Darling Ingredients Inc (DAR) 2005 Q1 法說會逐字稿

Good morning everyone and welcome to the Darling International Conference call to discuss the company's first quarter 2005 financial results. With us today are Mr. Randall Stuewe, Chairman and Chief Executive Officer of Darling International and Mr. John Muse, Executive Vice President Administration and Finance.

This call is being recorded. After (inaudible) remarks there will be a question and answer period. If you would like to ask a question during this time, please press star and the number 1 on your telephone keypad. I would now like to turn the call over to Mr. Brad Phillips, Treasurer of Darling International. Please go ahead, sir.

Thank you operator. Good morning ladies and gentlemen. Thank you for joining us for our revue of Darling's first quarter 2005 earnings results. With me on the call today are Randy Stuewe, our Chairman and CEO and John Muse, Executive Vice President Finance and Administration.

Randy will begin today's call with an overview of our first quarter financial performance and some of the trends that impacted our results. John will then provide additional details about our financial results. Randy will conclude the prepared portion of the call with some general remarks on the business after which time we'll be happy to answer any questions you may have.

Before we begin I need to remind everyone that this conference call will contain certain forward-looking statements regarding the business operations of Darling and the industry in which it operates. These statements are identified by words such as: may, will, expect, believe, intend, anticipate, should, estimate, continue and other words referring to events or circumstances to occur in the future.

These statements reflect Darling's current view of future events and are based on its assessment of, and are subject to a variety of risk and uncertainty beyond its control including business and economic conditions in its existing markets that could cause actual results to differ materially from those contained in such forward-looking statements.

Other risks and uncertainties regarding Darling, its business and the industry in which it operates are referenced from time to time in the company's filings with the Securities and Exchange Commission. Darling is under no obligation to, and expressly disclaims any such obligation, to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise.

With that I'd like to now turn the call over to Randy.

Thanks Brad. Good morning everyone. It's a pleasure to be here with you today. And I'd like to begin my remarks by reviewing our first quarter earnings and some of the trends that have impacted the performance.

As we noted in our press release, the first quarter proved to be a challenging one for Darling. For the most part, first quarter results were similar to the fourth quarter, but were further challenged by lower beef raw material supplies, lower commodity prices and historically high energy prices.

Cattle slaughter numbers indicated that kills were down 2.9% versus first quarter '04, but continued to be off 5.3% from the 2004 average. Additionally, they were off 1.4% from fourth quarter. Lower finished product prices continued to affect us and year-over-year, they were lower. During the last 3 weeks of the quarter we did see some improvement.

Year-over-year, meat and bone meal is down nearly $32 a ton or around 17%. Tallow is off 222 a hundred weight, or 11.5% and grease is off $0.77 a hundred weight and down 5% over first quarter '04.

Energy prices have remained high for both diesel and natural gas and have reflected now an increase of nearly $1.4 million over first quarter 2004. Also, as we noted in our press release, major snow storms in the upper northeast slowed our ability to service our customers during the first quarter.

Additionally, our year-over-year results reflect the effect of the refinancing we were able to accomplish during first quarter last year. John Muse will provide a little more detail on this component.

Overall our operating income was lower. However, there were some improvements and I want to point them out. We continued to make progress at the customer level and we continued to improve the recovery of our collection expense and improve by nearly $1.4 million in this category. Also, we continued to make various operating cost improvements from coast to coast.

Now I'd like to provide some additional color on the key drivers that we use to measure our business. Lower raw material volumes: export markets for U.S. produced finished beef products and other cattle byproducts continue to be closed throughout the first quarter. While Taiwan has lifted its ban for U.S. beef, Japan, the primary market for U.S. beef remains closed and no confirmation regarding the lifting of this import ban for our products has been reached and there is no timeline that has been announced.

Meat and bone meal exports, our primary product of protein remain closed for the most part. But we did get confirmation late in first quarter that Indonesia would resume purchasing U.S. produced ruminant protein soon. However, I must point out as long as these bans remain in place we expect that our export focused locations on the coast will continue to receive lower commodity premiums than they have traditionally received.

On a positive note I would like to point out that our results reflect the continued repositioning of our larger raw materials suppliers to our formula-based pricing system. Formula0based business, which now represents over 50% of our raw materials supply, is basically the process of indexing raw materials supplies to known finished product markets and establishing a fixed margin.

Let me point out, and John will further clarify, that while sales were down 5 million, lower cost of sales offset 4 million of this and the net impact of commodity fluctuation was dramatically lessened.

High energy prices for both natural gas and diesel continued to affect us from coast to coast. Natural gas and diesel remain a substantial operating cost for us and reflected a $1.4 million increase ad earlier noted. To offset this however, during first quarter we began implementation of an energy surcharge initiative within our Darling restaurant services segment. This program is designed to recapture diesel and natural gas fluctuation on a customer and location-specific basis.

As you know, we will continue to manage these costs and attempt to minimize the expenses. But we expect that high energy prices will remain present and continue to challenge us in the future.

On a segment basis though, Darling restaurant service showed a reduction in earnings from first quarter '05 when compared to first quarter '04. The majority of this change is related to an allocation change for plant and corporate operating expenses of nearly 1.1 in addition to a small commodity price reduction. Additionally, we did feel the seasonal impact of snow storms as we noted. However, I do want to point out that if you follow Darling restaurant services you will notice that we did improve the operating income of that segment by nearly 12% from fourth quarter 2004 to first quarter 2005.

Our sales and marketing effort continues to track and meet our internal growth targets. Our team is focused and we continue to grow both our grease trap and cooking oil recovery businesses. Our national sales effort, now less than 1 year old, is beginning to see opportunities unfold from customers who desire a single service provider from coast to coast.

Last quarter we announced the modernization of several of our operating plants and our fleet. To date, our CAPEX for program remains on track. Our Fresno modernization is proceeding on target and we have completed fleet upgrades at many of our locations. Our Wahoo Nebraska plant is currently constructing a sate of the art waste water system and we have also recently completed various energy conservation projects.

Our balance sheet, as you note, remains strong and we continued to build cash in first quarter. As we've discussed before, we continue to study the options with respect to this balance. But I remind you once again that we have built the cash with several options in mind including potential investments required to react to government regulation as related to BSE (Mad Cow Disease) acquisitions opportunities that may arise from time to time and the ability to withstand the commodity cycle.

I would now like turn the call over to John, let him take you through a little more detailed analysis of the quarterly performance and after John concludes I'll spend a few minutes trying to wrap up and then open it up to questions.

John?

Thanks Randy and good morning to everyone. For the first quarter, 2005 Darling's net sales were 71.4 million as compared to 77.5 million for the first quarter 2004. Lower finished product prices and raw material supplies accounted for the majority of the 6.1 million decrease in net sales.

Net income for the first quarter, 2005 declined to 0.9 million or $0.01 per share as compared to net income of 3.9 million or $0.06 per share for the 2004 comparable period. The 3 million decrease in net income for the first quarter, 2005 was primarily due to decreases in finished product prices and decreases in raw materials supplies.

As we mentioned in our press release, one of the factors that contributed to the significant year-over-year decrease in other income was a gain of 1.3 million that we realized in the first quarter, 2004 as a result of the extinguishment of bank debt.

Interest expense in the first quarter of fiscal 2005 decreased to 0.2 million. The increase in interest expense on the senior credit agreement was offset by a decrease in preferred stock dividends and accretion in 2004.

Operating income from the first quarter, 2005 was 2.8 million which was 58.8% decrease over last year's first quarter caused primarily by a decrease in raw materials volumes, lower finished product prices and continued high relative prices for diesel fuel and natural gas. These decreases were primarily offset by improved recovery of collection expenses and operating cost improvements.

At the segment level, rendering generated net sales of 44.4 million for the quarter as compared to 49.2 million in the first quarter of 2004. Again, this decrease of 4.8 million was largely due to lower raw material volumes.

The restaurant services business generated net sales of 27 million as compared to 28.4 million in the first quarter of 2004. Yellow grease prices were down approximately 5% quarter over quarter.

Additionally, Darling increased the allocation of plant operating expenses and both plant and corporate administrative expenses to restaurant service segment during the first quarter of 2005 which resulted in an additional 1.1 million allocation to this segment in the first quarter.

As of April 2, 2005 Darling's cash and cash equivalents total 38.6 million versus 37.2 million at the end of the fourth quarter of 2004. Working capital at the end of the first quarter was 37.7 million. And also at the end of the first quarter long term debt was reduced by 2.5 million.

With that, I'd like to turn the call back over to Randy.

Thanks John. Before we move ahead with questions I'd like to make a few brief closing comments.

While reduced raw material volumes, declining commodity prices, continued export restrictions and higher energy prices weighted on our first quarter financial performance, we are seeing some signs of improvement in our key performance drivers. Cattle kills traditionally improve in the spring. April slaughter statistics show kills at 592 thousand head per week versus first quarter average of 582 thousand.

The last 2 weeks have even improved more at 622 thousand and 656 thousand. Additionally, cattle slaughter margins have returned to the positive side for a long time here. Commodity prices, as quoted by Jacobson, reflect current market prices for meat and bone meal at $180 per ton versus $153 in first quarter, tallow at $0.19 versus $0.17 in the first quarter and yellow grease is basically unchanged.

Energy prices, while remaining somewhat volatile, have retraced from their highs. Overall, I can assure you that we will work to create shareholder value and capitalize on in growth opportunities that we see for your business.

We appreciate your continued support and confidence in Darling and John and I will now open it up to questions.

Holly?

Thank you. The floor is now open for questions.

(OPERATOR INSTRUCTIONS)

Thank you. Your first question is coming from Tyson Bauer of Wealth Monitors Incorporated.

Good morning gentlemen. A couple of quick questions for you: on, on the restaurant services side, could you give us a little color on what is picked up by your own corporate owned trucks or transportation fleet as opposed to peddlers? And have you seen any trends or any growing pressure on the pricing or what you're able to charge those restaurants for pick up and disposal?

Tyson, this is Randy. We don't break out what. And I don't want to break out what's in house trucks and what's peddler. My answer to the question as to are we seeing any pressure? I would say the answer is no. We've been able to grow the collection of our, or the recovery of our collection fees in first quarter. And our account growth and targets remain intact.

Okay. Jumping in 2 quick ones and I'll get back in queue: one, the USDA recently just put out an outlook on their soybean prices for 2005, upper 4s lower 5s range, how would that correlate in your experience to what we should expect on MBM prices, at least in these initial projections?

The correlations are obviously tough to come up with. What we do, as far as a performance driver, is we watch the soybean complex. The soybean complex obviously made some substantial improvements in the first quarter timeframe as 12 million tons disappeared out of the South American production. Plantings are pretty much on target in the U.S. and the Board of Trade today (ph) only shows a slight inverse on protein and fat prices from current to new crops.

So I'm not sure I can draw a correlation to what the USDA's putting out. What I can do I look at the futures market that's out there and tradable today, and it's relatively flat.

Okay. And the last question: the Canadian Parliament has been threatening, or at least taken the posture, that they may work toward building processing plants in Canada as opposed to sending those live animals to the U.S. for processing and thus eliminate some of those rendering volumes here in the U.S. People such as Cargill have already bought additional plants in Canada. There's rumors or the likelihood of others, such as a Tyson Foods that may follow suite. What impact, if any, would that have on your business if you see a trend going north of the border, processing their own beef up there and sending boxed meat to the U.S.?

Well I think, first of all, we've seen the same articles and we've seen, I think as of even yesterday, Tyson announced that they were expanding one of their plants. But you've got to keep in perspective that I think, and I don't have the absolute number, but the number of animals compared to the slaughter in the U.S., less than 5% of the U.S. slaughter came from Canada. So I think it's hard to say that it would have any type of dramatic effect and that the U.S. is still, as all knows, is suffering from its inability to export products to Japan. And that's probably the biggest driver that's underneath the whole complex today.

Thank you gentlemen.

Thank you. You're next question is coming from George Gross of Joseph Gunner.

Yes, good morning. I have here, you're rendering revenues they went up 6% sequentially while the key finished goods, meat and bone meal and tallow, they saw price increases of 6% and about 10% sequentially. From this can we infer that meat and bone meal sales were greater than tallow sales? Hello?

Yes, George, I'm not sure I understand your question. The product prices for meat and bone meal and tallow were down. The protein prices were down by 17.2% where tallow was down 11.5%.

No, I'm talking on a sequential basis.

Sequential meaning fourth quarter, or -

Yes, from fourth quarter to the first quarter.

Prices during the, on the first quarter versus fourth quarter. Protein was up a little bit, tallow was barely up and yellow grease was about flat for that period.

Okay. But can we say that meat and bone meal sales were greater than tallow sales?

No, not really. We don't break that out. On a per pound basis, obviously, if tallow is $0.17 a pound where meat and bone meal is basically was $0.08 a pound during the period. So the tallow trades during the first quarter almost, on a per pound basis, was almost double, if that's what you're getting at. So yes, the revenue that was generated from the tallow would have been greater just from the price relationship that's basically almost always there.

Okay. I guess my next question; can you quantify the amount of lost dollars that were weather related?

You know, we don't break that out George. The thing is, you don't rally, I guess, in a sense you wouldn't say that you lost dollars. You just picked them up later. You may have missed a small service cycle opportunity there. But as soon as, it's hard to get grease bins out of snow drifts. And so we were slowed down and I guess it would be easier to say that at some point in time in the future that those restaurants would bee serviced.

So it's just a timing -

Yes, that's a great way of saying it.

Okay. And how many customers were impacted by that?

Well the snow storm, it predominately effects our Newark and Michigan location.

Okay. I guess on a sequential basis, I'm talking fourth quarter versus the first quarter of this year, restaurant services revenues declined 9% in spite of the yellow grease prices increasing a bit. Can you sort of provide some more clarity on this discrepancy?

In looking at the restaurant services, as you pointed out, the sales were 27 versus the 29 for the period. As we indicated, the pricing was about flat during that period. But the biggest impact is basically, what Randy was mentioning, was in the northeast, when we weren't able to pick up the material from behind the restaurants when the snow was plowed and they cover up the grease bins, there was a 2 to 3 week period that some of those accounts, we couldn't get to them, as well as could not service any of the trap during that time.

The sales were down, but on a sequential basis, fourth quarter profit for restaurant services was 3.3 in the fourth quarter of last year. And in the first quarter of 2005, the profit was 3.7, or an increase of $0.4 million,

Okay. My next question here is, in terms of your finished goods, where do you see the pricing for the rest of the year?

You now I'm not going to step forward. I think you can, as I referenced here, the thing that, the drivers that we reference there would be the soybean complex. And you can pull up the futures market there and try to extrapolate a relationship there.

Okay. On the grease trap business here, can you comment on the business activity levels that you have from your national services center?

What I can tell you is in December we did acquire a small trap pumping operation in Orange County out in the tributary to our Los Angeles and San Diego area. It's fully integrated and we're enjoying the benefits of additional customer relationships out there.

We don't reveal customer data or names for competitive reasons, but the national service center activity continues to grow and we continue to put counts in it George. It's working quite well.

So you actually win national accounts over in the quarter, or?

Yes, we have.

I mean how, can you quantify, or?

No, the comment that I will make is that we are on target with our growth expectations for both grease trap account growth and cooking oil removal growth.

Okay, just the last question before I get back into the queue here, did you hire anybody in that segment?

We have added additional staff to the national service center during the year and we've also added additional sales people in the regions to support the effort.

How many?

3.

3 sales people?

2 sales people and 1 customer service person now. And we continue to grow.

Okay. I'll get back into the queue. Thank you.

You're welcome.

Thank you. Your next question is coming from Chris Ageraple (ph) of Concentric Investor Management.

Hello?

Yes, Good morning.

Good morning. One question I have is trying to resolve the lower kill level with the lower pricing for commodities. In other words, I was thinking in a commodity market if there's less supply there should be higher prices. But you seem to have lower supplies and lower prices. Can you talk about that dynamic and what seems to be interfering with the market there?

In the finished goods prices were lower during the period. And you're right, it basically gets to a very simple supply/demand with the products still not being able to be exported outside the United States on the Protein side, the fat can be exported but the protein cannot. What we've seen during that period is also negative margins with the packers. As Randy indicated, the packer margins have improved in the second quarter. But we basically saw the impact of weaker demand for the protein. So all that product was placed into the domestic market, and because of where soybean prices were, our products will track those prices at the same time.

Could you talk about free cash flow during the quarter and what your plans are in terms of spending it?

As we mentioned, we continued to build cash during the quarter. We have a significant war chest assembled here and as we've earlier mention, we continue to keep that war chest for opportunities may exist from the government or from acquisition or from, as we've said, any commodity downturn. We continue to evaluate that. It's a topic being discussed at the board level and we'll see what the opportunities exist here.

So you have no current plans in terms of further debt buy-ins or stock buy-ins?

Not that we're willing to discuss today.

Okay, thank you very much fellows.

Thank you. You're next question is coming from Evan Steen of EOS.

Hey there guys.

Good morning Evan.

My question is more strategic. And that is, I'm curious what you guys want to become over the next 2 or 3 years. The commodity markets are going to go up or down. Actually right now they are very high so your earnings are really, I would characterize, towards the higher end of where they would be in a cycle. You're basically at no net debt and I'm curious what the strategy is to sort of grow within the confines on the facts that the prices will be high or low, some year the kill will be higher or less.

But in reality, inherently in that end of business there's not very much growth. It will generate free cash flow. In the past the company has run into trouble by spending their cash on acquisitions leveraging and then it's gone into bankruptcy twice after management had sort of followed that path.

So sitting with all this cash, I'm curious if you would consider a dividend, you would consider somehow trying to refinance that debt and what other growth areas you might invest in.

Well Evan that's a , this is Randy, that's a pretty good synopsis of the history here. And obviously our goal is not to repeat a lot of those mistakes. You know, the company's been around 130 years and been through a lot of good times and a lot of bad. But when you pull back the sheath on the bad, it was always driven by over leverage and the inability to service its debt and businesses during commodity cycles.

Our view of the world today is that the rendering business, the core processing of animal byproducts, is somewhat mature. There will be regional opportunities that exist from time to time, but yet it will continue to pay the bills fairly well. We'll live through commodity ups, commodity downs. What we're experiencing right now with low slider volumes is pretty much not been a driver that we've been used to as business. I don't know that we can say that we've ever experienced a prolonged downturn in the cattle or cattle slaughter cycle.

Our view of the world, and it's being backed up by and investment in people and in assets, is in that restaurant segment. We continue to believe from coast to coast, given our footprint, that there is a service opportunity to work with national chain restaurants. I'm sure most of eat at a lot of the big names out there, and to provide single source service for those processes.

I think, given that, as we go into geographic areas may provide opportunities from time to time to find bolt-on service providers and may allow us to even ultimately expand our service, the breadth of service, that we can offer. I don't want to speculate on what those services could be, but there's many services that restaurants utilize today that we don't provide.

We see that as our growth segment. We see debt management and balance sheet management as a key criteria to this business. And the cattle cycles and commodities will take care of themselves. But we owed it to the investor base to initiate the management of formulas to lower the volatility in this business. And between lowering the volatility and keeping debt levels at manageable levels it will provide us the opportunity to continue to grow our footprint in the restaurant services area.

okay. Could you also, you commented on the formula and I've followed the company for a very, very long time, and while it has moved up, is there an ability to get it, or would you want it, to where you could get it to, I don't know, 75% so you wouldn't have the 50% of the business that is dependent on commodity swings? And if you could, is that something you would want?

Yeah, I mean we continue to move that where we can. We have various relationships out there from plant to plant that have contracts and as they've come due we've inserted more efficient formulas in them in the sense of being able to manage energy.

If you remember back historically, it was hard to believe that natural gas would ever be over $3.00 an MMBtu. And therefore energy was never a driver in these formulas. It just wasn't even a discussion point. You talked about your variable operating expenses, labor going up 1% a year or whatever. We've had to go back now over the course of time, as they are allowed, and renegotiate the formulas to put energy adjusters in them.

As far as our view of being able to move this to 100% formula, probably not realistic. But we would believe the more the better. And I think it's good for the customer too.

Okay (inaudible). Okay, and then just lastly dividends, any comment on that? And does the debt outstanding prevent you from paying one?

No, the credit agreement clearly has a dividend provision inn it that can be referenced if you read the credit agreement. As we said, we just, you know, there are many topics out there that that war chest that we've accumulated can entail and I just would prefer to leave it at that at this time.

Okay, fair enough. Okay, thank you very much.

You're welcome.

Thank you. Your next question is coming from Michael Christedalo (ph) of Inwood Capital.

Yes, good morning. Earlier you made some comments about the correlation to the soybean complex and I wanted to ask if there is an anomaly that's presently in place in terms of protein equivalency. It seems like the cash prices of meat and bone meal and soybean meal are equivalent and yet the soybean meal would need lysine. And I'm just trying to understand if there is something structural going on in the market that's compressing the normal margin that used to be in place.

You really have to go back to the band of protein, ruminant protein in to ruminant feeds back to '97. At that time you would see meat and bone meal sell at a premium to soybean meal because of the protein value. Meat and bone meal is at 50%, soybean meal is at a 46.5% protein level. We've seen that, since that period of time and with the ups and downs and with the case of BSE in Washington in the fall of 2003, we've seen some large discount and even premiums steering that time (ph) as it comes to a supply/demand factor.

We've been continuing to sell at a little bit of a discount through the period. Nutritional value, they should be very close market situation and how our meat and bone meal goes into both poultry and swine feeds is where the protein goes today. And there is plenty of demand for that product. If and when the government comes out with regulations as to the handling of SRMs, that would, that should put the proteins on an equal footing and we should see proteins go back to a pure market nutritional value that goes into the feed formulas at that time.

But until that takes place, we're probably going to continue to see meat and bone meal sell at a little bit of a discount in the market to soybean meal.

Okay, but, so it really hasn't gotten much worse since BSE in the last year and a half but we are at the low end of the band so as you're saying, if the regulations were to clarify we may see some movement upward in your price -

Well, you would think that from a nutritional value then the question that has been in the market place for all these years would be resolved. And then it would be more up to the nutritionists and the companies that are using the product to the value and to the formulas at that time.

Very good, Thank you. Good luck.

Thank you. Your final question is coming from Tyson Bauer of Wealth Monitors Incorporated.

Just 2 quick follow-ups: one, I've got a headline in front of me saying Japan's ruling party has endorsed the plan, Thursday I guess, yesterday, for food regulators in Japan to consider lifting the ban on American Beef. Whether that comes to fruition or not, what kind of time lag is there from, say, an announcement lifting the ban to when you would actually see an impact here in the U.S. as far as yourselves?

Gosh Tyson, I don't know that I can even begin to take a stab at that. I mean, what we can say is we've seen cattle kills drop off into the 570 to 580 range and when Japan was buying they were in the 670 to 720 range.

How long would it take the U.S. inventory, the herd inventory, to be built up to actually become meaningful as far as increased kill rate?

You're the expert in cattle cycles, I'm not.

Alright. Let's jump to the last one and that is; your major competitor on the West Coast in regards to picking up used restaurant oils from those parties has come out in a publication saying that they are examining the possibility of taking that material and selling it to a bio diesel facility out there and the going rate's about $0.70 a gallon unprocessed, just basically filtered used cooking grease, or oil, I'm sorry.

Is that a positive development? Or how does the financials work, say you have a $0.70 end product or price for used cooking oil as opposed to bringing it in house and processing it to yellow grease?

Well, I mean the reference is to the bio diesel demand that continues to build in the United States. The phones ring constantly around here looking for feed stock and investment into these start-up operations. Today there are several bio diesel plants either under construction or learning to run.

The challenge that you have when examining which product they'll use to convert to a methyl ester is is used cooking oil contains all kinds of different products. Now what I mean by that is it can contain soybean oil; it can contain other vegetable oils and it contains beef fat if you're frying hamburgers off the grill into that product. All that translates into what's called free fatty acid which cannot be converted into bio diesel and has to be stripped out. It impacts your yield.

And therefore, the rhetoric that's out there, while proven and unproven today, it's difficult to convert used cooking oil on any continuous scale to bio diesel as we know it today. The technology is challenged.

Now additionally, if you look at, Tyson, the subsidies that exist between the two products, the government subsidizes used cooking oil at $0.50 a gallon and virgin oils, which tallow is included at $1.00 a gallon. At $0.50 a gallon and 8 pounds a gallon you come up with a price spread that is greater for, once you subsidy neutral if you will, you're going to end up paying more for cooking oil than you would for using lower fatty acid animal fats.

So I think there's still a lot of homework that has to be done on it. For Darling's sake we have studied the bio diesel market. We think that it provides an opportunity for those that want to buy our products today and want to assume the risk of trying to learn how to convert these and will ultimately and could ultimately drive consumption of animal fats and yellow grease just like it's done in Europe.

However, there's a huge risk quotient attached to that both from technology, will the subsidy continue after 2006? And the third piece is that a huge portion of your revenue stream out of that product line is glycerin. And glycerin is a very finite and somewhat fragile market in the world and will additional supplies of crude glycerin find homes. There's many stories out there today of glycerin not finding homes and ending back in animal feed; and when you insert that economic to the bio diesel equation it turns it upside down very quickly.

Okay. So everything really is still in its infancy and no real immediate impact for Darling one way or the other.

Not that we see today. You know, we would welcome all the customers that want to give it a try.

Okay, that sounds great. Tank you gentlemen.

You're welcome.

Thank you. I would now like to turn the floor back over to Mr. Stuewe for any closing remarks.

Holly, I think that wraps it up and I just want to thank everybody for participating today and we look forward to talking to you again in second quarter.

Thank you ladies and gentlemen. This does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day.