Darling Ingredients Inc
NYSE:DAR
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
33.99
50.54
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Darling Ingredients Inc
Earnings Call Analysis
Q2-2024 Analysis
Darling Ingredients Inc
In the second quarter of 2024, Darling Ingredients faced a deflationary and volatile global market for its core ingredients and a challenging regulatory environment for renewable diesel. Despite these headwinds, the company made adjustments to improve margins, control capital spending, pay down debt, repurchase common stock, and received a significant dividend from Diamond Green Diesel (DGD).
Darling Ingredients reported a net income of $78.9 million or $0.49 per diluted share for the second quarter of 2024, a sharp decline from $252.4 million or $1.55 per diluted share in the same period of 2023. Net sales also decreased to $1.5 billion from $1.8 billion year over year. For the first half of 2024, net income was $160 million, down from $438.2 million in the first half of 2023, and net sales were $2.9 billion compared to $3.5 billion. Operating income decreased to $148.5 million due to a significant decline in earnings from DGD and lower gross margins.
In the Feed Ingredients segment, global raw material volumes remained strong with improving global fat pricing, indicating higher demand for feedstocks for renewable diesel. The segment showed sequential improvement in margins due to adjustments in raw material procurement and cost-cutting measures. The Food segment, particularly the Rousselot business, saw benefits from being a preferred supplier in the gelatin hydrolyzed collagen market. Although there have been several quarters of customer destocking, signs indicate a slowdown. The Fuel segment, specifically Diamond Green Diesel, remained robust but faced margin challenges due to regulatory uncertainties. Darling Ingredients received a $77.1 million cash dividend from DGD and expects continued dividends in the second half of the year.
During the second quarter, Darling Ingredients paid down $51 million of debt, bringing the total debt to $4.409 billion. The company also repurchased approximately 807,000 shares of common stock for $29.2 million. Capital expenditures for the second quarter totaled $98 million and reached $191.7 million for the first six months. Darling expects an effective tax rate of 3% and about $45 million in cash taxes for the remainder of the year. The focus remains on managing capital outflows and further reducing debt, with a target to be around $4 billion.
Darling Ingredients provided a positive outlook for the rest of 2024, aiming to deliver a combined adjusted EBITDA between $1.3 billion and $1.4 billion. The company anticipates improved earnings in the Feed segment due to rising fat prices and ongoing operational excellence. In the Food segment, new product launches in the collagen market are expected to drive growth. The Fuel segment's sustainable aviation fuel unit is moving ahead of schedule and on budget, with an anticipated start-up in the fourth quarter of 2024. The company remains optimistic about receiving additional distributions from DGD in the back half of the year and plans to use these funds for further debt reduction and operational improvements.
You don't have any saved screeners yet
Good morning, and welcome to the Darling Ingredients Inc. conference call to discuss the company's second quarter 2024 financial results. [Operator Instructions] Today's call is being recorded. I would now like to turn the call over to Ms. Suann Guthrie. Please go ahead.
Great. Thank you for joining the Darling Ingredients Second Quarter 2024 Earnings Call. Here with me today are Mr. Randall C. Stuewe, Chairman and Chief Executive Officer; Mr. Brad Phillips, Chief Financial Officer; Mr. Bob Day, Chief Strategy Officer; and Mr. Matt Jansen, Chief Operating Officer of North America. Our second quarter 2024 earnings news release and slide presentation are available on the Investor page under the Events and Presentations tab on our corporate website and will be joined by a transcript of this call once it's 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 could materially differ because of factors discussed in today's press release and the comments made during this conference call and in the Risk Factors 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.
Thanks, Suann. Good morning, everybody, and thanks for joining us for our second quarter earnings call. In our last earnings call, I mentioned that the team is focused on making the necessary adjustments to adapt to a deflationary and volatile global ingredients market and a renewable diesel market that continues to suffer from perceived overcapacity and an uncertain regulatory environment. I challenged the team to accomplish several things during the second quarter, and I'm pleased to report on their successes.
Since the first quarter, we were able to improve gross margins, control capital spending without sacrificing operational excellence, pay down debt, repurchase common stock, and most importantly, we received a much anticipated dividend from DGD. For the quarter, our combined EBITDA was $273.6 million. While slightly lower sequentially, our performance reflected a nice improvement in our core ingredients business.
Turning to the Feed Ingredients segment. Global raw material volumes remain strong, and we are seeing global fat pricing improve, indicating more demand for low carbon intensity feedstocks for renewable diesel. Our Feed business showed sequential improvement in margins as we made adjustments in raw material procurement arrangements and our operational excellence and cost-cutting programs are beginning to deliver. With fat prices on the rise, our continued focus on operational excellence and effective cost cutting and spread management, I feel confident we should see improved earnings in the Feed segment for the back half of the year.
Turning to our Food segment. Our Rousselot business continues to benefit from being a supplier of choice in the gelatin hydrolyzed collagen market. While we have seen several quarters of customer destocking, we are starting to see signs of that beginning to slow. As I've mentioned in previous earnings calls, we are preparing to launch [ Next Tito GC ], a natural collagen solution for managing glucose moderation. We're having a number of conversations with customers and look forward to more discussions at [ SupplySide ] West and Food Ingredients North America trade show in October.
Turning to our Fuel segment. Diamond Green Diesel continues to prove it's the best-in-class. Demand for our products remains robust, but margins remain challenged given the lack of clarity in the regulatory markets for RINs and LCFS. Last quarter, we mentioned that cash was rapidly building at Diamond Green Diesel, and I'm pleased to report on July 18, Darling Ingredients received a $77.1 million cash dividend from the joint venture. Our sustainable aviation fuel unit continues to move ahead of schedule and on budget, with the anticipated start-up in the fourth quarter of 2024. We continue to work to build out a strong sales book with both domestic and international supply opportunities. Now with that, I'd like to hand the call over to Brad to take us through some financials, and then I'll come back and discuss my thoughts for the rest of 2024. Brad?
Thank you, Randy. Net income for the second quarter of 2024 totaled $78.9 million or $0.49 per diluted share compared to net income of $252.4 million or $1.55 per diluted share for the second quarter of 2023. Net sales were $1.5 billion for the second quarter 2024 as compared to $1.8 billion for the second quarter 2023. For the first 6 months of 2024, net income was $160 million or $0.99 per diluted share as compared to net income of $438.2 million or $2.69 per diluted share for the first 6 months of 2023.
Net sales for the first 6 months were $2.9 billion compared to net sales of $3.5 billion for the same period in 2023. Operating income decreased $208.2 million to $148.5 million for the second quarter of 2024 compared to $356.7 million for the second quarter of 2023, primarily due to $168.8 million decline in our share in the equity and net income from Diamond Green Diesel earnings as compared to the same period in 2023. Additionally, the second quarter gross margin declined $71 million as compared to the same period in 2023.
Operating income decreased $326.9 million to $285.7 million for the 6 months of 2024 compared to $612.5 million for the 6 months of 2023. The decrease was primarily a result of $184.7 million decline in our share in the equity and net income from Diamond Green Diesel earnings as compared to the same period in 2023 and along with the $191.6 million decline in gross margin. The company recorded income tax expense of $0.8 million for the 3 months ended June 29, 2024, yielding an effective tax rate of 0.9%, which differs from the federal statutory rate of 21% due primarily to the relative mix of earnings among jurisdictions with different tax rates, nontaxable chains and contingent consideration, certain taxable income inclusion items in the U.S. based on foreign earnings and biofuel tax incentives. The company's effective tax rate excluding the impact of the biofuel tax incentives and discrete items was 29% for the 3 months ended June 29, 2024. The company also paid $23 million of income taxes in the second quarter.
For the 6 months ended June 29, 2024, the company recorded income tax expense of $4.7 million and an effective tax rate of 2.8%. Excluding the biofuel tax incentives and discrete items, the effective tax rate was 27.2% for the 6 months ended June 29, 2024. The company also has paid $56 million of income taxes year-to-date as of the end of the second quarter. For 2024, we expect the effective tax rate to remain about the same at 3% and cash taxes of approximately $45 million for the remainder of the year.
Now in the second quarter, we paid down $51 million of debt. The company's total debt outstanding as of June 29, '24 was $4.409 billion compared to $4.427 billion at year-end 2023. Our bank covenant projected leverage ratio at Q2 2024 was 4.24x, and we had $814.4 million available to borrow under our revolving credit facility. Capital expenditures totaled $98 million in the second quarter and $191.7 million for the first 6 months. We also repurchased approximately 807,000 shares of common stock during the second quarter of '24 for approximately $29.2 million. As Randy mentioned earlier, on July 18, 2024, we received a $77.1 million cash distribution from DGD. With that, Randy, I'll turn it back over to you.
Thanks, Brad. As we expect continued dividends from Diamond Green Diesel and global finished product price improvement, our focus for the balance of the year is to manage capital outflows and pay down additional debt. Additionally, we will continue our focus on operational excellence and widening margins where possible. We remain optimistic as we have seen prices begin to improve in late Q2, which will be reflected in our Q3 and Q4 earnings. I remain optimistic that we should be able to deliver $1.3 billion to $1.4 billion of combined adjusted EBITDA for the year. So with that, Cindy, let's go ahead and open it up to Q&A.
[Operator Instructions] Our first question comes from Heather Jones of Heather Jones Research LLC.
First question is on SAF. I was just wondering if you could give us what your view is of the supply and demand dynamics for that going into '25? You got the mandate kicking in, in U.K. And then in the mandate kicking in into the EU, and I think that maybe Nestle would shift some of their volumes into the EU. I'm just wondering how you're seeing that shaping up for DGD going on '25?
Yes. Thanks, Heather. This is Bob. The SAF picture is quickly evolving as European regulations really come online in 2025. I think the interesting thing there is technically compliance around SAF is required later in the period. But the tendency of -- of everyone involved is to not want to get too far behind. So it's a somewhat murky picture, but what we're seeing is strong interest to try to get ahead. And so I think we're going to start to see things come together as we move forward here.
Yes, this is Randy, Heather, and I think I'd echo real quick with Bob. I mean we continue to assemble a sales book, obviously. Hopefully, we'll have some announcements out soon on it. But the demand is building out there right now. It's still kind of a little, as Bob said, murky on what the rules are, obviously, on both imports and [ 45 C ] and everything. And so at the end of the day, I think this thing will pick up momentum here as we go into Q3.
Okay. And as a follow-up to that, I mean, for the roughly 250 million gallons that DGD will have, are you -- is your anticipation that the majority of that will go domestic? Or are you expecting a strong export pool for that?
I think that's yet to be seen. I think you'll see a blend of both domestic and export sales, and that ranges from the U.S. to Canada to the continent. It will be driven by the market and the rules. I mean I think everybody saw [ Nestle's ] production this morning of SAF and clearly, the market is evolving there, as Bob says, and ultimately -- 250 million gallons may seem like a big number of gallons, but it's really not, given the book that we were assembling out there at this time.
Our next question comes from Dushyant Ailani of Jefferies.
I just wanted to dive a little bit into the margin cadence for the second half. What are some of the puts and takes? I know 3Q is usually seasonally low. But I mean, if you could share some color on that, please?
Are you talking Feed, Dushyant?
Yes, Feed and Food as well, please.
Yes, Dushyant, this is Brad. On Feed and overall in the core, you may have noticed Q2 here, all 3 segments had improved slightly over Q1, I'd say, more or less our expectation, the back half of the year with where prices have kind of moved late in the second quarter. And as Randy kind of mentioned in the intro with the margin management and cost concentration that we placed on the segments. We see momentum there for the -- for the back half of the year and those margins continuing to improve.
Awesome. And then just wanted to get your overall thoughts on the macro in terms of like [ 45 Z ] credits. Any thoughts on when we expect to hear something over there? Do you think BTC will be extended if we don't hear anything on the [ 45 Z ]?
So that was -- so I just want to clarify I understood the question. It was...
[ 45 Z ], what's our expectation?
And Matt, feel free to jump in. But I mean, our expectation is that we believe -- we believe that we're going to see [ 45 Z ] implemented by January 1, and really all signs are pointing to that. Anything you want to add, Matt?
I mean there's obviously a lot of talk around that with the guidance that is yet to come out and we're, like everyone else, anxiously awaiting that. But as Bob mentioned, we're still of the view that listen, Jan 1 is the day it will be implemented.
Matt, anything on the blenders tax credit that we can knock out here while we...
There's been lots of talk about the blenders tax credit, and if that will be extended or another version of it at all. And so far, our view at this point is that no, we still think that the -- what's in place today in terms of the legislation, what's going forward.
The next question comes from Manav Gupta of UBS.
Just want to understand. Fat prices are moving up, UCO prices are moving up. Diesel prices are moving up. So is that the reason you have been able to reaffirm your guidance because looking at the numbers, you probably need to hit 360 million for each of the remaining 2 quarters to get to that guidance, so what are the factors which give you confidence that you can get there in the second half?
Yes. And we'll kind of tag team, this is a group. I mean, clearly, 1.3 to 1.4 has got a range to it. And at the end of the day, what we're looking at is in the Q1 and Q2, we sold a lot of fat in North America in the mid-$0.30 a pound levels. That now is leaving the plants at $40 to $42. And much improvement in Europe at the same thing. South America has been slow to improve at this time. But as we've always said, from an optics perspective, every penny is worth about somewhere between $12 million and $15 million annually into the -- really into the earnings stream or the EBITDA stream and most of that goes to the Feed segment. So if you say you're up a $0.05, that's $60 million right there.
We think there'll be further appreciation here. And ultimately, as you look around the horn, you're seeing a lot of what I call -- you've seen a lot of shutdowns or cancellations or pauses, whatever the heck you want to say. You've seen 3 plants from Chevron, biodiesel plants shut down. You've seen Shell's announcement, you've seen BP point. You've got no pretreatment on yet at whether it's Martinez or Rodeo. So at the end of the day, it takes 1 of those plants and then we'll see a pretty nice improvement there.
The Chinese UCO side that everybody spends a lot of time talking about, clearly, the tariffs have been proposed on in Europe today. There's a comment period. That will take some time, but the world is evolving right now. And so I think I feel pretty optimistic about the fat pricing here as we go to the back half of the year for our business because of our ability to pretreat these fats.
D4 RINs, when you look at it, we had Port Arthur down for 28 days, and we still kicked out some pretty good gallons here, 311 million gallons for the quarter. So I think that's part of it. And the fact that you've got some people idling capacity out there. I tend to believe that the S&D that the sell side had out there had everybody running at full capacity day 1, and we've never seen that. So it's tightening. LCFS, it's still on target for Jan 1. I don't know that we would take a different opinion of that today. I don't know, Bob, Matt, you guys want to add anything to...
I mean I think when you -- I mean, what gets us -- that makes us confident is just our ability to leverage the network of assets that we've got, whether it's in the collagen business, we can shift to low-cost production areas of the world. And really the Gelnex acquisition has provided us with that kind of flexibility. In the rendering business, we continue to have old contracts come up for bid. And as we restructure those agreements based on today's construction costs and environment, we expect better margins as we go forward. So just more generally speaking, we're seeing improvement, and we think that the second half of the year is going to continue to get better.
Perfect. A quick follow-up here is 1 thing which was working against you was the feedstock price lag in the first half which depressed your capture of the DGD margin. Now that should reverse with the feedstock going up. So should it be fair to assume that at least in 3Q, your capture could be materially higher because that feedstock price lag will now strongly work in your favor versus against you.
I think that's well said and in terms of the right way to look at it.
The next question comes from Adam Samuelson of Goldman Sachs.
So just keep me on that line of questioning, if I may. Just thinking about the guidance to get to the low end, you've got to improve your quarterly EBITDA by a little less than $100 million versus the first half average. The fat price sensitivity that you just gave would give you $15 million to $20 million to that quarterly rate. I guess what is the -- can you help us bridge kind of some of the other pieces there? I mean just DGD volume certainly would be stronger in the second half, if there are no turnarounds planned. But can you help dimensionalize kind of how you've thought about the DGD margin structure? Is there any contribution from SAF premiums now contemplated in the fourth quarter and kind of the Food business, kind of how much step-up you're assuming there? That would be helpful.
Yes. I mean, clearly, the first thing, as Bob alluded to, is we're managing margins globally. And what I mean by that is -- and that's really the Feed segment. Adjusting processing fees. We're watching the new fat prices flow through. Remember, in the U.S., it's pretty transparent. As those prices move through in Canada, Europe and South America, there are actual visits to slaughterhouses that have to be made on timing in order to adjust what you're paying for the raw material. We didn't get as much of that as we wanted in Q2, that would exactly be very specific for the U.S., in some cases, and absolutely true for South America. Canada did a very nice job, and so did the Europe in moving those but very different procurement processes. So that will widen out as we go forward.
The second thing is we expect DGD, the system to run full out for the balance of the year. And so that's going to be a big contributor. We haven't contemplated any earnings from SAF. I mean that would be frosting on the cake if we do. And I remain kind of hopeful that we will. But it's hard for that to be material. It's just really at the end of the day, it's still doing the things that we've been executing on, a little bit of price improvement and then running DGD full out. And -- I don't know, you guys got anything on the others?
Like you said, it's just running our business. I mean, obviously, we can do the math. We know what it takes to get to the guidance. I would say though, typically, I wouldn't imagine or expect that it's automatically going to be 50% in Q3 and 50% in Q4. Q3, typically, we have a lot of challenges operational through the business. Although we're absolutely ready for those challenges. But I wouldn't -- just don't want to convey the message that it's going to be a 50-50 split automatic for the next 2 quarters.
That's helpful color. And if I could just ask a second question. As we think about that transition from the BTC to the [ 45 Z ] at the start of the year, I mean, how are you kind of framing kind of the risks and opportunities presented by that in terms of the last kind of surge or biodiesel imports more -- or run on production domestically for biodiesel guys before the credit goes away, which would be good for your feedstock. Good for feedstock demand potentially creates some more RINs, and then calendar flips and the volume of renewable fuels coming into the U.S. should slow pretty dramatically, but also kind of the margin structure for conventional biodiesel who is a user of fats and oils would come under a lot of stress pretty quickly, we would think. And how are you thinking about the push-pull between the feedstock demand shifts and the credit generation that shifts that could happen before and after the calendar turns?
Yes. This is a pretty important point. I think the short answer to your question is we can approach this whole event with lower risk than the rest of the market. As you're aware, a lot of the RIN generation, 25% or so of the RIN generation -- D4 RIN generation has come from imported biofuels -- renewable diesel, biodiesel. Without a BTC and current margin structure, it doesn't make sense for them to run their businesses on paper. And so a lot more risk as we approach those deadlines. And we would anticipate that they're going to play that a little more conservatively as we get to the end and not want to risk logistical delays and things like that.
So all of that should point to better renewable diesel margins as we near the end of the calendar year. From our standpoint, implementation of BTC, we've seen delays in the past with BTC. But again, we're positioned so that can manage that risk better. We're very confident in the implementation of that at [ 45 seeing ] and what that -- how that's going to play out. So because of all those things, we should be able to run full going into the end of the year. And really, we should see margins improve as we get to the end of 2024.
The next question comes from Matthew Blair of Tudor Pickering Holt.
I was wondering if you have a view on when the changes for the California LCFS program will be implemented? Are you confident that will be the 2025 start-up date? Or do you see a risk that might slip into 2026?
Our view at this point, [ Ben ], is that it's still something for '25, not necessarily January 1 of '25, but we do believe that this will be something for -- through the probably Q2 of '25.
Got it. Got it. And then maybe circling back to the biodiesel comments. You mentioned that next year, they'll probably get tougher for the -- for the veg oil based biodiesel producers. But what about this year? Have you been surprised at the utilization rates for some of these biodiesel plants when you have several of your R&D competitors reporting negative EBITDA even if they're running low [ CI ] feeds. I guess we would have thought that the biodiesel utilization will be even lower this year, that you'd see more closures like what Chevron announced earlier this year. So is that surprising to you to see the relative strength of biodiesel utilization rates this year?
So I'll take that. Really, no. I think when you look at who the biodiesel players are, these are largely ag companies that are extremely efficient and effective at -- at managing margin risk, and they take advantage of price fluctuations and the opportunity to lock in a margin in the future. They're also looking at an integrated [ oil sea ] crush margin all the way through to biodiesel. So for their businesses, they're at least above the line, above their earning a contribution margin, and they're going to continue to do that as long as they can lock those margins in. So not really surprised with the run rates we've seen in biodiesel. As we get into 2025, that just gets a lot more difficult. And the amount of gap that they have to overcome is probably too big to continue to run at the rates that they have been.
The next question comes from Thomas Palmer of Citi.
Maybe I could just start off clarifying on the expected inflection here in the second half. Do you think the current pricing environment supports at least $1.3 billion EBITDA for the year? I know you talked about reasons why pricing could continue to improve. I just wanted to kind of clarify the piece of where we sit today versus how it progresses.
I mean, I think -- so the current pricing -- I think there's a couple of messages here. And 1 is that in the current pricing environment, there are things that we expect to do in the second half of the year that will allow us to improve margins. I mean, Randy talked about it kind of leveraging our infrastructure and some of the changes that are underway and just extracting more value from what we have. That's a big part of it. I think we do anticipate that we'll see a slightly better margin environment as we near the end of the year. And so I guess that's the other part of it.
These things have to play out. There's a lot of moving parts, a lot of components to this, and it just has to play out over the next couple of quarters.
I mean, Tom, you've got P66 out there claiming they're running 50,000 barrels a day, but we've never seen them. Number two, we're watching them by animal apps around the world now. So evidently, they've got the confidence in their pretreatment system. And so the S&D of this product is just of our feedstocks in the world is not infinite. And so we just believe that if any of these guys are successful, you have [ mass they ] come out today and say we're going to be at full capacity at Martinez by the end of the year, they reaffirmed that again. I mean -- so you're talking of converting over whatever that number is, 70,000 barrels a day, 80,000 barrels a day, to quote waste fats. I get pretty bullish when I hear that number. So that's where we're at on it. And the risk out here, as we always say, is if they don't run, we'll be P66 as the largest supplier of R&D and we'll be the largest customer of resale animal fats.
Understood. Maybe I could just follow up quickly on the Food side. You noted for 2Q, some of the destocking, I think the messaging on the go forward was more constructive. Just want to clarify, I mean, is this in front of the expectation on a sequential basis, we start to see improvements in terms of the profitability of the business?
Yes. I mean, clearly, the Food segment is the anchor there's the gelatin hydrolyzed collagen business within that segment. We've seen some challenges in the different continental businesses that we have there with customer demand. But towards the end of June here, we started to see customer demand pick up again, whether it's confectionery, whether it's pharma. So ultimately, we feel pretty good about the back half of the year. I think when you see the financials released, once again, you'll see the decline in revenue in this segment. And really, what I'd tell you to focus on is the margin because we've been able to once again lower what we pay for bone, skins and hides to maintain the margins we had and we think that we'll get some pricing improvement in the back half of the year as we go forward here.
Our next question comes from Ryan Todd of Piper Sandler.
Thanks. Maybe 1 on the political side within is difficult. But as you look ahead over the next 6-plus months, we've had a number of moving pieces. Can you talk to maybe any impacts that you see or risks that you see from things like the ruling on the Chevron doctrine or from the election coming up later this year and what you see could be either positives or risks in either direction?
Yes. Thanks. I think technically, these risks exist. And -- but when we dive into it, what we really look for are what's going to motivate the different politicians in their jurisdictions as it relates to [ 45 C ] in this case or any policy for that matter. And what we see is biodiesel, renewable diesel, sustainable aviation fuel really becomes a nonpartisan issue at the end of the day because of just the broad-based representation of both sides of the aisle in ag states.
So the risk, like I said, technically, the risks are there, that policies could change. But practically speaking, we're pretty comfortable with where things stand and what -- how it's likely to play out.
And I think I would add, Ryan, I think the thing that people have to keep their eyes wide open on right now is American agriculture is under extreme pressure right now given $10 beans and sub-$4 corn. And the politicians are going to have to pay attention to the 7 farm states here. I mean, clearly, we would be having lots more fun on this conversation if the EPA has set the RVO to reflect both the capacity and the production of the soy crushing industry. The EPA failed. And so now the politicians are going to have to -- it's bipartisan, come forward here and continue to push this thing forward.
I mean it's not climate change, it's not energy policy, it's ag policy. And that's true around the world today. So end of the day, the farmer once again proved that if you get prices where they're at, make fertilizer available and capital available, they will produce more. And that's where we're at right now in the cycle. And so ultimately, what -- as we're transitioning to a PTC, it's very favorable to Darling. It's very favorable to cash flows to Darling. It's favorable to our system, if you will, globally. So at the end of the day, we feel pretty good where we're positioned here. But I don't see -- it's hard for me to see that whoever you want to put in the Oval Office. Can Trump get his magic pencil out and screw this thing up? Not really. It takes Congress to get involved. And I don't think there's anybody willing to step forward on that today, given where American agriculture is.
Great. That's helpful. And then maybe just 1 quick follow-up. Any -- thoughts on your outlook for dividends from DGD, should we expect that to continue to be kind of a steady dividend payer from here? Or how should we think about those dynamics?
Yes, Ryan, you see the balance sheet of DGD that we posted out there. Debt obviously was way down. Therefore, we received a distribution here in the middle of July. Having said that, I think our outlook is we're optimistic for additional distributions the back half of the year from DGD. So with that, really, our outlook for Q3 is additional debt reduction, probably accelerating from where we were in Q2, which gives us a chance to be kind of in the ballpark, depending on where margins are, cash flows on the back half of the year to have that debt kind of down in that closer to that $4 billion number than we were. And obviously, the distributions from Diamond Green is a significant part of that. So we're optimistic about that.
Yes. And Brad, comment a little bit about working capital here. I mean DGD is not the only source of debt reduction in this company.
Yes. We've said we've got to focus on working capital improvement. Obviously, the balance sheet is not out there yet, but we have momentum there in Q2. So you'll see that shortly. And rest assured, you'll see continued improvements. So on the core, we're [ just to ] really generate cash there as well.
And if I could, I would just remind everyone that the DGD dividend, that's a formula that's calculated every day -- or every last day of the month. And the number -- so there's really not any subjectivity to that. That's just a matter of the calculation of -- the dividend is what it is.
The next question comes from John Royall of JPMorgan.
So my first question is on capital allocation. You talked about delevering as the primary focus right now. And I think you just mentioned accelerating the debt paydown in the second half. But you did buy back some stock in 2Q. Should we characterize that as being kind of opportunistic when the stock is trading down? And how do you generally think of the decision between the balance sheet and the share buyback when you view the shares as attractive?
Yes, John, this is Randy. I mean, you've answered a lot of your own questions there. Debt repayment for us has been priority. Clearly, level of the different shareholders that have been in and out of the stock, it's a clear message to us to get to $4 billion or below. 3 ways to get there, generate cash at DGD, repatriate it too, run our business, wider margins and 3 is to manage the CapEx outflows. And we set out the year with a $565 million plan or $500 million. And we're shooting to be under $400 million for the year. So that's a priority.
What we did in Q2 here was an opportunistic. We wanted to buy back our dilution within the management programs, and we continue to look at share buybacks as an opportunity. But right now, as we look forward to the right capital structure for the business long term, ultimately, we want to get the debt down here, and that will be priority 1. Priority 2 would be buybacks and priority 3 would be any type of growth capital, which we're not really putting in play this year. We took a holiday, as we've said on that.
Great. That's very helpful. And then I have to apologize, I have another question on the full year EBITDA guide. I know you've gotten several already, but mine is just trying to dig in a little bit on the DGD side.
[Audio gap]
assumption of $0.75 per gallon for the full year. I think -- so firstly, [ is it ] still the right number to be thinking about? And secondly, if it is, my simple math is right, I think you have to do about $0.90 or so in the second half to get to those kinds of levels. Maybe just -- we can talk through some of the moving pieces there. I know you talked about the lag in feedstocks and [ loans ] coming up a bit, but no movement on the LCFS until next year. Just trying to understand how we could get to that number.
I think you're asking to clarify, I think you're asking what is our assumption on EBITDA per gallon on DGD?
Yes, I'm sorry. I think you said $0.75 in 1Q to get to about $1 billion of EBITDA. So just confirming if that's still the number and if so, kind of the math to get there in the second half?
I think that we may be talking about investment economics. Back when the original investment...
Well, we came out of the year [ man ], and we kind of guided that we thought we'd run it closer to $0.75. Now we beat that in Q1, and we lowered in Q2. And so at the end of the year, it's kind of hard to say how this thing plays out as we go forward. But clearly, that's built in our [ 1314 ] expectation, but I'm not going to throw a number on that today.
The next question comes from Andrew Stronik -- I'm sorry, Strelzik of BMO. Go ahead.
First 1 is on some of the internal initiatives. You're obviously sounding very confident and optimistic about what that can look like. Is there a way to frame what kind of contribution that could create for -- or kind of how you're thinking about that with respect to the outlook for the back half of the year above and beyond maybe what you're expecting from fat prices? And is most of that in the Valley assets? Or is it broader than that?
Yes. I mean it's a hard question to answer because how do we frame that? I think what you're alluding to is as we have -- a lot of our supply contracts are multiyear contracts. And when they come up for renewal, we reprice those based on the current market environment, which is significantly different today than it was just couple of years ago when construction costs were significantly lower and rendering options just were lower in cost than they are today. It's hard to frame what's the potential or expected impact that's going to have in the second half of the year. I think it's easier to anticipate what that might look like over a couple year period.
But what I think we can say is that we do have some -- we've had some pretty significant contracts come up for renewal. Today's environment and value results in a much better margin than where we were based on the previous contracts. Some of that is in the Valley network, but some of that is just more broadly across what has been the Darling network.
Yes, ultimately, [ Andrew ]. I mean I think as Bob alluded, I mean, when I look around the world, Europe has made some very rapid and really beneficial changes in procurement. Canada is a simpler market too that's able to do that, does have commodity exposure there. So they're getting lift now. South America, we had our challenges in Q2, I think, for many of -- we've not quantified them, but because they're very difficult, the flooding and the south in North America or the USA, [ our map's got ] challenges cut out not only operationally does not whether always make it difficult to render. But we still have work to do. And ultimately, as I said, the U.S., much as we're investors in Diamond Green Diesel and we're 1 of the largest importers of fat in the world, it impacted our domestic business here. Now imports are more expensive than domestic. And we're going to get that benefit back into the domestic system. So it's a little bit of everything everywhere as we look around the horn today. Anything you want to add, [ man ]?
I would just along those same lines. I mean we have an action item list by location of steps that we can and intend to take. Those lists are different, depending on where you look. Some of those are low-hanging fruit, others take more time and a little more of a challenge to implement, but it's really a drill down to by location and the actions and the steps that we need to proactively take to help strengthen and fortify the business.
Great. That's super helpful. I appreciate it. And my other question, maybe if we could go back to the Food segment and unpack what's going on there a little bit. You guys have been running pretty consistently in the $85 million, $90 million kind of EBITDA range since the acquisition. If you back out the inventory adjustment last quarter now, you're $73 million. So I guess, what caused that decline this quarter specifically? I mean you really talked about the destock slowing, but I'm curious about the EBITDA deceleration there? And then whether or not that's the right kind of run rate for the balance of the year to think about.
Yes, this is Randy. I mean clearly, there's about 3 or 4 things going on globally. The #1 issue was just really customer demand. We finally felt as we came into 2024, the deflationary pressures around the world. And ultimately, we've seen prices of just -- what I'm going to call just commodity gelatin fall pretty rapidly. And you say, well, how does that happen? Well, it happens because we -- that business, we created a very nice business out there and ultimately attracted a couple large South American competitors that try to bring on way too much capacity in a micro market. And so if you call the market somewhere around 0.5 million tons and somebody brings on 30,000, 40,000 tons of capacity, the first thing you don't do is walk into your boss and say, "I can't find a customer." The first thing you do is you cut the price and saw it and then tell him that it was a bad investment idea that he had.
But ultimately, that's what we're seeing pressure on pricing out there. That's reflected in the top line. Seeing a little bit of margin pressure in the commodity gelatins. But obviously, our positioning in hydrolyzed collagen. And with our Gelnex assets being the lowest cost, most efficient in the world now, it insulates us a little bit. But lately we see some pretty strong demand picking up the back half of the year. And I think we're still optimistic of the Rousselot model for the balance of the year here.
Our next question comes from Ben Kallo of Baird.
So first thing, just on shaping in the back half, you noted the hot weather for Q3, so that's not good for Feed. But then is there a tie-in Q4 to the SAF plan? So just maybe if you could just tell us kind of what quarters going to be heavier or lighter in terms of EBITDA? And then I have a follow-up.
Yes, I mean, if I -- as Matt said earlier, I don't think -- I wouldn't wait this thing divide by 2 or 50% and 50%. It will be stronger in Q4 than it is in Q3, Ben. And we've not put anything in there for SAF. I'm hoping that's the rabbit in the hat here that pushes us closer to the [ 14 ] than the [ 13 ] number. So Bob, Matt, anything you guys want to add to that?
That's right.
Okay.
Just a clarification on that, Randy. Is there a downtime of the plant when you hook up SAF? Or is it -- they're completely batch, so it doesn't matter?
Now that was completed here when we had Port Arthur down. So we're in the instrumentation and electrical phase now and everything is set. And then it will be ready to run hopefully sometime in Q4 here. So far, the weather has worked pretty well, but it's pretty wet down there right now.
And then there was this report, KKR buy a stake in an Italian company. I just wanted to get your thoughts on it, why KKR would do that and how that impacts you.
There's a -- big Ben, there's blanks around the table, give us a little more detail.
It's any live subsidiary o [ Any ]. It's -- they have a renewable diesel production that they offered EUR 3.3 billion for a 25% stake in the renewable diesel production.
All I can tell you is that makes Darling severely undervalued then.
All right. And then just maybe on the final 1 on -- do we read into the dividend the CapEx is primarily done for the SAF? And then maybe any kind of color on thoughts around if you're going to do another SAF plant and timing.
Yes. I mean spending is clearly winding down on the SAF side. We're also -- another thing of -- we didn't spend a lot of time talking about. We've got a pretty significant import terminal for imported fats being constructed at Port Arthur, that's in our capital numbers, it's been flowing through. So that's pending a wind down too as we go forward here. SAF 2, my colleague at Valero, [ Lane Riggs ] and I are sitting here saying, sell out #1 and bring us the contracts for more gallons and we'll commit to you to build SAF 2. It's engineered. It's costed out plus or minus 10%, ready to go. But any further investment decision is on hold until we see the lights of the demand here.
This concludes our question-and-answer session. I would like to turn the conference back over to Randy Stuewe for any closing remarks. Go ahead, please.
Thanks, Cindy. Thank you for all your questions today. As always, if you have additional questions, reach out to Suann. Stay safe. Have a great day, and we look forward to talking to you in the future.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.