisitions have been a cornerstone of Darling’s growth strategy. The company has a proven track record of acquiring smaller players to expand its geographic reach, enhance its processing capabilities, and enter new product markets.36 This ongoing consolidation trend further raises the barriers to entry for new competitors.

4. Financial Performance & Growth History

An examination of Darling Ingredients’ financial performance over the past five to ten years reveals a company that has achieved significant top-line growth, driven largely by its expansion into renewable fuels. However, this growth has been accompanied by considerable volatility in profitability, reflecting the cyclical nature of its underlying commodity markets and the policy-driven dynamics of the fuel sector.

Revenue Growth Trajectory

Darling’s revenue has followed a distinct cyclical pattern, marked by a period of strong expansion from 2020 through 2022, followed by a contraction. Annual revenues grew from $3.39 billion in 2016 to a peak of $6.79 billion in fiscal 2023.37 This period of rapid growth was fueled by both organic expansion, particularly the build-out of the Diamond Green Diesel facilities, and a series of strategic acquisitions. The company posted impressive year-over-year revenue growth of 32.7% in 2021 and 37.8% in 2022.37 However, as conditions in the renewable fuels market deteriorated, annual revenue declined by 15.8% in fiscal 2024 to $5.72 billion.37

Profitability Analysis

The company’s profitability metrics have mirrored its revenue trends. Combined Adjusted EBITDA, a key non-GAAP measure used by management to assess performance, surged from pre-2020 levels to a high of $1.61 billion in fiscal 2023 before falling to $1.08 billion in fiscal 2024.39 This demonstrates the significant operating leverage in the business, particularly within the Fuel segment, where profitability is highly sensitive to changes in commodity spreads and environmental credit values.

Despite the volatility in operating income, the company’s gross margins have remained relatively stable, generally fluctuating within a range of 21% to 26% over the last decade.40 This resilience suggests effective management of raw material procurement and processing costs across different commodity cycles. For fiscal year 2024, the gross margin was 22.4%.40

Returns on Capital

Recent pressure on earnings has had a significant impact on the company’s return metrics. As of mid-2025, the trailing twelve-month (TTM) Return on Equity (ROE) stood at a modest 2.3% to 2.5%, while Return on Invested Capital (ROIC) was approximately 2.2% to 5.0%.42 These figures are substantially lower than the levels achieved during the 2021-2023 peak and reflect the trough in the company’s earnings cycle. The ability to improve these returns will be heavily dependent on a recovery in the profitability of the DGD joint venture.

Cash Flow Generation

Darling has consistently generated positive cash flow from operations, which is essential for funding its capital-intensive business and strategic acquisitions. In fiscal 2024, the company generated $839.3 million in cash flow from operating activities.40 This robust cash generation, even during a downturn, underscores the underlying strength of its core Feed and Food segments.

Debt and Credit Profile

The company maintains a moderately leveraged balance sheet to support its growth initiatives. At the end of fiscal 2024 (December 28, 2024), total debt outstanding was $4.0 billion.44 The company’s debt-to-equity ratio has fluctuated over the past decade, influenced by major acquisitions and capital projects. It stood at 0.88 at the end of 2024, down from a peak of over 1.0 in 2014 but up from a low of 0.43 in 2021.45 Management actively manages its capital structure, as evidenced by a successful debt refinancing in the second quarter of 2025 designed to enhance financial flexibility.3 The company’s bank covenant leverage ratio was 3.93x at the end of fiscal 2024, which improved to 3.34x by the end of the second quarter of 2025.3

The following table provides a summary of Darling Ingredients’ key financial metrics over the past five fiscal years, illustrating the cyclical trends in its performance.

Fiscal YearTotal Revenue ($M)Revenue Growth (%)Gross Margin (%)Combined Adj. EBITDA ($M)Net Income ($M)Diluted EPS ($)Total Debt ($M)Debt/Equity Ratio
20193,360-0.7%23.0%N/A450 (pretax)1.90N/A0.59
20203,5706.2%24.7%N/A420 (pretax)1.83N/A0.50
20214,74032.7%26.2%N/A880 (pretax)4.01N/A0.43
20226,53037.8%23.4%N/A1,010 (pretax)4.58N/A0.85
20236,7903.9%24.2%1,610647.73.99N/A0.93
20245,715-15.8%22.4%1,080278.91.734,0000.88
Data Sources:.37 Note: Combined Adjusted EBITDA is a non-GAAP metric reported by the company; historical data prior to 2023 was not available in the provided sources. Pretax income is used for 2019-2022 as a proxy for profitability trends. Total debt for years prior to 2024 was not specified in the provided sources.

5. Recent Performance & Major Changes (2022-2024)

The period from 2022 through mid-2025 has been one of stark contrasts for Darling Ingredients, encapsulating both the peak profitability of its renewable fuels venture and a subsequent sharp downturn. This recent history clearly demonstrates the company’s sensitivity to commodity price cycles and, most critically, to the shifting landscape of renewable energy policy.

The Diamond Green Diesel Downturn

The central narrative of Darling’s recent performance is the significant decline in the profitability of its Diamond Green Diesel (DGD) joint venture. After a period of exceptional earnings, DGD’s performance deteriorated significantly in late 2023 and into 2025. This was acutely evident in the second quarter of 2025, when Darling’s 50% share of DGD’s adjusted EBITDA plummeted by 44% year-over-year to $42.6 million.1

The key driver of this decline was a severe compression in the renewable diesel margin, or “crush spread.” EBITDA per gallon sold, a critical metric for DGD’s profitability, fell to just $0.36 in Q2 2025 and averaged a mere $0.22 for the first six months of the year.2 Management attributed this margin collapse to two primary factors rooted in U.S. renewable fuel policy:

  1. Regulatory Uncertainty: An overhang of potential Small Refinery Exemptions (SREs) under the Renewable Fuel Standard created uncertainty in the market for compliance credits (RINs).3
  2. Delayed RIN Pricing: The market price for RINs did not react swiftly to underlying supply and demand fundamentals, failing to provide the necessary price signal to support higher renewable diesel margins.3

Impact on Consolidated Financials and Guidance

The weakness in the Fuel segment had a direct and severe impact on Darling’s consolidated financial results. For the second quarter of 2025, the company reported net income of only $12.7 million, or $0.08 per diluted share. This represented an 84% decline from the $78.9 million, or $0.49 per diluted share, reported in the same quarter of the prior year.9

This significant earnings miss forced the company to make a substantial downward revision to its full-year 2025 forecast. Management reduced its guidance for Combined Adjusted EBITDA to a new range of $1.05 billion to $1.10 billion, a cut of over $200 million from the previous forecast of $1.25 billion to $1.30 billion.1 This revision signaled to the market that the headwinds in the renewable fuels sector were more severe and persistent than previously anticipated.

Resilience in Core Feed and Food Segments

While the Fuel segment struggled, Darling’s core Feed and Food businesses demonstrated considerable resilience, showcasing the benefits of the company’s diversified model.

  • Feed Ingredients: The Feed segment was a source of strength during this period. In Q2 2025, its Segment Adjusted EBITDA increased by 11.3% year-over-year to $135.9 million.50 This strong performance was driven by steady raw material volumes and margin expansion, benefiting from what management described as a “favorable pricing environment” for fats.48
  • Food Ingredients: The Food segment delivered stable results. Segment Adjusted EBITDA for Q2 2025 was $69.9 million, a slight decrease from $73.2 million in the prior year.50 However, raw material volumes in the segment increased year-over-year, indicating healthy underlying global demand for its products, particularly collagen and gelatin.48

The following table details the segment-level financial performance for the second quarter of 2025 compared to the same period in 2024, quantifying the divergence between the struggling Fuel segment and the resilient core businesses.

(in thousands)Feed IngredientsFood IngredientsFuel IngredientsCorporateTotal
Three Months Ended June 28, 2025
Total Net Sales$936,532$386,142$158,844$0$1,481,518
Gross Margin$214,451$103,909$27,557$0$345,917
Segment Operating Income/(Loss)$39,900$42,555$15,876$(22,463)$75,868
Segment Adjusted EBITDA (Non-GAAP)$135,902$69,946$18,639$(17,591)$206,896
DGD Adjusted EBITDA (Darling’s Share)––$42,648–$42,648
Combined Adjusted EBITDA (Non-GAAP)$135,902$69,946$61,287$(17,591)$249,544
Three Months Ended June 29, 2024
Combined Adjusted EBITDA (Non-GAAP)$122,100 (approx.)$73,200$96,800N/A$273,600
Data Sources:.3 Note: A full comparative breakdown for Q2 2024 was not available; Combined Adjusted EBITDA figures for Q2 2024 are sourced from.50

Strategic Developments

Amidst the operational challenges, Darling continued to execute on its long-term strategy. In May 2025, the company announced a significant strategic move with the signing of a non-binding term sheet to combine its collagen and gelatin businesses with those of Tessenderlo Group to form a new, independent company called Nextida.4 This joint venture is designed to accelerate growth and unlock value in the high-potential health and wellness markets. Additionally, the company took advantage of market conditions to successfully refinance its long-term debt during the second quarter, improving its financial flexibility and securing its borrowing costs for the future.3

6. Growth Strategy & Future Opportunities

Despite the significant near-term headwinds in its Fuel segment, Darling Ingredients’ long-term growth strategy remains focused on capitalizing on major secular trends, including global decarbonization, the demand for sustainable food and feed ingredients, and the growing consumer focus on health and wellness. The strategy is a multi-pronged approach involving organic expansion in renewable energy, value-added product innovation, and disciplined inorganic growth.

Renewable Energy Expansion

The centerpiece of Darling’s long-term growth strategy is the expansion of its renewable energy platform, primarily through its Diamond Green Diesel joint venture.

  • Sustainable Aviation Fuel (SAF): Management has identified SAF as a key future growth vector. DGD is already one of the world’s largest producers of SAF, a fuel that is critical for decarbonizing the hard-to-abate aviation sector.5 The market for SAF is expected to grow exponentially in the coming years, supported by powerful policy incentives. In the U.S., the Inflation Reduction Act (IRA) provides significant tax credits for SAF production, while in Europe, the Renewable Energy Directive (RED II) and other mandates are creating structural demand.23 Management has expressed continued confidence in the long-term value of DGD as these supportive policies take full effect.48
  • Renewable Diesel: While the market is currently facing challenges, renewable diesel remains a core component of the strategy. The company anticipates that policy clarity in the U.S., particularly regarding the Renewable Fuel Standard, will eventually lead to a more stable and profitable margin environment. DGD’s large-scale, efficient production facilities are well-positioned to capitalize on this recovery.48

Product Portfolio Diversification and Innovation

Darling is actively pursuing growth by moving up the value chain and diversifying its product portfolio, particularly in its Food Ingredients segment.

  • The Nextida Joint Venture: The planned formation of Nextida, a joint venture with Tessenderlo Group focused on collagen and gelatin, is a pivotal strategic initiative.4 This move is designed to create a pure-play leader in the rapidly growing health and wellness market. By isolating these high-margin assets, Darling aims to accelerate their growth and unlock a valuation that may not be fully recognized within the current consolidated company structure. Management has articulated ambitious goals for the venture, suggesting it has the potential to double the earnings of that business line within a three-to-five-year timeframe.48 This strategic maneuver is not just about operational growth; it is also a form of financial engineering intended to highlight the intrinsic value of its food-grade assets, which may be currently discounted by the market due to the volatility of the Fuel segment.
  • New End-Market Development: The company continues to explore new applications for its bio-based ingredients in markets such as cosmetics, pharmaceuticals, and other industrial uses, further diversifying its revenue streams away from traditional feed and fuel markets.

Inorganic Growth and Geographic Expansion

Acquisitions have historically been a core tenet of Darling’s growth strategy, and this is expected to continue. The global rendering industry remains fragmented, providing ample opportunities for Darling to act as a consolidator. The company’s acquisition pipeline is focused on opportunities that can expand its geographic footprint, particularly in emerging markets, enhance its raw material sourcing capabilities, or provide access to new technologies and value-added product lines. Management’s disciplined approach to M&A will be critical to ensuring that future acquisitions are accretive to shareholder value.

7. Capital Allocation & Shareholder Returns

Darling Ingredients’ capital allocation strategy reflects its position as a company focused on long-term growth through both organic investment and strategic acquisitions. The company’s priorities have historically been geared towards reinvesting cash flow back into the business to strengthen its competitive moats and expand its earnings power, rather than on direct returns to shareholders in the form of dividends.

Capital Expenditure Priorities

The company’s capital expenditures are directed towards maintaining and upgrading its extensive network of facilities, as well as funding growth projects. In the second quarter of 2025, capital expenditures totaled $71.0 million, bringing the year-to-date total to $133.9 million.3 In the current challenging market environment, management has emphasized a commitment to “strict capital discipline,” suggesting a focus on high-return projects and essential maintenance over large-scale speculative expansion.3 For the full fiscal year 2024, capital expenditures were $332.5 million.44

Acquisition Strategy

Inorganic growth through acquisitions is a fundamental component of Darling’s long-term strategy. The company has a long and successful track record of acquiring and integrating smaller competitors to build scale, enter new geographic markets, and broaden its product portfolio. This disciplined approach to M&A is a key driver of value creation.

Debt Management and Capital Structure

Darling utilizes debt to finance its capital-intensive operations and acquisitions. The company actively manages its balance sheet and credit profile to maintain financial flexibility. As of June 28, 2025, total debt outstanding was $3.98 billion.3 The company’s leverage, as measured by its bank covenant ratio, stood at 3.34x at the end of Q2 2025, an improvement from 3.93x at the end of fiscal 2024.3 In a notable capital allocation move, the company successfully refinanced a portion of its long-term debt in the second quarter of 2025, a decision that locks in borrowing costs for several years and enhances its financial stability.3

Shareholder Returns

Direct returns to shareholders have been a lower priority in the company’s capital allocation hierarchy.

  • Dividend Policy: Darling Ingredients does not currently pay a dividend, and there is no indication of a plan to initiate one in the near future.55 The company retains earnings to fund its growth initiatives.
  • Share Repurchases: The company has utilized share repurchase programs opportunistically in the past. Management has noted that share buybacks remain a potential use of cash, balanced against other priorities like maintaining balance sheet strength.2

Overall, management’s capital allocation framework prioritizes a sequence of (1) investing in high-return organic growth projects, (2) pursuing strategic and accretive acquisitions, (3) managing the balance sheet and maintaining appropriate leverage ratios, and (4) opportunistically returning capital to shareholders via buybacks.

8. Cyclical & Market Dynamics Analysis

Darling Ingredients’ business is subject to a complex interplay of cyclical and market forces that can create significant volatility in its revenue and profitability. Understanding these dynamics is crucial for assessing the company’s performance and risk profile. The business is fundamentally a “spread” business, where profitability is determined by the margin between the cost of its raw material inputs and the market price of its finished products.

Animal Protein Production Cycles

The availability and cost of Darling’s primary raw materials—animal by-products—are directly linked to the production cycles of the global meat and poultry industries. An increase in livestock slaughter rates, driven by strong consumer demand for meat, leads to a greater supply of by-products. This increased supply can exert downward pressure on Darling’s raw material costs, potentially widening margins in its Feed and Food segments. Conversely, a contraction in the livestock herd or disruptions from animal diseases, such as African Swine Fever, can constrain the supply of raw materials, leading to higher input costs.

Commodity Price Exposure

The company’s earnings are highly exposed to fluctuations in global commodity prices. This exposure manifests differently across its segments:

  • Feed and Food Segments: Profitability is driven by the spread between the price of finished goods (such as tallow, yellow grease, and protein meals) and the cost of acquiring and processing raw animal by-products. These finished product prices are influenced by global supply and demand for fats and proteins, including competition from vegetable-based alternatives like soybean meal and palm oil.
  • Fuel Segment (DGD): The profitability of Diamond Green Diesel is determined by the renewable diesel “crush spread.” This is the margin between the selling price of renewable diesel and the cost of its feedstock. The selling price is a function of the price of petroleum diesel and the value of environmental credits (RINs and LCFS credits). The feedstock cost is primarily determined by the market prices for used cooking oil, tallow, and other fats and greases. A rise in fat prices, while beneficial to the Feed segment, directly compresses the margin for DGD.

Energy Market and Environmental Credit Dynamics

The Fuel segment’s performance is highly correlated with the broader energy markets and the specific markets for environmental credits. A rise in crude oil and petroleum diesel prices generally supports higher selling prices for renewable diesel. However, the value of RINs and LCFS credits is a more significant and volatile component of the revenue equation. These credit markets are driven by regulatory mandates, compliance deadlines, and macroeconomic factors, and their prices can fluctuate dramatically, as seen in the 2024-2025 period.

Economic Sensitivity and Recession Resilience

The company’s diversified model provides a degree of resilience to economic downturns. Demand for food and animal feed tends to be relatively inelastic, providing a stable base for the Feed and Food segments. However, demand for transportation fuels is more sensitive to economic activity, which can impact the Fuel segment. During a recession, lower economic output can lead to reduced demand for diesel fuel, potentially pressuring prices and margins for renewable diesel.

Currency Exposure

As a global company with significant operations and sales in Europe, China, and South America, Darling is exposed to foreign currency translation risk.7 A strengthening of the U.S. dollar relative to the Euro or other currencies can result in lower reported revenues and profits from its international operations when translated back into dollars.56

9. Risk Factors & Potential Headwinds

An investment in Darling Ingredients carries a number of significant risks and potential headwinds that are inherent to its business model and the industries in which it operates. These risks span regulatory, operational, market, and competitive domains.

Regulatory and Policy Uncertainty

This represents the most significant and immediate risk to the company’s earnings, particularly for the high-growth Fuel segment.

  • Renewable Fuel Policies: The profitability of Diamond Green Diesel is fundamentally dependent on government mandates such as the U.S. Renewable Fuel Standard (RFS) and California’s Low Carbon Fuel Standard (LCFS). Any adverse changes to these policies—such as a reduction in mandated volumes, a change in the way credits are calculated, or an increase in waivers granted to obligated parties (e.g., Small Refinery Exemptions)—could severely impact the demand for and pricing of renewable diesel and its associated environmental credits (RINs and LCFS credits). The recent earnings pressure and guidance cut in 2025, attributed to uncertainty surrounding SREs, is a direct manifestation of this risk.3
  • Environmental and Food Safety Standards: The company’s global operations are subject to stringent and evolving environmental, health, and safety regulations. Changes in these standards could require significant capital expenditures for facility upgrades or result in increased operating costs and potential liabilities.

Raw Material and Commodity Price Volatility

Darling’s business is exposed to the inherent volatility of agricultural and energy commodity markets.

  • Feedstock Availability and Pricing: The price and availability of the company’s primary raw materials—animal by-products and used cooking oil—can fluctuate significantly. Animal disease outbreaks, such as African Swine Fever or Avian Influenza, can disrupt the supply of animal by-products from the meat processing industry. Increased competition for these feedstocks, particularly from other renewable fuel producers, could also drive up input costs and compress margins.
  • Finished Product Pricing: The prices of Darling’s finished products (fats, proteins, renewable fuels) are subject to global supply and demand dynamics and can be highly volatile. A sharp decline in fat prices or protein meal prices would negatively impact the Feed segment, while a drop in energy prices would pressure the Fuel segment.

Competition

The company faces robust competition across all of its business segments. In rendering, it competes with the large, vertically integrated operations of major meat processors like Tyson Foods, as well as other large agricultural conglomerates.30 In the renewable fuels market, it faces competition from both established players and new entrants, including major oil companies investing heavily in the space. Increased competition could lead to pressure on both finished product pricing and raw material costs.

Operational Risks

  • Animal Disease Outbreaks: A widespread outbreak of animal disease could lead to a significant reduction in livestock populations, thereby reducing the supply of raw materials available for Darling’s rendering operations.
  • Facility Operations: The operation of large-scale rendering and processing facilities involves inherent risks, including equipment failure, industrial accidents, and potential environmental liabilities.

Market and Economic Risks

  • Changing Dietary Trends: A long-term societal shift away from meat consumption towards plant-based protein alternatives could, over time, reduce the volume of animal by-products generated by the meat industry, impacting Darling’s primary source of raw material.
  • Economic Downturn: A global recession could reduce demand for transportation fuels, negatively impacting the Fuel segment. It could also lead to some trading-down effects in the premium pet food market, affecting the Feed segment.

10. Segment-Specific Analysis

A deeper analysis of Darling’s three business segments reveals distinct profiles in terms of market drivers, competitive dynamics, and growth prospects. The company’s overall performance is a blend of the stability of its core ingredients businesses and the high-beta nature of its renewable fuels venture.

Feed Ingredients

The Feed Ingredients segment is the foundational pillar of Darling’s business, providing stable cash flow and a strategic supply of feedstock for its other operations.

  • Market Dynamics: This segment is primarily driven by global demand for animal protein and the corresponding need for nutritious and cost-effective animal feed. It is also a key beneficiary of the secular trend of premiumization in the pet food market, where demand for high-quality, animal-based proteins and fats continues to grow.27
  • Performance: The segment has demonstrated resilience in the recent challenging environment. In Q2 2025, it delivered an 11.3% year-over-year increase in Segment Adjusted EBITDA, driven by strong fat prices and steady volumes.50 This performance highlights the segment’s ability to act as a stabilizing force for the consolidated company.
  • Outlook: The outlook is supported by continued growth in global protein demand and the ongoing humanization of pets. While it faces competition from plant-based alternatives like soybean meal, its low-cost, recycled feedstock model provides a durable cost advantage.

Food Ingredients

The Food Ingredients segment represents Darling’s highest-margin business and a key vector for future growth in value-added products.

  • Market Dynamics: This segment is driven by consumer trends in health, wellness, and nutrition. The global markets for gelatin and collagen, its flagship products, are expanding due to their use in functional foods, dietary supplements, and pharmaceuticals.
  • Performance: The segment has delivered consistent performance. While Q2 2025 Segment Adjusted EBITDA saw a slight year-over-year decline, raw material volumes increased, signaling strong underlying demand for its products.48
  • Outlook: The strategic formation of the Nextida joint venture is poised to be a significant catalyst for this segment.4 By creating a focused, pure-play entity in the collagen and gelatin space, Darling aims to accelerate growth and unlock value. Management is optimistic about the potential of new products, such as its glucose control ingredient, and believes the JV can significantly enhance earnings over the medium term.48

Fuel Ingredients

The Fuel Ingredients segment, dominated by the DGD joint venture, is the company’s most dynamic and volatile business, offering the greatest potential for both growth and risk.

  • Market Dynamics: This segment’s performance is almost entirely dictated by public policy and the resulting economics of the renewable fuels market. Profitability hinges on the spread between renewable diesel prices (influenced by petroleum prices and the value of environmental credits like RINs and LCFS credits) and feedstock costs (primarily fats and oils).
  • Performance: The segment has experienced a dramatic downturn. After reaching peak profitability in 2022-2023, DGD’s margins collapsed in 2024-2025 due to regulatory uncertainty and weak credit markets. Darling’s share of DGD’s adjusted EBITDA fell by 44% year-over-year in Q2 2025, driving the company’s overall earnings miss and guidance reduction.1
  • Outlook: The future of this segment is tied to two key developments:
  1. Policy Clarity: A resolution to the uncertainty surrounding the Renewable Fuel Standard is critical for a recovery in RIN prices and DGD’s margins.
  2. Sustainable Aviation Fuel (SAF): The long-term opportunity in SAF is substantial. DGD is a first-mover and a leading producer, positioning it to capture significant growth as aviation decarbonization mandates and incentives ramp up globally.5 The timeline for this opportunity remains a key variable, but it represents the most significant long-term growth driver for the company.

11. Valuation Analysis

The valuation of Darling Ingredients is complex due to its unique combination of businesses, which span mature, slow-growth industries and volatile, high-growth sectors. The recent sharp decline in earnings, driven by the Fuel segment, has distorted many traditional valuation metrics, making a nuanced, multi-faceted approach necessary.

Current Trading Multiples vs. Historical Ranges

As of mid-August 2025, Darling Ingredients’ valuation presents a conflicting picture based on trailing versus forward-looking metrics:

  • Price-to-Earnings (P/E) Ratio: The stock’s trailing twelve-month (TTM) P/E ratio is approximately 47x.47 This is significantly elevated compared to its ten-year historical average of approximately 25x.47 This high multiple is a direct result of the denominator (earnings) being at a cyclical low. In contrast, the forward P/E ratio, based on analyst consensus estimates for the next fiscal year, is much lower at approximately 9.6x.55 This wide gap indicates that the market is anticipating a substantial recovery in earnings, primarily from the DGD joint venture.
  • Enterprise Value to EBITDA (EV/EBITDA) Ratio: The TTM EV/EBITDA multiple is approximately 11.15x.55 This metric is less distorted by non-cash charges and provides a clearer picture of valuation based on operating cash flow.

Peer Group Comparison

Identifying a direct peer group for Darling is challenging. The company’s unique business mix means it does not fit neatly into any single category. A comparison to a basket of peers from its different end markets is most appropriate.

MetricDarling (DAR)Tyson (TSN)ADMBunge (BG)Food Industry Avg.
Market Cap ($B)$4.93N/A$27.79$11.15$8.30
Enterprise Value ($B)$9.11N/AN/AN/AN/A
P/E (TTM)47.2x25.8x25.7x8.2x22.0x
P/E (Forward)9.6xN/AN/AN/AN/A
EV/EBITDA (TTM)11.15xN/AN/AN/AN/A
Price/Sales (TTM)0.86xN/AN/AN/A1.76x
Debt/Equity0.91x0.50x0.41xN/AN/A
Data Sources:.43 Note: Peer data is sourced from various providers and may reflect slightly different calculation dates. Full peer data was not available for all metrics in the provided sources.

The comparison shows that Darling’s trailing P/E ratio is significantly higher than its agricultural and food processing peers, reflecting the market’s historical willingness to pay a premium for its exposure to the high-growth renewable fuels sector, as well as the current distortion from low earnings. Its forward P/E, however, is more in line with or even at a discount to some peers, contingent on the expected earnings recovery.

Sum-of-the-Parts (SOTP) Valuation Considerations

Given the disparate nature of Darling’s segments, a sum-of-the-parts (SOTP) analysis is a particularly useful framework for thinking about its valuation. Such an analysis would involve assigning a separate valuation multiple to the EBITDA of each business segment, reflecting its individual growth prospects and risk profile.

  • Feed Ingredients: As a stable, mature business, this segment would likely command a multiple in line with other agricultural processors or waste management companies, potentially in the range of 7x to 9x EV/EBITDA.
  • Food Ingredients: This higher-growth, higher-margin segment, especially with the potential of the Nextida JV, could justify a higher multiple, perhaps in the range of 12x to 15x EV/EBITDA, similar to specialty food ingredient companies.
  • Fuel Ingredients: This segment is the most difficult to value. Its multiple would be highly sensitive to assumptions about the long-term profitability of renewable diesel and SAF. It could be valued on a discounted cash flow (DCF) basis or assigned a wide range of multiples (from a low single-digit multiple in a bearish policy scenario to a high-teens multiple in a bullish scenario).

An SOTP analysis would likely highlight that a significant portion of Darling’s current enterprise value is attributed to the future earnings potential of the Fuel segment.

Valuation Sensitivity

The company’s valuation is highly sensitive to external factors beyond management’s direct control. The most significant sensitivities are:

  • Commodity Prices: The stock price and valuation multiples will fluctuate with changes in the spreads between finished product prices (fats, proteins, renewable diesel) and feedstock costs.
  • Policy Changes: Any news or changes related to the RFS, LCFS, or other renewable energy policies will have a direct and immediate impact on the valuation of the Fuel segment and, consequently, the entire company. The market’s perception of regulatory risk will be a key determinant of the multiple it is willing to assign to Darling’s earnings.

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