All right, folks. Good afternoon. My name's Justin Jenkins, Research Analyst here at Raymond James. On my left is Randall Stuewe. He's the Chairman and CEO of Darling Ingredients. Darling's been one of our favorite companies since launching coverage about a year and a half ago now. So, Randy, thank you again for joining us here in Orlando. If you would, maybe give a five-minute intro on who Darling is and what the story's looking like.
First off, Justin, thanks for having us back. I mean, last year, obviously, was the first year post-COVID, and it was just fun to be back with everybody in person and get to tell the story. I mean, you know, Darling, for many of you that I recognize here, you know the story well. For many of you that don't, Darling is a very unique company. 141 years old, but a growth company. It's a company that today processes about one out of every six animals in the world after the meat's removed and converts it and repurposes the products into different food ingredients, different feed ingredients, and then fuel ingredients. It's a business that today we have 270 factories, 16,000 people worldwide, operate in 22 countries.
On February third, I celebrated 20 years and never thought we would be where we are together as a team. I started with $600 million revenue and or 600 people, $300 million revenue, 20 factories. And we had a vision. We had a vision that the world population will continue to grow, that wealth creation will drive center of the plate dining and protein, predominantly animal proteins, will be part of it. And then we looked at an industry that was very family-held, very, very old and worn out, and it takes a lot of capital to stay in the business. And we said this is gonna do nothing but explode and grow over the next 20 years. You know, we're not at the end of our journey. We're at the start of our journey, as we've built this thing today.
So if you think about the business, we collect, we transport, we cook or evaporate, and we separate fats from proteins on a global scale, about 17 million tons, 17% of the world's supply today. What we did about 10 years ago this July is very unique. It dominates every conversation I'm in. And the conversation is we decided what could we do to create a new market for animal fats for the, the old people in here with me. And believe it or not, my claim to fame was I helped formulate McDonald's out of animal fats in 1989 and replaced it with vegetable oil. So in order to make all of you live longer, I didn't know that I was gonna create a monster on the other side with no demand for animal fat ever again.
Little did I know that God would get back at me and say, "Now fix it." So 20 years later, you know, we've created this new product, a hydrocarbon out of, you can call it a lipid, a triglyceride. I call it animal fats. The market calls it waste fats. We've created one of the greatest solutions for decarbonizing the world, especially heavy transportation. Today we operate three factories on the Gulf Coast with our partner Valero. They've been incredible partners for 10 years. Today, I think we're one or two with Neste in the world, and where we convert animal fats in a sense. My goal in the world was to create additional value for animal fat by creating a new market. One may say, "Why?" Well, for the shareholders, it's to create value for you.
For me, it was to create value also for the slaughterhouses, the livestock producer in the world, because if we create more value for the slaughterhouse, it creates more value for the livestock producer. It creates more meat in the world and makes meat more economical to feed a growing population. So it becomes a win-win around the world. Many of you have heard me speak over the years. I used the line, I coined the line back in like 2008 that we were green before green was cool. I didn't ever know, Justin, that that would haunt me. You know, 15 years later, Cramer reminded me of that on Mad Money the other day. But it really is. We are the, if you are an ESG investor, we are the true ESG story in the world. Ours stands for earnings and sustainable growth along with the standard ESG story.
And so, you know, it's a great company. I'm very proud of the team that's helped build it. And let me share a little more as you wanna learn more.
Beautiful. I think maybe let's start on the Diamond Green Diesel side of things. Randy, you just brought up the third facility here recently. Maybe talk us through how operations have gone in all three plants and what the forward outlook is for the renewable diesel business.
Yeah. I mean, you know, clearly we'll mark 10 years at it. So number one, we learned, you know, we had to change some metallurgy along the way, which is a unique part of one of these processes that I'm not sure most understand today because it's a very, triglycerides or fats, lipids, whatever you wanna call them, are heavy in chlorides. And when you hydrogenate, in the form of the process that we do in hydrotreating, you create hydrochloric acid in a very, very severe, you know, extreme process here that can really eat up metal very quickly. So clearly there's a learning there. Number two, we brought online October of 2021.
Mm-hmm.
It's at capacity and then some. Number one and two now make a, you know, I always have to, my Valero colleagues are here in the building, and I never know if they're out there right now, but, you know, they like to talk nameplate, and I like to talk reality. It can run 750-800 million gallons. It's operating today. Number three was brought online six months early. It's a clone of number two, but bigger, better, and faster. We are still ramping up the full rate. We'll be there. I believe this on March 8th was what I saw in the report this week. We've been constrained by one of the fears that we had. Can you unload enough fat quick enough to support the rate of one of these facilities?
And it, when I look back at number one, we put in the most sophisticated rail unloading system that's built in the United States or even the world today for unloading, you know, a product that goes solid at 55 degrees. And so obviously requires steam, you know. Then as we built out number one and took it from 135 to 275 million gallons, we had to expand the capacity there. And then as we went to 750-800, we had to use an outside terminal across the river to not only support inbound logistics but support outbound logistics of the product flows. And it took a little bit of a learning, but it, it's working very, very well.
Number three is tied in Port Arthur to about a mile away is the Howard Energy terminal, 1,100 acres with a, you know, big 100-car loop track that we can unload 100 rail cars a day. Looks great on paper. We've just not been able to do it effectively and efficiently yet. You know, anybody that's a student of the railroads knows that we have four railroads embargoing us in the United States right now. And ultimately we're making progress. Like I said, we'll be up to full rate here March eight. And then after that, we'll see what you can do. And we're excited. Just a big learning curve there of handling a product that when people are used to unloading liquids, whether it's ethanol or whether it's other petroleum distillates, that's very easy. But a product that requires heating and has some challenges.
And if y'all remember the giant, whatever they called it, the bomb cyclone or whatever that went through the South, it froze us up hard. And the rail cars coming out of central Nebraska turned into bricks. And it just took longer than we hoped. But we're there now.
Randy, maybe also give us an update on sustainable aviation fuel. I think DGD just announced investment in that production capacity for the next couple of years here.
Yeah. You know, sustainable aviation, let's talk about it. In the world today, I mean, clearly, no matter where your head is on climate change and decarbonization, clearly the market and the world is moving in that direction. And they're looking for economic solutions to accomplish that. And clearly the market's embraced electrification. It's gonna come in heavy transportation, but it's not there yet. I don't know if it's three, five, or 10 years out and whether it's an infrastructure. You've got a lot of dreams in the hydrogen area. And then ultimately you've got a drop in fuel, which we make that drops makes 85% reduction of tailpipe emissions immediate through animal fats. So very exciting on that standpoint.
As we looked at the world out there, we said, you know, the untapped universe that's out there today, and we've gotta give some clarity to it, is sustainable aviation fuel. And people go, "Well, yeah, but it's gonna be more expensive." Yeah, but look at the world today. The dirty little secret in the airline industry today is their level of emissions. And like I said, no matter where you subscribe along the curve, they can adapt and adopt and adjust. And at the end of the day, sustainable aviation fuel is a giant market. And I'll give you the numbers. You know, in between Europe and U.S., transcontinental flights and total flights, 45-46 billion gallons of aviation fuel. Today in North America, there is about 2.5-2.7 billion gallons of renewable diesel capacity. It's not producing that yet, but that's what's there today.
You take a 3%-5% blend just in the mix there, and it can dwarf anything that we do today. So as we looked at it, at our portfolio and we said, "Okay, you know, if you're gonna look at Darling Equity today, I'm a significant shareholder.
I personally as the only CEO you'll ever get in front of you and tell you our equity's undervalued. But you look at the world and you sit there and say, "Why have we not been able to unlock the value of Darling?" And so we looked at it and said, "Well, many of you subscribe to the fact that renewable diesel is now in the ethanol 2.0 arena where they're gonna overbuild and there won't be demand." And we would tell you we don't believe any of that or we wouldn't have put our money in it. But if you believe that, okay, then we're gonna change the paradigm. Let's go to SAF. It is a much larger market. It is rapidly developing. And between Neste out of Finland and ourselves, there'll be, I don't know, 700 million gallons.
Do you know how many gallons have been pledged in the U.S., in North America alone by 2025? 11 billion gallons. You can go to the big airlines. They're all out there saying, "We're gonna buy a billion and a half, billion and eight." You know, so I just tell people, I said, "There is a day of reckoning coming, and we have the gallons. They're gonna buy it, and we're gonna be in great shape." If Port Arthur works as we plan it to be online sometime in early 2025, I hope, we're still waiting on permits. You can't ever control that. Then number one and two will go back and we'll add another, you know, 300-400 million gallons there of aviation fuel. But we see the transition aviation fuel as something that is not if.
It's just absolutely happening in front of you. There is a game of roulette, liar's poker going on right now. And I kinda just fundamentally believe there's gonna be a first mover. If you have the gallons, who's gonna buy them? Don't know if it'll be cargo or passenger, but somebody's gonna flinch and buy them. And we're gonna lock it up and have a really great time for the joint venture and for Darling.
Randy, that's a good segue to the feed segment maybe here. Can you talk about the dynamics that have impacted that business over the past couple of quarters and what your outlook is for 2023?
Yeah. I like for the audience, I always like to say so we don't dive too deep in the weeds, so the Darling proposition is, you know, like I said, 17% of the world's slaughtered animal byproducts. We go into a slaughterhouse and we say, "If you will separate the blood from the feathers, from the hooves, from the heads, from the horns, from the skins, from the bones, you know, we can come up with an aggregate value that no one else in the world can pay you for because we have so many different processes, you know, not to get into the highest and best use," so today, as we look at the slaughterhouses, we look at separating the most valuable piece in that slaughterhouse: anything that can be deemed food grade or edible.
That would be our collagen business that many of you would know. While we're not branded, we backstop many of the collagen peptide companies out there. One that we love dearly is Vital Proteins and help build that brand. We're in the collagen business. We will possess here about one third of the global capacity here and here as we get clearance on a Brazilian acquisition. A little bit of animal fat is left, edible animal fat's left in the food segment, as we call it. That fries chips in the U.K., still the best french fries ever. Little tiny retail brand attached to it. Then there's a sausage casings business that comes out of the porcine or the pork side. So if you can't eat it, but it's still deemed edible in the sense, but not for human. It's for feed.
That becomes the feed segment. That's predominantly pet foods, aquacultures, organic fertilizers, all kinds of different things. 11 million tons of the 17 end up there, as you can imagine, because the slaughterhouses wanna keep the valuable piece, and then they give us whatever's left over. That segment is the one, as we look back over the timeframe, had the most volatility. What we mean by that is it was clearly collect, transport, evaporate, separate fat from protein. Proteins, you know, if you say, what do they trade against? Predominantly soybean meal in the world. They go to animal feed or pet food or aquaculture. Proteins vary maybe $50-$100 a ton in any given year, driven by supply constraint or demand expansion, you know, predominantly in China today and the world.
But animal fats, that other 50% of that would move just wildly around. And so the feed segment had this giant volatility in it before we brought on Diamond Green Diesel to create value there. So that's kind of what's driving that now. You know, today Diamond Green Diesel system can procure up to two thirds of the U.S. waste fats and oils production. You know, as I joke with people, I think that makes us kinda there with Exxon Mobil, Saudi Aramco in that world if you wanna be king of that world. And then the other piece of the model that we talk about is if you can't eat it, you can't feed it, you gotta burn it. And that's the energy segment. And that's our green energy businesses in Europe.
Classically, our timing was impeccable as we started to build out our biomethane business in Europe for converting organic food waste. If you think about it, we're one of the largest trucking companies in the world today. Our stuff, because our raw materials, because of the way it is categorized in different parts of the world, is near hazardous by definition, and so it has to be, you know, dedicated trucking, and we got to looking at it and said, Americans take for granted you roll out your garbage container, and then you got your little blue box and you throw in some newspapers, some aluminum cans and whatever, some glass. In Europe today, there's industrial organic waste cannot go to the landfill.
They say, "What landfill?" And so we, we've built out a model there in green energy that's been very, very lucrative. You know, I, I give the benchmark out there that's kind of fun is, Shell just bought the Danish assets for $2.2 billion. I don't know if it was dollars or euros. We'll call it dollars and, and just say that that's about 45%. We're 45% the size of, of those guys. So we're a large biomethane green energy producer in Europe in the model. Those are the three models that are built up today.
Randy, you've been fairly busy over the past, call it 15 months with M&A. Maybe talk to us about what's been the strategy on the M&A side for you recently.
Yeah. You know, and I know for the analyst world, it's caused a bit of chaos. So as always, I apologize. But you know, if you look back at the business, 2005, we doubled the company. 2010, we doubled it again. 2015, a Canadian and European platform acquisition. Then here comes COVID on the birthday of 2020. So it took till 2022 to get the next opportunity. Really, if you think back to my first comments, we talk about businesses. These are family-held businesses in most cases. They're not public companies, or they're private. Typically they're event-driven opportunities that are a succession plan, a death, a health issue, or if they're part of another company, they're being liquidated for growth of another opportunity.
So, you know, this last year we had the chance to buy the number one competitor left in the U.S., the Valley Proteins, the Smith family. Two great brothers been, you know, my job is 30%, you know, as Chairman of the Board with my Directors. The other 70% is running around the world developing growth opportunities. And the Smiths were on the radar screen for eight years. And so finally the two brothers made a decision post-COVID after one almost died in COVID that it was time to go have some fun. And so we reached a deal there. It's been a big challenge, as always in bringing in family-held businesses and converting them to a public company. But we're making great progress. Also, eight years ago, we started on trying to buy the number one independent processing or rendering company in Brazil.
Had it bought three times. It makes for great barroom discussion sometime what happened. Guy turns 60 at midnight in Italy and he breaks out the, I don't know, Strega or whatever it was. I don't know. We didn't get the deal done, but it was about $200 million cheaper last time I had it bought. But it's great. We have the number one position there. And then here comes Miropasz. That's a three-plant system in Poland. Family situation again. The patriarchs moving on. And then Gelnex is the other one that hopefully we'll give you good news on closing here shortly on that. And that was a six-plant gelatin business, four in Brazil, one in Paraguay, one in Portage, Indiana. And the patriarch that I had been working with for many years, unfortunately his health declined rapidly.
Two children not in the business and said liquidate for the trust, and so that came a year earlier than we wanted it, Justin, but you take it when it comes, so next time it'll be now. What is this? It'll be 2027, 2028. I'll be 65 and I'll buy something else again, so.
So on that point, maybe Randy, talk to us about the balance sheet as it sits today and how you think about capital returns over the next couple of years.
You know, the many that have borne with me and listened to me, which they probably shouldn't have over the years. But I said there's really only one thing you can manage in the business, and that's the balance sheet. I mean, the rest of this is supply-demand-driven, regulatory-driven, mandate-driven, macro-policy, macro-economic, driven. But the balance sheet, we've always looked at when we acquire businesses. We've always said we wanna buy good businesses with good management teams, put a fair valuation on it, and then put a no-fail capital structure. That's code for if every assumption in your Excel spreadsheet's wrong, you haven't lost your job or your company. And so we've done that again.
I mean, for little people that have been around Darling long enough to sit there and say, you know, we've got, you know, we'll have $3.5 billion of debt here in another couple of weeks. It's a big number. And so people are looking at that and saying, well, this we've seen this business cycle before. And I would say, yeah, you're right. You have. And I've lived through it. And we've lived through it. But this time it's very different because of the, if you will, the countercyclical play in the renewable fuel area. So a very different company. We'll be levered 3.3x here in a couple of weeks. And we'll be down sub-investment grade by the end of the year. We've got such incredible cash generation.
So where we're looking at right now is we've got a big CapEx program for this year, $565 million. About 20%-25% of that is headed towards growth projects. We always build out additional factories, additional capacity for the plants that we've acquired to optimize and integrate them. And then at the end of the day, we'll pay down the debt. We'll be 2.7-2.8 by the end of the year. And we'll go from there. It puts us in 2024 then in a different world than of, you know, a free cash flow that should range between $800 million and $1 billion. We'll be debt-free at Diamond Green Diesel. We'll have our big CapEx program behind us. We'll be integrating with the new company. And it's just really gonna transform, I hope, people's view of this company going forward.
Folks, any questions in the audience here? Please.
Yeah. So Vital Proteins, Nestlé's your biggest customer. And I'd like to know how much of Vital Proteins business is Nestlé. And then are there any other big customers that are?
Yeah. It's fascinating. I'll, you know, talk to you in the degree I can. But, in the sense of, you know, number one, collagen peptides, you know, I don't think are a fad out there. I don't know how many people take them today in the form of Vital Proteins, Garnier, and a whole bunch of other products. There's Gatorade, Bolt, L'Oréal. And the face creams now have collagen in it. You know, the concept was that Kurt came to us about eight, nine years ago and said he was a NASA scientist. And he was running or jogging with one of our salespeople that were friends. And Kurt's joints hurt. He did his own research and said, "Hey, can you get me? Can you guys make this stuff?
I heard you were." You know, he started being a consumer of his dream. And that's where Vital Proteins was born. Kurt's now in Aspen. I'm still working. It's interesting. Then about two years ago, I think, Nestlé came in and acquired a significant portion. I don't know the exact percentage. It's not public, and they are now wanting to take the product globally. We have been limited to really serving Vital because of their growth has been so fabulous. For us, it was a product mix from gelatin, which is really a commodity. If you think of what's the difference between gelatin and collagen peptides, they're all collagen. So you start at the top of the pyramid as collagen. If you use one process and dry it, you get gelatin. What's gelatin? It's an emulsifier or a thickening agent.
Most of you would know it in two forms today. If you took a gummy bear today, that's collagen. That's gelatin. And if you took that, Advil for the hangover from last night, the gel cap around it, that's gelatin. So that's how you would know the business. Collagen peptides by nature have been hydrolyzed, meaning smaller particles, spray-dried. Ultimately, the molecule's been flipped a little bit, but it becomes water-soluble. So the application breadth, depth becomes really huge compared to a thickening agent. So what's it replacing? In a lot of cases in sports and nutrition today, whey. Dairy whey. And it's been linked to hair growth, nail growth, skin beauty, joint lubricity. You're seeing the big food companies and even the pet food companies now pick it up and put it on the label. We're excited.
You know, obviously when you do business with Nestlé, it's a global giant, probably one of the that and Unilever and Mondelēz, the big powerful marketing networks of the world. They have a dream for it and that's what drove our Gelnex acquisition because we were out of capacity to meet their current needs, let alone their dreams.
Any others?
When you have a need to send them to different things, too.
We do. We're excited about it. And that's part of the Gelnex acquisitions that there's a half dozen other companies that we want to diversify with. You know, when you know, we got pretty good exposure to a company that likes to have two suppliers. And we have a very unique position with them given the product qualities that we've been able to create that really work well on their products. But I'll also share with you that the exciting part of the collagen business is what I'm gonna call the phase two and phase three. We now have under patent different biomedical processes and products, meaning wound injection. Collagen helps wounds heal quicker. It allows for different other attributes in the body. We're seeing, you know, a product that can replace insulin now, possibly.
We're doing research at the University of Berlin. We've grown, believe it or not, off of collagen. We've grown pancreases for diabetes research. So really we think in the collagen peptide world, I always get screwed up. I think there's 28 amino acids within the peptide. We have 27. We don't have tryptophan in there. Otherwise, we'd be the full deal out there. So it's really an exciting world as we go forward. Don't wanna leave anybody with the belief we're going down the pharmaceutical biomedical route. We're an ingredient company, and we will find somebody to help us commercialize it.
Randall, please. Yeah.
You're gonna have to speak up. So, you know, I'm the one that, you know, I started on and I said we were green before green was cool. The mantra for the global team has always been, it's gotta be good for the planet. It's gotta be good for the people doing it for the planet. And you gotta make a profit. So we always called it the Three Ps. You guys renamed it ESG. So as we look at the world. Yeah. We look at the world differently and very simply. And the governance side, we've always been, you know, a 1.0 with the ISS and Glass Lewis. You know, we're just a well-run board company today.
The S side, clearly in the biodiversity side and trying to, as a global team, we've got a lot of work to do there. We've left, you know, 270 cities in the world. You kinda leave, you know, kinda the local community relations to the local team. We've gotta pick that up a little bit. We're making lots of progress in that area, 'cause we have to be a great citizen. This, you know, these are businesses that may do some great things. But if they're not run properly, you really don't want us being your neighbor. We don't smell very good. So, you know, we always have to be honest. And we have to be on the offense before we're playing defense, especially from that side. The environmental side is really fun for me.
I'm gonna give you three different or four different perspectives on it. One, you know, we what do we do for a living? We create water. You know, if I'm in a bar and they say, "Hey, what's the number one product Darling makes?" I say, "Water." We, we transport water. We evaporate water. We treat water. And then we pay somebody else to get rid of it. Kind of a stupid model. But so we've gotta figure out how to reduce the water intensity in our business today. My dream before I, head to the clubhouse one day is that my water becomes deemed potable. There's no reason through all the technology today, I can't use that water back in human processes. Other than regulation, what's the regulation? The municipality wants my clean water to dilute your dirty water and charge me for it.
It's an economic circle here that we've gotta change the paradigm. Energy, we've gotta figure out how to take energy out of this. I mean, obviously, I've lived through, you know, three or four cycles in natural gas and energy in the world. You know, obviously the Ukraine situation again made people realize that energy intensity is something that you have to pay attention to. For Americans, you know, we; energy's so cheap, we never pay attention to it, until it spikes up. And then all of a sudden it gets a little attention. And then, oh, by the way, natural gas is back to 2020 levels, $2 an MMBtu again. But, you know, as we look at the world environmentally, our world, and I was telling Justin this the other day, we look at a couple of things.
If you wanna say, "What's the other dream?" I want our shareholders to be credited for carbon avoidance. And if you think about it, we have an option. I can take 17 million tons, 17 million tons of bones, guts, feathers, blood, and dump it in the landfill. And I can get paid for it. I probably have a better return as an ROIC than I do today. That's not the right decision. But I don't get a carbon credit for it. I don't even get credit for it because it's under the additionality principle. We haven't done anything new. We've been doing this for 141 years. The other piece is we, you know, 1.2 billion gallons of Diamond Green Diesel, renewable diesel, or will be whatever it is, 800-950 gallons of renewable diesel, 250 of SAF. Guess who gets the credit for that? The oil companies.
Even though we made it, they distribute it. So under the way the world's defined today, we don't get accredited for the carbon handprint. In that case, as I call it, nor do we get the carbon avoidance. So, you know, as I look at it, we've got the water issue I wanna deal with. We've got the carbon avoidance and the carbon handprint. And I hope, you know, we can be that company when you look at the ESG world and say that that's really a company that does right things and can make money at it and fair returns for their shareholder or attract capital.
Folks, please join me in thanking Randy for coming here today, and we'll be downstairs in the breakout session.