Darling Ingredients Inc (DAR) 2025 Q4 法說會逐字稿

Good morning, and welcome to the Darling Ingredients Inc. conference call to discuss the company's fourth quarter and fiscal year 2025 financial results. (Operator Instructions) Today's call is being recorded, and I would now like to turn the call over to Ms. Suann Guthrie, Senior Vice President Investor Relations. Please go ahead.

Fourth quarter and fiscal year 2025 earnings call. Here with me today are Mr. Randall C. Stuewe, Chairman and Chief Executive Officer; and Mr. Bob Day, Chief Financial Officer.

Our fourth quarter and fiscal year 2025 earnings news release and slide presentation are available on the Investor page of our corporate website and will be joined by a transcript of this call once it is available.

During this call, we will be making forward-looking statements, which are predictions, projections and other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results can 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, everyone. As we close out 2025, I want to acknowledge our employees for continuing to execute on our vision of being the world's largest, most profitable and most respected processor of animal byproducts. For every end, we believe there is a new beginning as 2025's performance clearly demonstrates.

Our 2025 results reflected the uncertainties created by evolving renewables public policy along with a turbulent globalization related to tariffs and trade, yet our team remained committed to the fundamentals that matter the most.

We meaningfully improved our debt leverage, took steps to rationalize and improve our portfolio and focused on our core strengths and advanced our operational excellence. These actions throughout the year strengthened our platform, assisted in generating concrete results and position us for continued growth and profitability in the future.

In the fourth quarter, we delivered solid EBITDA growth and sequential gross margin improvement. Despite a challenging year for Diamond Green Diesel, our best-in-class operations led the industry in results. Darling's combined adjusted EBITDA for Q4 was $336.1 million, and our Global Ingredients business performed strong with $278.2 million of EBITDA.

In our Feed Ingredients segment, exceptional operational execution drove meaningful margin expansion for the fourth quarter in a row, a clear sign of the momentum our operations team continues to build as they remain laser-focused on driving efficiency and delivering strong results each quarter. The additional week in our fiscal year, combined with a favorable lag in fat prices, supported higher volumes and sales in the fourth quarter for the year.

In the US Demand for domestic fats remains robust as we continue to operate within agricultural and energy policy direction that is increasingly favorable to Darling to American agriculture and to American energy independence. Internationally, our Global Rendering business in Europe, Canada and Brazil delivered solid year-over-year growth.

Turning to our Food segment. Global collagen and gelatin demand continues to rebound and our previously announced joint venture with PB Liner and Tessenderlo is advancing as planned with regulatory reviews now underway. Across the business, we're seeing positive global demand trends that give us a very encouraging outlook for 2026.

In our Fuel segment, Diamond Green Diesel delivered its strongest quarter of the year with $57.9 million of EBITDA or $0.41 per gallon. For the full year 2025, DGD earned $103.7 million of EBITDA or $0.21 EBITDA per gallon and sold approximately 1 billion gallons. This performance reinforces DGD's position as the lowest cost operator with an unmatched supply chain and superior logistics.

Even in an uncertain time for the industry, DGD continued to generate positive EBITDA and consistent operations, highlighting the strength of our people and the deep expertise behind our operations.

Now looking ahead, we are increasingly optimistic the policy backdrop is moving in a direction that we believe will soon enhance DGD's earning potential and create a more constructive environment for domestic renewable fuels.

Now as I mentioned earlier, we have taken steps to sharpen our portfolio and focus on our core strengths, which may result in some asset sales in the near future. At the same time, we are open to opportunities that strengthen and expand our core business where it makes sense.

Darling was identified as a stocking horse bidder in the bankruptcy proceedings for three rendering facilities from the Potenza Group in Brazil, the second largest rendering company in Brazil. Bob will share more details on the financials and timing, but these are high-quality assets with strong operational capability and fits naturally alongside our existing footprint. This is an incredibly strategic acquisition of assets that offers important synergies with the rest of our network in Brazil.

Now with this, I'd like to hand over the call to Bob to take us through the financials, then I'll come back and discuss my thoughts for 2026. Bob?

Thank you, Randy. Good morning, everyone. As Randy mentioned, third quarter momentum continued nicely into the fourth quarter as combined adjusted EBITDA was $336 million versus $289 million in fourth quarter 2024 and $245 million last quarter. Core Ingredients improved both year-over-year and sequentially. For fourth quarter 2025, Core Ingredients EBITDA was $278 million versus $230 million in fourth quarter of 2024 and $248 million last quarter.

And for all of 2025, Core Ingredients EBITDA was $922 million versus $790 million in 2024. While 2025 was a 53-week year for Darling, the added weeks impact added only around $20 million EBITDA. So by in measure, 2025 for the Core business realized significant improvement over the previous year.

For the fourth quarter 2025, total net sales were $1.7 billion versus $1.4 billion in 2024. Raw material volume was 4.1 million metric tons versus 3.8 million tons from the fourth quarter a year ago. And for the full year, raw material volume was 15.4 million metric tons versus 15.2 million tons in 2024. Meanwhile, gross margins for the quarter improved to 25.1% compared to 23.5% in the fourth quarter of last year.

Looking at the Feed segment for the quarter. EBITDA improved to $193 million from $150 million a year ago, while total sales were $1.13 billion versus $924 million and raw material volume was approximately 3.4 million tons compared to 3.1 million tons. Gross margins relative to sales improved nicely to 24.6% in the quarter versus 22.6% in the fourth quarter from 2024.

As Randy mentioned earlier, we successfully participated in an auction to acquire three assets formerly owned by the Potenza Group in Brazil. We are currently working through terms in the purchase agreement and expect to close later this quarter. The cost of acquiring those assets translates to around $120 million, and we expect to fund that with cash flows generated in first quarter of this year.

In the Food segment, total sales for the quarter were $429 million, a significant increase over fourth quarter 2024 at $362 million. Gross margins for the segment were 27.2% of sales compared to 25.7% a year ago and raw material volumes increased to 350,000 metric tons versus 320,000 tons. EBITDA for fourth quarter 2025 was up significantly compared to the fourth quarter of 2024 at $82 million versus $64 million.

Moving to the Fuel segment, specifically Diamond Green Diesel. Darling's share of DGD EBITDA for the quarter was $58 million, which includes an unfavorable LCM inventory valuation adjustment of $24 million at the DGD entity level. This was the best quarter of the year for DGD as confidence in policy and more disciplined market behavior led to an improved margin environment.

For fiscal year 2025, Darling's share of DGD EBITDA was approximately $104 million which included a favorable LCM inventory valuation adjustment of $140 million at the entity level.

Darling contributed approximately $328 million to DGD in 2025 and -- these contributions were offset by $368 million in dividends received, a significant amount of which came from $285 million in production tax credit sales, $255 million of which were paid during 2025, and the balance will be paid in 2026.

Other Fuel segment sales, not including DGD, were $153 million for the quarter versus $132 million in 2024 and relatively flat volumes of around 390,000 metric tons. Combined adjusted EBITDA for the full fuel segment, including DGD, was $85 million for the quarter versus $84 million in the fourth quarter 2024. For fiscal year 2025, combined adjusted EBITDA was $192 million versus $374 million a year ago.

As of January 3, 2026, Total debt net of cash was approximately $3.8 billion versus $4 billion ending December 28, 2024. Capital expenditures totaled $156 million in the fourth quarter of 2025 and $380 million for the fiscal year. Our bank covenant preliminary leverage ratio at year-end was 2.9 times versus 3.9 times at year-end 2024. In addition, we ended the year with approximately $1.3 billion available on our revolving credit facility.

For the three months ended January 3, 2026, we recorded an income tax benefit of $11 million primarily due to the net impact of production tax credits, and we paid $6.9 million of income taxes during the quarter. For the 12 months ended January 3, 2026, the company recorded an income tax benefit of $9.4 million. Similar to last year, the company's effective tax rate when including production tax credit sales was negative 15.3%, and we paid a total of $58.4 million of income taxes in 2025.

Overall, net income was $57 million for the quarter or $0.35 per diluted share compared to net income of $102 million or $0.63 per diluted share for the fourth quarter of 2024. As we continue to evaluate each business and position the company to maximize value, we restructured and impaired some of the portfolio in the quarter resulting in charges of $58 million.

Adjusting for the restructuring and impairment charges and to provide some perspective regarding earnings per share in the fourth quarter from 2025 and 2024, an adjusted non-GAAP earnings per share would have been $0.67 per diluted share in the fourth quarter of 2025 and $0.66 per diluted share in the fourth quarter of 2024.

With that, I will turn the call back over to Randy.

Thanks, Bob. In 2025, we focused on executing for today so we can build for tomorrow. That discipline has put us in a strong position as we move into a period of meaningful opportunity. We're beginning to see tailwinds forming across our markets and public policy is on the cusp of becoming tangible and beneficial for our businesses. We believe we are at an inflection point, one where the foundation we have built and the momentum we have created will move us forward.

We're excited about 2026 and believe we are well positioned to deliver long-term value for our shareholders.

Now looking forward to first quarter, we estimate that DGD will produce about 260 million gallons at improved margins. For the Core business, when you adjust for our fourth quarter performance for the 13-week period and excludes some minor year-end cleanup, the quarter was solid.

In January, severe weather in the Southeast and Eastern Shore created some moderate operational challenges. Even with that, when considering fat prices and volumes, we only expect a modest pullback relative to Q4. As a result, I'm estimating our Core ingredients adjusted EBITDA to fall in the range of around $240 million to $250 million for first quarter.

Now with that, let's go ahead and open it up to questions.

(Operator Instructions)

Derrick Whitfield, Texas Capital.

Congrats on a strong close to the year. So maybe just starting now with guidance. So while I understand why you're not guiding DGD for 1Q, it seems like to us that the margins are materially stronger than where you were in 4Q given the strength of recent credit prices and the softness of fat in UCO relative to SPO. So that's kind of part one.

And part two is, as you guys look forward and let's assume we get a constructive RVO would you likely then put DGD back in guidance at that point? I would love your thoughts on those two.

Derrick, this is Bob. I guess to answer the first -- the last question directly, it's going to depend. I mean I think that there's -- it's just going to depend on the kind of clarity and certainty we have. But as we look at the first quarter, first of all, we saw strong results in the second quarter. Fourth quarter of 2025, much better.

And we continue to see that momentum carry forward into the first quarter. But yes, we aren't providing guidance, and we'll reconsider that after we get a final ruling on the RVO.

Terrific. And then maybe just one follow-up, perhaps for you, Bob. When we think about the Feed business, it is clearly sensitive to the final absolute RVO. But how would you characterize your business's potential sensitivity to the half RIN concept for imported products and feedstocks?

Yes. I think it's hard to answer as it relates specifically to the half RIN concept because there are so many other factors. We've got origin tariffs on feedstocks that are already having a big impact. I think, the bottom line is if policy is supportive to US or even just broader North American feedstock values, that's certainly constructive to our rendering businesses in the United States and Canada.

And based on what we've heard, we're likely to see it manifest in some way that's supportive like that.

Thomas Palmer, JPMorgan.

Given where you sit in the biofuels supply chain, I wondered if you might have some insight into what's happening still far in 2026 versus maybe how it might evolve here as we get clarity on the RVO. And specifically, to what extent maybe we're starting to see more production from biofuels operators that maybe had pulled back? And to what extent you're starting to see increased pull in terms of feedstocks from the biofuels industry?

So if I didn't understand the correct question correctly, Tom, let me know. This is Bob again. I think we haven't seen a significant increase in biofuel production yet in the United States. And despite better margins, which suggests to us that margins need to get better in order to incentivize more. And so if we have an RVO, ultimately, that results in an increase in demand, we're going to need to see better margins in order for that to happen.

But if I -- let me know if I didn't answer your question.

No, you understood it right. I was really just trying to understand if we're seeing anything kind of happening in the background versus what we're seeing with pricing so far.

Second, I did just want to touch on the Food business. There was some constructive commentary in the prepared remarks. This is maybe less tethered to the RVO. So I wondered if you would be comfortable maybe talking at a high level about expectations for EBITDA as we think about the coming year?

Yes. Tom, this is Randy. I mean the collagen and gelatin business globally is performing very nicely, had a really nice fourth quarter, carries that momentum into Q1 right now. As we look around the world, the demand -- a year ago today, we were talking of destocking of people that have built too much inventory, the industry had added quite a bit of capacity through new players, and the only thing the new players knew how to do was to was to reduce price to try to move the product and have built inventories. Those have been worked through pretty much around the world.

And so ultimately, we look for a year similar to this year, if not better. It will depend on really how -- it really comes down to trade flows again. Keep in mind, there's still lots of tariff issues around the world, and we're a heavy Brazilian producer. And at the end of the day, we were able to navigate that with our customers and suppliers. And I think we'll be in better shape as we come on into the year 2026 year.

Also, our next tide of product line has been launched. The GLP-1 alternative glucose moderation product is getting a lot of repeat orders now, building momentum. And then this spring, we are hoping some were to bring on our green hill next tier product.

So we're getting momentum with the higher-value products here. And then the commodity gelatin part as, what I'd say, leveled off and improved from where it was a year ago.

Manav Gupta, UBS.

My first question is going to go a little bit on the policy side first. As this RVO comes out, net of SREs, what would be looked as a constructive number from the perspective of Darling, like is there an absolute number, five plus or whatever, which if it's the net number, you would say, okay, that is constructive.

And then on the LCFS part, finally, things are moving in absolutely the right direction. And I'm just trying to understand, based on the revised the mandate going in, where you actually see that carbon bank deplete, which will be a major positive for you?

Thanks, Manav. This is Bob. So I'll go on record saying we support an RVO for advanced biofuels that translates to 5.25 billion gallons or 5.61 billion gallons. Those are kind of the numbers that have been thrown out there. We'll go on record continuing to support those numbers.

I think what we would add to that is just anything that resembles, anything close to that is extremely supportive, and we believe results in higher margins than what we see in the market today. So I guess I'll leave it at that.

On the LCFS question, it's an interesting situation because we have the greenhouse gas emission requirements that are more stringent than they were. We're seeing the bank come down considerably. And we expect that we'll continue to see that happen.

One interesting aspect about that market is over the last several quarters, we've actually seen less renewable diesel going into California despite better margins. And so that tells us that in order for California to satisfy its mandates, either LCFS credit prices have to go up or RIN prices have to go up, but it's got to incentivize more domestic production to eventually go into California, so the rate at which we're drawing that bank down starts to slow down.

We haven't talked about it in those terms for a long time, but so it's absolutely constructive what we're seeing there.

Perfect, Bob. I'm just going to quickly ask a question on the food JV side. Obviously, you've highlighted multiple benefits of that JV, but you've also in the past said, look, once the JV really takes off, there could be a re-rating for the stock, right? Can you talk about the multiple expansions that can happen as the JV comes to fruition and some of those benefits which will lead to a higher rerating for Darling Ingredients?

Yes. Thanks, Manav. So I think, first of all, we're in a process there. We've signed definitive agreements. We've done our regulatory filings, and we can't predict exactly when this joint venture will close.

But it's sometime, we expect in the next 12 months or so. Once that happens, we will focus on integrating plants, maximizing synergies and opportunities, and then as Randy talked about, throughout all of this, we are very focused on increasing the sales volume of the Nextida portfolio of products, which really move that business into the health and nutrition and wellness segment of the market that trades at significantly higher multiples.

We believe this is a business that can move into a space that's trading 12 times to 16 times EBITDA. And if we accomplish that and when we accomplish that, we'll have to evaluate what's the best way for us to monetize that if we're not being recognized for that kind of a multiple for that business.

Heather Jones, Heather Jones Research.

Thanks for the question. So just thinking about the RVO and the probable impact on Dar's Feed business, was just setting up the expectations for '26. Have there been any changes and how you price the lags, et cetera, that we should be aware of as we're thinking about the potential impact later in the year?

Heather, just to clarify the question. So how we price the -- you say the lags or the legs.

The lag. So like in the past, it's been like a 60-day lag between what we -- have there been any changes in that? Or how you pay your suppliers as far as like your formulas? Not to give us specifics but just things like that, that we should be aware of as we're trying to figure out the impacts for Darling.

No, not at all, Heather. I mean what we saw in fourth quarter was as the team executed well. They had some forward sales on. Prices came down here, and we benefited it. As the -- we were kind of lagging all the way up all year in '25 here.

And so we've got a little bit of a downturn. That was kind of the reason for the guidance in -- for Q1 here at $2.40 to $2.50, fat prices are lower, it's wintertime. But they're going to come back sharply here as the industry powers back up.

Bean oil is back showing near $0.58 on the Board today. And I'm starting to see sales now back of fat's FOB the plants with -- in a 50-plus range now. So it's coming back for us right now. But there's no change in how we do business there.

Okay. Awesome. And then I was wondering, just given the recent 45(G) proposals from the treasury and then just, I guess, a more liquid market as far as monetizing those credits -- is there any change -- any update that you would give as far as what we should be assuming for the average credit value for Diamond Green?

Yes, this is Bob. I would say we've seen a maturation somewhat of that market where there's recognition of the validity of the credit. It's making it easier to have discussions and make sales. There are some -- there is some more supply on the market, so that maybe counters that a little bit. All in all, we don't expect any significant change to the value of the credits that we're able to sell in 2026 versus what it looked like in '25.

Pooran Sharma, Stephens, Inc.

Thanks for the question and congrats on posting some strong results here. I wanted to maybe start off and get a sense as to Q1 Fuel production, I think in the deck, you have it at 260 million gallons. It seems kind of low, just given your capacity utilization. And I thought you're going to have DGD 1 back online. So I was hoping to maybe get some color on the volume expectations for fuel?

I guess we are -- we've been opportunistic in terms of the way we've managed capacity at Diamond Green Diesel over the last several quarters. In certain cases, we've been able to run at less than full capacity and increase our distillate yields there.

We've seen wider spreads, in some cases, and so a benefit to doing that. I think that as we look at the first quarter and what we're really doing is anticipating ultimately a final ruling on the RVO, which would impact the market's second quarter and beyond. So we just really want to position the business to maximize production as we get into the second quarter and through the end of the year.

Okay. Makes sense. And in the past, I think you've given a percentage split on the core business guide. Of that $245 million at the midpoint, are you able to give us a rough sense on the split between Feed, Food and Fuel for the Core business?

So this is Randy. So let's do Randy math here. if you were $278 million in Q4, remember, there was an extra week in there. So you got to divide by 14 and times 13. So you come up with $25 million something there, $258 million, $259 million.

We had a few balance sheet cleanup items that you always do at year-end. So that's where we kind of came in at the $250 million mark for the quarter, $240 million, $250 million. Remember, that does not include DGD. DGD margins are improving from Q4. Volumes are pretty steady, down a little bit here as we get ready to run harder for the balance of the year.

So that's really but trying to split it between food and feed kind of impossible at this time. Food for the most part, is very, very consistent. So you can kind of back into it yourself.

Conor Fitzpatrick, Bank of America.

In fourth quarter Feed ingredients processing volumes set a record and Feed revenue per ton and gross margin percentage were the best print since 2023. Could you maybe break down what has been driving this momentum in the Feed Ingredients segment and help us understand which drivers are more ratable?

Yes. Conor, this is Randy and Bob can help me on here if I leave something out. I mean, clearly, tonnage around the world, raw material tonnage is very strong. If we look at it, there's no surprise, B tonnage in the US is at a relatively low point in my career right now, but it feels like it's rebuilding but offsetting that is very, very strong poultry tons in the East and Southeast.

Now you go south to Brazil, beef tonnage is large, very large now. We're extremely full at all plants down there. Europe is very consistent as we look around Orange. So tonnage is really kind of as expected and doing very, very well. Margin management is what we pride ourselves on in the business and really spread management to try to deliver returns that reflect what it costs to both operate and replace these plants.

And so it was a 25% kind of focus for us, and it was one that it's kind of hard to talk about to get out there because there's no specific thing.

It's each customer, whether it's freight, whether it's the products we're making at plants, the markets that we're selling, the '25 year was very challenging because especially on the protein side, you didn't know was China open, was China closed. And so it becomes very difficult for some of the high-end proteins of fats. Remember, a lot of fat was moving up out of Brazil. to Diamond Green Diesel. And with the Trump tariffs, that makes it pretty much impossible now at this time.

So we've had to move spreads and raw material costs around there. So it's a whole bunch of little things that are out there that the team really executed well on.

And going back to the LCFS, you talked about credit prices needing to rise in order to redirect renewable diesel and biodiesel supply back into California. But maybe could you help us understand what credit price would be required for DGD specifically to redirect product toward California and away from other current end markets?

Yes. Conor, this is Bob. It's hard to answer that because all these markets around the world that we're selling into are consistently changing. And so it's really a relative question. What I would say is in -- I guess, in a static environment, how much would the credit price have to increase into California for us to sell into California.

I'm not really sure exactly. I think that -- but it would have to be -- I can't -- it's hard to answer that exactly just because the markets are so dynamic and they're moving around so much.

But what it has demonstrated is that, it's just -- it's going to have to be higher than where we are in order for it to happen. There are better alternatives today for Diamond Green Diesel at least in order to sell into California.

Dushyant Ailani, Jefferies.

My first one is I just wanted to touch on the Brazil rendering facility, the stocking hosted. Can you talk about the rationale for that some more? And then maybe -- how do you think of deals like these going forward? Is it going to be a onetime thing that is an opportunity? Or could we see more of these?

And then also just one last piece on that is also, how do you think that could add to the capacity and the margin profile for the Feed segment change going forward?

Yes. Dushyant, this is Randy. The Potenza group, the Concave family has -- we worked closely with over the years. they found that we had them acquired years ago and it fell apart. It's somebody we've always had our eyes on.

These are really first-rate world-class facilities that long story short is he spent too much money and was unable to maintain its balance sheet, which is the most important thing in this business through the volatility that happened and happens in Brazil.

So, these three -- we're doing a combination of things in Brazil. As I said, the tonnage is very large. We're doing a lot of organic expansion and debottlenecking at our current facilities. And these facilities were just perfect within our footprint to bolt on and give us some arbitrage and margin enhancement opportunities. So we were excited to get these, and we're excited to get them closed and integrated.

Awesome. And then just a quick follow-up. I think in your prepared remarks, you talked about potential for incremental asset sales. Could you maybe talk a little bit about the magnitude of those asset sales and then from which segment we could see that?

Yes. Thanks, Dushyant. This is Bob. We're intentionally vague about that as we negotiate different options. I think that what we've said previously is that when we look back at where we've been most successful, it's clearly in areas that -- where we've got core capabilities in our core business and some of the peripheral areas where we're operating, we can look at it a bit more opportunistically with some of the impairment that we did.

It just -- it repositions our balance sheet so that we're really valuing things based on fair market value, and that allows us to be more agile if we choose to do so.

But we're not forced to do anything in any case. And I think that's an important position that we need to have as we look at different opportunities.

Andrew Strelzik, BMO.

My first one, Randy, I appreciate you're not giving the annual guidance and certainly understand that. But -- so I'm not looking for numbers. But I guess I'm just wondering -- when you think about kind of a post RVO environment, is there anything -- any analogous year that, that setup kind of feels like? Is there anything from your career in the past from a supply-demand perspective that maybe kind of feels like the setup we could get into a kind of a post RVO environment?

Yes. we look historically at DGD is having a first-mover capability and the success that it had. I mean, I think everybody knows that the the machine is capable of making 1.3 billion gallons plus out there. As I look back at '25, as Bob and I sat here and tried to give what we thought the business would do, we looked at it and said, Well, we don't think '25 can be any worse than '24. And we were very, very wrong with that belief and assumption. We didn't get an RVO soon enough.

We didn't get an LCFS increased guidance soon enough. We think of this time last year, to kind of give the courage in the industry.

And then we had some competitors -- oil company competitors out there. Some have shut down now that decided to, as I call it, run for fun. And so pretty interesting environment that we were in last year. Clearly, people are tempering their kind of behavior now which you would expect. I mean, in all business school things when you get a variable cost, it just takes longer for rationalization and improved behavior.

As we look at '26 here, clearly, we can make you a case for an easy $0.50 a gallon. We can make you a case for $1 a gallon at that. But it all hinges on, like we said, on the RVO which we, as Bob said, 5.2 to 5.6. So we think anything with a five is very, very positive and constructive. And ultimately, you got the drawdown in the LCFS coming back and you've got robust world demand for R&D right now.

So it's a hard thing to sit here and say you can say $0.50 a gallon or $1 a gallon. We ran 41 in Q4. We said we think Q1 is better. And so that's the [50]. And then to go on up to $1, we'll see what happens.

It's going to take behavior in the industry, and it's also going to take a very robust RVO around the world.

Okay. That's helpful perspective. And then I just wanted to ask a capital allocation question. You've done a nice job from a leverage perspective. this past year, not too far off from some of the targets.

I guess how are you thinking about the time line to achieving the leverage targets and then kind of capital allocation priorities once you get there?

Thanks, Andrew. Let me say first, I think capital allocation priority continues to be paying down debt. How quickly we sort of achieve our goals is going to depend in large part on how much cash DGD generates. And so we'll see what that picture looks like once we get a final ruling on the RVO. And once that happens, I think we can be a bit more specific about what our plans are.

But as we sit here today, we like the trend and the direction we're headed. We're going to continue to pay down debt. We'll reassess as we have a little bit more clarity on what the cash flow situation looks like going forward.

Matthew Blair, TPH.

Hopefully, you can hear me okay. I had a question on the [SAF] market. So one of your major European competitors talked about how European SAF prices are actually below European RD prices, and they're kind of pulling back on their staff production. What's the picture like on SAF for DGD? Do you have term contracts to, I guess, essentially like stabilized that SAF contribution.

What are you seeing on US SAF prices versus US RD prices?

Yes. Matthew, this is Bob. I think to answer the first part of your question first. In Europe, we've seen SAF trade at a premium. We've seen it trade at a discount.

It's kind of -- it's fluctuated -- as I think everyone knows, DGD has some countervailing duties in order to get into that market. So it isn't as readily accessible to us, although we do have sales into Europe, and we can be opportunistic when that market is good, and we've been able to take advantage of that.

We still have sales on the books in 2026 that we had made previously. Our book is healthy. The market, I think, is starting to -- well, it is starting to rebound a bit in the United States. In the United States, it's primarily a voluntary credit market. And we've seen more and more interest materialize, and we think we're going to continue to see that as just overall demand for energy continues to increase.

So our book is solid today. There's room to make more sales. We're having really good constructive discussions about that. And I don't think that -- I think SAF will -- we'll be happy with SAF sales volumes and margins as we look at' '26.

Sounds good. And then regarding the contributions to DGD, I believe in 2025, Sterling DGD, $328 million, which, of course, was more than fully offset by the dividends received back. I think 2025 was a pretty heavy turnaround year for DGD. But do you have an estimate in 2026, how much Darling might be spending DGD? Would it be lower than the 2025 number?

Yes, it's a good question. we don't have a precise estimate, but I would say, we expect it will be less. And you're right, we had three catalyst turnarounds in 2025. We did some design work. There were some things that some cost items that needed to be paid for.

As we look at 2026, yes, we anticipate that the contributions will be less. It's going to depend a little bit on the market environment. But based on where we sit here today in the first quarter, we expect it would be considerably less than what it was in 2025.

Ryan Todd, Piper Sandler.

Maybe just a couple of follow-ups on I don't know the comments or questions. I mean we're getting closer to some hopefully, we're getting closer to some regulatory clarity on some of the renewable fuels issues. Randy, can you maybe talk about -- are you hearing anything on timing of the RVO or any of the -- anything you might be hearing out of Washington on some of the gives and takes that may be going on in that discussion.

And then maybe on the 45(G), the preliminary rules that we saw come out. Can you -- it's really positive and maybe mix in some regards in terms of SAF at the relative benefit to running advantage in OCI. Can you talk about kind of what you see in the pluses and minuses for you of the proposal?

Ryan, this is Bob. I think first question around timing. We've spent a lot of time in D.C. I think that our perspective is that all key stakeholders had to get comfortable with what the plans and policies were. In our view, that's happened.

The EPA has a heavy administrative administrative burden to get through as it pertains to responding to comment letters, prior to them sending over a proposal, a final proposal to OMB. We believe that's likely to happen soon. And so hard to say exactly what that means, but probably it's got a February date to it, in our view.

As far as 45(G), what we're seeing from that, there's really nothing that was unexpected. We expected some positive things and we're seeing those positive things. So we've got to do our due diligence and get our legal opinions and make sure that everything is as it's perceived. But as far as it relates to Darling and Diamond Green Diesel, we're seeing what we thought there, and that's positive. I think the biggest thing that could affect us is just what determines a qualified buyer.

DGD was the fastest in the market to convert to producing R100 so that it ensured that it was selling to qualified buyers. And that was one of the things that allowed us to sell the production tax credits faster than everyone else and at a higher sense on the dollar.

If we can go back to making R99 and qualify, that just creates some flexibility that we appreciate, but we don't depend on. So all in all, we see the changes as positive, but either way, not having a significantly -- it wouldn't have a negative impact on our business.

Ben Kallo, Baird.

Just a follow-up on a couple of things. One, in the prepared remarks, you talked about maybe M&A opportunities outside of Brazil. Could you just talk to us about kind of what your -- if you have a size limit on them and how you'd see a limit to adding down the balance sheet for that. . And then you talked about SAF a bit, but can you just talk about any more you can on volumes that you're seeing there and any kind of pricing trends there?

Thanks, Ben. This is Randy. From an M&A perspective, I think we're -- I would still say we're on an M&A holiday. We're working the world. We see what's out there.

Nothing that really turns us on at this time per se. The Potenza opportunity was one we were very, very familiar with. And given that it was a forced liquidation, it was something we couldn't turn down. I think more of our focus around the world is on organic expansion, whether it's in Brazil, Paraguay, China in the US with the construction of the Mount Olive new rendering plant and then some additional expansion.

The poultry side continues to expand here, and we're going to have to use our capital dollars to debottleneck and expand some of our facilities here. So not much there. Bob, do you want to comment on the SAF?

Yes. I think one interesting development in the SAF market in the United States is -- at the end of the day, the buyers for staff credits are large companies, often tech times tech companies, banks. The airlines act more as a broker in that case. And so the discussions that we have -- we are having are really about how a tech company obtains Scope 3 credits through the acquisition of SAF that obviously goes through an airline.

So the discussions are more strategic in nature, long term, potentially higher volume. They take longer to put together. It's harder to predict exactly when they come together. But as those discussions continue to advance, it's exciting because there's a potential for more of capacity to be dedicated towards future contracts. And it's hard to say more than that right now today other than the discussions are constructive and we're encouraged by the direction they're going.

Betty Zhang, Scotiabank.

I wanted to ask about expectations for core EBITDA for the rest of the year. First quarter is looking a little bit softer, but then it seems 2Q is set up to be better with SAF prices recovering -- what about in the second half, what could that look like?

Betty, this is Randy. So I did the math earlier. First quarter is not looking softer because of 13 weeks. Wintertime rendering is always a challenge in North America and to a degree, Europe has had some challenges. South America is in the midst of a hot summer. So we're very solid for Q1.

We're still trying, if you sit there, we think that the year will improve as we go forward. We're being a bit cautious because until we see that RVO, it's hard to really put your finger on it. But at the end of the day, you're seeing the futures market for soybean oil really try to project a very strong RVO here. So that will only provide us tailwinds as we go forward. So hopefully, Q1 is -- we built momentum through the year -- and so hopefully, we'll continue to build momentum and even have a better year than we had last year.

Okay. Great. And then if you could give us a bit more color on the restructuring and impairments. Does that reflect a change in your strategy? And would you say there are other businesses that could also be reviewed?

No, I wouldn't say a change in operating strategy. I would say that every so often, we look at our portfolio and say, can we deliver the returns that we want to in different businesses. Do we have the number one or two position in it.

And we have a couple of businesses out there where we don't have that position, and we can't get to that position. And so the challenge in this business is always that we're the largest and biggest and best in the world is finding them a fair price to let go of an asset we can't be the best at.

And so that just takes time. And I think I'd just say stay tuned and be patient and you'll see them materialize here over the -- hopefully, here in the first quarter, if not very early second quarter.

Jason Gabelman, TD Securities.

The first one, just on CapEx. 4Q was a step-up from 3Q. Wondering what drove that and then your expectations on spend for 2026.

Thanks, Jason. This is Bob. It's not unusual to see a higher spend in the fourth quarter. Some of this is just the teams wanting to make sure that they get certain things done by the end of the year and paying for the cost of doing that as those come due. So that's really -- it's really not more than that.

As we look at next year, we think it might be a slight increase in terms of total maintenance capital versus this year, but it would be consistent with sort of the range of normal on that. So I'll call it in that ballpark of $400 million.

Got it. And then my follow-up is just on the international renewable diesel markets. And you mentioned there are other markets that are advantageous to sell into versus California. So wondering what you're seeing out of places like Canada and Europe and other markets that are making them more attractive at the moment?

Yes. I think that just generally speaking, we're seeing year-on-year increases in demand in those markets. We really haven't seen a lot of increase in in supply and capabilities come online to compete for that. So it's just proven to be -- proven to be good markets for DGD and we think that we'll be able to continue to do that. We also think that we're going to have a good market here in the United States.

And we'd love to supply more into that market as well. So it's hard to say more than that. The SMDs are balanced and strong and that's the case for a lot of these markets outside the United States.

This now concludes the Q&A session. I would now like to pass the call back to Randy for any closing remarks.

Thanks to everybody for all your questions today. I think we feel very good about how we finished the year, and we feel really good about the momentum we carry into 2026. And if you have additional questions, feel free to reach out to Suann. Stay safe. Have a great day, and thanks again for joining us for the call.

Ladies and gentlemen, thank you for attending today's conference call. This now concludes the conference. Please enjoy the rest of your day. You may now disconnect.