Good morning, and welcome to the Darling Ingredients Inc. Conference Call to discuss the first quarter 2026 financial results. After the speakers' prepared remarks, there will be a question-and-answer period, and instructions to ask a question will be given at that time. Today's call is being recorded. I would now like to turn the call over to Ms. Sua nn Guthrie, Senior Vice President of Investor Relations. Please go.
Thank you for joining the Darling Ingredients first quarter 2026 earnings call. Here with me today are Mr. Randall C. Stuewe, Chairman and Chief Executive Officer, and Mr. Robert Day, Chief Financial Officer. Our first quarter 2026 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, or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors discussed in today's press release and the comments made during this conference call and in the Risk Factors section of our Form 10-K, 10-Q, and other reported filings with the Securities and Exchange Commission.
We do not undertake any duty to update any forward-looking statement. Now, I will hand the call over to Randy.
Thanks, Suann. Good morning, everyone, and thanks for joining us. Over the last few years, public policy uncertainty and deflationary and volatile commodity markets created a challenging operating environment. During that time, Darling Ingredients remained laser-focused on controlling what we could control. We prioritized operational excellence and maintained strict disciplined capital allocation with a goal to achieve a meaningful debt reduction. Headwinds have now shifted, and the results we share today confirm a much more favourable operating environment. We're moving forward with significantly improved earnings power, stronger cash flow potential, and a more robust foundation for long-term value creation. For the first quarter of 2026, we saw the operating environment allow for expected EBITDA growth and sequential gross margin improvement. Darling's core ingredients business really delivered this quarter with improved global operations, margin expansion, and focused commercial execution.
Combined Adjusted EBITDA for first quarter was $406.8 million, including $255.6 million from our global ingredients business and $151.2 million from Diamond Green Diesel. Our feeds ingredients segment had a fantastic quarter. We saw steady volumes with the strong global poultry volumes offsetting stagnant North American cattle herd. Operational excellence remained a key focus this quarter, driving improvements in throughput, cost reduction, and product quality that translated into stronger gross margins. At the same time, our commercial agility allowed us to pivot sales to higher-priced markets. While fat prices were softer earlier in the quarter, our disciplined risk management approach, combined with spot sales, helped us mitigate the typical lag impacts we would see in that environment. The Renewable Volume Obligation announced at the end of March has been extremely constructive for Darling and DGD.
We're already seeing a favourable movement on fat prices as renewable diesel demand grows. DGD overcame a shutdown at Port Arthur that briefly interrupted our supply chain. As those dynamics continue to play out, we anticipate this to be a nice tailwind for our feed segment for the remainder of 2026. Turning to our food segment, we're seeing nice growth in collagen, particularly in Europe and Asia. Sales in both collagen and gelatin improved year-over-year, reflecting not only increased customer demand, but new applications for collagen in food, nutrition, and health products. Our Nextida GC product is currently pending a patent in both in the U.S. for production processes and the use of Nextida as a dietary supplement ingredient, offering a non-pharmaceutical option targeting lower blood glucose.
With an interest in food as medicine and increased demand for protein, collagen continues to be positioned well for growth. Now, as you can see in our results, our fuel segment is at an inflection point as renewables margins turned a corner with finalization of the Renewable Volume Obligation. With a very constructive RVO and now a clear path forward, we expect DGD's results to continue to strengthen throughout the year. Diamond Green Diesel delivered a strong quarter with $151.2 million of EBITDA or around $1.11 EBITDA per gallon. Our non-DGD green energy businesses continue to deliver stable earnings and will have the opportunity for a slight tailwind due to increased energy prices in Europe. Now with that, I'd like to turn the call over to Bob to take us through some financials.
I'll come back and discuss my thoughts on the second quarter. Bob?
Thank you, Randy. Good morning, everyone. As Randy said, first quarter was very strong across all measures. The Darling platform is poised to move forward with significantly improved earnings power. For the quarter, combined Adjusted EBITDA was $407 million versus $196 million in first quarter 2025 and $336 million last quarter. Core ingredients non-DGD improved both year-over-year and sequentially. For first quarter 2026, core ingredients EBITDA was $256 million versus $190 million in first quarter 2025 and $278 million last quarter. Total net sales were $1.6 billion versus $1.4 billion. Raw material volume was 3.8 million metric tons, essentially unchanged.
Meanwhile, gross margins for the quarter improved to 26.1% compared to 22.6% in the first quarter last year, and from 25.1% last quarter. Looking at the feed segment for the quarter, EBITDA improved to $169 million from $111 million a year ago, while total sales were $985 million versus $896 million, and raw material volume was flat at approximately 3.1 million metric tons. Gross margins relative to sales improved nicely to 25.3% in the first quarter versus 20.3% in the first quarter from last year and 24.6% in the fourth quarter of 2025.
In the food segment, total sales for the quarter were $405 million compared to $349 million in the first quarter of 2025. Gross margins for the food segment were 28.9% of sales compared to 29.3% a year ago, and raw material volumes were flat at around 330,000 metric tons compared to the same time last year. EBITDA for first quarter 2026 was $81 million versus $71 million in first quarter of 2025. In the fuel segment, starting with Diamond Green Diesel, Darling's share of DGD EBITDA for the quarter was $151 million, which includes a favourable LCM inventory valuation adjustment of $97 million at the DGD entity level and sales of around 272 million gallons, an average EBITDA margin of $1.11 per gallon.
Darling contributed approximately $190 million to DGD during the quarter, mainly to provide short-term working capital, most or all of which is expected to be returned in subsequent quarters. In addition, during the quarter, Darling monetized $45 million in production tax credit sales, the proceeds of which will be paid in the coming quarters. Other fuel segment sales, not including DGD, were $160 million for the quarter versus $135 million in 2025 on strong energy and biogas prices in Europe and relatively flat volumes of around 370,000 metric tons. Combined Adjusted EBITDA for the full fuel segment, including DGD, was roughly $180 million for the quarter versus $24 million in the first quarter of 2025.
As of quarter end, total debt net of cash was approximately $4 billion versus $3.8 billion ending fourth quarter 2025. The increase in debt results from contributions to DGD mentioned earlier and timing of production tax credit payments, some of which will come in the second quarter. Capital expenditures totalled $95 million in the quarter. Our bank covenant preliminary leverage ratio was 3.17 x as of quarter end versus 2.9 x at year-end 2025. In addition, we ended the quarter with approximately $1.1 billion available on our revolving credit facility. We recorded an income tax expense of $38.6 million for the quarter, yielding an effective tax rate of 22%.
That rate, excluding the impact of the production tax credit and discrete items, was 32%, and we paid $20.5 million in income taxes in the 1st quarter. For 2026, we expect the effective tax rate to be around 25% and cash taxes of approximately $60 million for the remainder of the year. Overall, net income was approximately $134 million for the quarter or $0.83 per diluted share compared to a net loss of $26 million or -$0.16 per diluted share for the first quarter of 2025. Last quarter, we mentioned that we have some assets held for sale that are not considered strategic for our business. Those asset sales continue to move forward but have not yet closed. Of those, we have signed an agreement to sell the majority of our grease trap environmental service assets.
The sale is pending some permitting transfers, which we expect to be completed in the next few months. We'll have more to say about the trap and other businesses for sale at a later date. With that, I will turn the call back over to Randy.
Thanks, Bob. In closing, the progress we shared with you today reflects the discipline and focus we have maintained through a challenging cycle. By controlling what we could control, driving operational excellence, prioritizing capital, and focusing on balance sheet strength, we positioned Darling Ingredients to emerge stronger. With improved but volatile market conditions and a much-improved regulatory framework, we believe the company is entering its next phase with momentum that we expect to build as the year progresses. We believe that as the year progresses, we'll drive improved earnings, stronger cash flow, additional debt reduction, and long-term value creation for our shareholders. Ultimately, our improved performance will once again provide the company with many opportunities. This confidence is reflected in our Core Ingredients EBITDA guidance for Q2, which we are now setting at $260 million to $275 million for the quarter. With that, we'll go ahead and open it up to Q&A.
Thank you. We will now begin the Q&A session. If you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to remove that question, press star followed by two. Again, to ask a question, press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking a question. We will pause here briefly as questions are registered. Our first question comes from the line of Heather L. Jones with Heather Jones Research LLC. Heather, your line is now open
Good morning. Thank you for the question. I was just wondering on, first of all, on Diamond Green Diesel, Do you expect that to reverse in Q2, or will that take longer throughout the year?
Thanks, Heather. This is Bob. We did realize a lower cost of market benefit in the first quarter. You know, I think just to make sure everyone's aware, in order to have the opportunity to realize the benefit and lower of cost or market, you have to have previously taken a loss from that. This quarter, that $97 million at the DGD entity level, that exhausts all available lower of cost or market. Going forward, as long as the business is profitable, we do not anticipate any lower of cost or market benefits. To your question of LIFO, you know, the LIFO will be based on an average cost paid for feedstock during the period.
As the average price increases, if it increases, then we would realize a LIFO loss that is embedded inside of the results. If feedstock prices on average decrease, then there would be a LIFO gain. Really the answer to your question depends on your view of feedstock prices as the average cost of feedstocks paid in the period in question relative to the period prior.
What about on the hedging side?
Yeah.
Yeah.
Hedges, I guess what I can say about that is at DGD, we do hedge. We're, you know, very disciplined about hedging. There is some flexibility in terms of which instruments we use to hedge our risk. We don't, you know, we don't disclose that for competitive reasons. You know, I think what you can point to this quarter is that, you know, clearly we had a significant increase during the period in heating oil futures, in crude oil futures, in soybean oil, whatever, you know, whatever sort of instrument you're looking at. You know, we managed to absorb the cost of whatever hedges we had and still put out a very positive result. You know, I think it just speaks to the risk management capabilities of the business.
My follow-up is just given the volatility we're seeing in the energy markets and the feedstock markets, this question seems pretty particularly relevant. I was wondering if you could update us on how we should be thinking about the lags in your model, both core DAR and Diamond Green Diesel. I remember at one point it was more like 30 to 60 days, and then I think it increased to 60 to 90 days. If you could just update us on how we should be thinking about that.
Yeah, Heather, this is Randy. Clearly, you've kind of framed it pretty well. I mean, what we saw in Q1, remember, as we came out of Q4, if remember, we had forward sales into DGD getting ready to run full, that were put on in October, as we anticipated the RVO. Then we saw prices soften as the RVO kept getting kind of delayed and delayed. Ultimately, as we came into Q1, cash prices, FOB, the most of the North American factories were actually flat or lower than Q4. Those have now accelerated. They started to accelerate in really here in March for us. That'll start to flow through very nicely in Q2.
When we look at our global rendering business, what we've seen is the tariffs have impacted Brazil pretty sharply. We've had to adjust all of our formulaic or our pricing models down there, what we procure raw material from. That takes 30 to 60 days. I think we've righted that now. Overall, the ingredients business will have a stronger Q2. How much of the acceleration in prices flow through? That would be reflected in our kind of our conservative approach to guidance there. You know, remember, as I was telling the team here, this is the first call we've done where we haven't ever seen period one of the next quarter, and we won't see those numbers for another week or two, week and a half.
Ultimately, really, we're looking at basically a March run rate and extrapolating out with some improvement. You'll see that. Conversely, as DGD has done a very nice job of getting out in front of this. I mean, we've had a strong bias that feedstock prices would accelerate once the industry wakes up. You know, that should flow through in much better margins in DGD as we go through Q2 and through the balance of the year.
Thank you. Our next question comes from the line of Thomas Palmer with J.P. Morgan. Tom, your line is now open.
Sorry, was on mute. Hi, it's Tom. Morning. Thanks for the question. Maybe start out with an industry question. Especially when we think about the biofuel side, there's probably a good amount of idle capacity. I wonder what you think the U.S. biofuels industry is capable of producing currently, then once kind of it fully ramps, whether that's going to be enough to kind of fulfill mandates, or if we do need to kind of shift to imports even with the maybe less favourable tax treatment. Thanks.
Thanks, Tom. This is Bob. I mean, look, the first thing I'd say is, you know, we do believe that quite a bit of biofuel capacity is back online. You know, margins are attractive enough to bring a lot of that back. There's still an opportunity to bring some more. Ultimately, to answer your question about what we're capable of, it's, you know, it's gonna depend a lot on run rates as well as just kind of bringing idle capacity back on the market. I think as everyone knows, keeping a renewable diesel unit up and running is, you know, it's got its own challenges to it and circumstances. It's gonna depend a lot on that.
Bottom line is, you know, we think that the industry is capable of meeting the mandate of the, or the demand of the RVO. It probably is a combination of some of the things you talked about. It will include some imports of fuel, probably fewer exports, as the U.S. market margins need to just incentivize U.S. production to stay in the United States. When you put all those things together and, you know, adding capacity and running hard as an industry, and you look at what we did in 2024, you know, it's reasonable to expect that we can meet the demands of the RVO.
Thank you for that. A follow-up on second quarter expectations. When we think about 2Q, what are kind of the key drivers of the increase in terms of EBITDA in the base business? Is it mainly just higher market prices in terms of fat? Does that range contemplate where prices are today or that there are any changes relative to that run rate? Thanks.
Yeah. There's always a bit of seasonality in the business here. You know, I've always said when the ballparks open, at least in North America, you'll see a few more in barbecue season. Really at the end of the day, raw material volumes globally are strong, and very strong in South America. Poultry volumes in the U.S. are exceedingly strong, while the downside of that is the cattle herd is really stagnant and at a 75-year low. What's relevant about that, Tom, is that remember you know, it's just like the red meat/white meat discussion here. Red meat has more fat. You know, we can process more poultry and still not make as much fat as we were when we were running all the beef.
A little less fat into the discussion. As far as the modelling of guidance here, like I said, that's really March, extrapolated with some improvement, that's out there, you know, clearly towards the, you know, fat prices are exceedingly much higher than they were in Q1 cash prices right now, and we're out there selling it. You'll see that flow through. How much goes into Q2 versus Q3, we will see, but we're clearly picking up some speed there. The Rousselot business is doing quite well around the world right now. Gelatin and collagen margins are good. Remember that business, remember 80% of that by-product that comes out of that business is fat and protein, and so it's filling a benefit.
We're seeing, you know, the tariffs had their impacts on our, we're gonna call our specialty proteins business, and those markets are back open again with the lower tariffs. We're seeing a nice improvement in protein prices. Clearly, you know, fat prices, you know, I think the DGD bid right now today is close to $0.80 a pound. Those are big numbers that are down there right now. And those are up anywhere from $0.20 to $0.25 from where they were in October, November. That will start flowing through very nicely here as we get towards the end of the quarter.
Thank you. Our next question comes from the line of Pooran Sharma with Stephens. Pooran, your line is now open.
Good morning and thanks for the question, and congrats on posting, you know, really strong results. Maybe just on fuel here, and DGD and really just RD. What are your thoughts on kind of diesel prices, in regards to kind of what extent you think there are structural constraints, whether infrastructure, refining capacity, or even just intermediate-term logistics that could keep diesel markets tighter for maybe longer than people were anticipating?
Sounds like a question for our partner, Valero Energy Corporation, than us. Bob, you'll take a shot at that.
I mean, I, you know, I look, I think we're not really qualified to answer questions about diesel capacity and constraints and things like that. I think what we can point to is just an increased cost of the raw material inputs that everyone is using to make, you know, fuel energy products. You know, I think what's interesting from our perspective is just how much tighter today renewable fuels are in total cost relative to conventional fuels and sort of what this conflict has done in terms of bridging the compliance gap in the RVO, I mean, ultimately, I think we fully expected that we would see the margins that we're seeing today in the market.
We thought that it would perhaps take a little bit more time until compliance dates sort of force convergence and cause that margin to occur. This conflict, you know, and the higher energy prices underlying all of this is allowing margins in renewable fuels to sort of move to what they probably should be as a result of a strong RVO, and it's just allowing it to happen more quickly. It's also, I think, showing the world that, you know, renewable fuel is an important component of total supply, and if without it today, we'd have much higher prices of conventional fuels.
Yeah. I think the other thing that Bob highlights there is, fossil diesel or conventional diesel in Scandinavia is $10 a gallon, and in the Netherlands it's $12 a gallon. RD is actually cheaper by almost 25% today. The industry's gonna run as hard as it can. What's special about RD is it can be used neat or at 100%. You're gonna see anybody that can produce RD running at full capacity right now. You're also seeing a lot of other countries in the world that are producers of fats and oils that can use fats and oils within their energy system.
Meaning the palm oil, you magically start to see palm oil disappear back into energy when the price per barrel gets to where it's at right now. Usually it starts when it's about $80 a barrel. Clearly there's a huge incentive right now globally to continue to move fats into energy. You know, that's gonna keep the world feedstock markets pretty constructive till things back off.
Great. Appreciate the color. Just maybe just shifting to the balance sheet, wanted to understand I know you're not guiding to DGD, but just kind of the implied step up in EBITDA, in just the overall business. I think that leverage should just come down naturally, wanted to get a sense of how you're thinking about actively de-leveraging versus allocating capital elsewhere.
This is Bob. I think, you know, we've been pretty clear in recent quarters that, you know, we're focused on paying down debt. We've talked a lot about trying to get our debt down below $3 billion. You know, we're still committed to that. We do have an Investor Day on May 11th, and at that time we're gonna be able to talk more about what our capital plans are. I think what I'll just summarize right now is just to say that we're, you know, we're focused on getting that debt number down to about $3 billion. At that point in time, that opens up a lot of potential options for Darling in terms of, you know, what we do going forward.
It'll depend on what our outlook is when we get there, but we're certainly very encouraged by the EBITDA run rate that we see from the first quarter and what we're expecting for the balance of the year. You know, we think we'll get down to that $3 billion number relatively quickly. At that point in time, you know, we think the outlook is still gonna be very strong.
Thank you. Our next question comes from the line of Manav Gupta with UBS. Manav, your line is now open.
Good morning. I actually wanted to ask a little bit of a policy question. You know how EPA is proposing starting 2028, you get 50% RIN on foreign feedstock? I'm just trying to understand whether it's positive for DAR if that goes through. I mean, your domestic UCO and tallow would price higher. I think some of the other competitor facilities which are overly dependent on foreign feedstock might be forced to quit the business. At the same time, I think you are also importing a little bit of tallow through FASA for some of your plants. I'm just trying to understand the puts and takes if this policy change does go through and you only get 50% RIN for foreign feedstock.
Thanks, Manav. This is Bob. I think the answer to be able to answer that question, you know, we'd also need to understand what the tariff structure is at that point in time. You know, I think if we're looking at a 50% RIN and there are no tariffs, no origin tariffs, on any of the feedstocks that we're importing, then it's going to depend on what is the demand for those feedstocks outside the U.S., and does the value of those international feedstocks adjust for that 50% RIN and the 45Z credit?
You know, ultimately, if the U.S. is the strongest market at that point in time and international feedstocks discount themselves so they can be competitive coming into the United States, then we see all of it as a, as a pretty big positive for Darling because it would be very supportive to our U.S. and Canadian feedstock prices and the DAR core business, but it would also give DGD access to international feedstocks to be able to, you know, make fuels, sell those into the United States or re-export for anywhere else. It's gonna really depend on the dynamics and, and what's happening, you know, with fuel markets and feedstock markets outside the United States. Overall, we don't see it as a negative.
Perfect. My second quick question on 2Q guidance and where the street is. When we look at the street numbers, checking are closer to $440 in your guidance. Just to get to that guidance, street estimates versus your guidance, DGD would have to give you about $170 million, that's roughly my calculation. Given where their margins are on DGD, it seems very possible that DGD could easily give you $170. If you could talk a little bit about your guidance versus where the street is on 2Q, I'll be very grateful.
You know, I think, Manav, we're, you know, we're, we won't guide DGD. You know, I think, you know, we did say we expect 320 million gallons, you know, for the quarter. You know, we are willing to say that we think that 2Q at DGD will be stronger than the 1Q. If you kind of put all that together, I think, you know, what you're saying and backing into is doesn't sound unreasonable. There isn't a lot more we can say about that in DGD's numbers.
Yeah, I mean, Manav, this is Randy, and Bob said it really well. I mean, you know, the DGD margin environment is constructive right now. It's still sorting its way out. We're running at capacity. 320 is the gallon that we're gonna put out there for 2Q. Then I suspect, 2Q earnings power is greater than 1Q, and 3Q will even be stronger. You know, but life is pretty good there right now and, you know. We've just kind of opt to kind of stay away from trying to guide because it's very difficult because of timing, et cetera, of sales and then feedstocks.
Thank you. Our next question comes from the line of Derrick Whitfield with Texas Capital. Derrick, your line is now open.
Thanks. Good morning, all, congrats on the strong quarter. For my first question, I wanted to start with feed. Since March, we've seen a near $0.20 per pound increase in waste FOGs, as I think you highlighted earlier, Randy. While I understand your rendering contracts include purchase price considerations for downstream value, how should we think about the strength of waste FOG realization flowing through to higher EBITDA from a price sensitivity perspective over the course of the year if prices remain elevated?
I think we kind of, Derrick, tried to address that. I mean, clearly, obviously, I'm reverting back to I haven't seen April yet, so to see how it's truly flowing through. What I can tell you around the world is Europe has been truly lagging from where the U.S. run-up has happened because it's, you know, it's now a domestic feedstock game. South America got impacted very hard due to the tariffs and also higher ocean freight. As we always look back, why we built DGD was to own the arbitrage between animal feed and fuel. Animal feed value today is less than $0.30 a pound and fuel prices are, you know, north of $0.70 a pound FOB.
Clearly we've made the right decision there. What we're going to see is as we go into May and June, you will start to see a lot of that flow through. I think we're calling a bottom now in Brazil. We've kind of figured that one out. We had to adjust our spreads. It's a spread management game. In Europe, much more resilient, but it's starting to move up. I've seen South America move, you know, in the last three or four sales up, you know, $50, $100 a ton from the start or mid, you know, really start of April. You know, that'll start to flow through.
That's where I would categorize the guidance that we're putting out there on the core business as potentially somewhat and very conservative right now. Till we see how it flows through, you know, it's kinda hard to call right now. Protein prices have improved. Rousselot, you know, because the tariffs are down, we're having some improvement all across the line. Our biogas businesses in Europe are very strong right now. I mean, it's really the tailwinds are building right now. We're just trying to, you know, maybe we're a little gun-shy would be, is what I'd say right now from the last couple of years. We'll see what they flow through here.
Perfect. Maybe shifting over to DGD. Given the higher diesel and jet crack spreads we're seeing really outside of the U.S. but across the world, how are you viewing the international markets relative to what you can net in the U.S.? If favorable, what degree of flexibility does DGD have to further increase sales into those markets?
Thanks, Derrick. This is Bob . DGD has always maintained a lot of flexibility and agility in, you know, in terms of markets it can sell to. We have seen, you know, very attractive opportunities all around. I think, you know, DGD has been a consistent exporter. We expect that to continue. I think when you look, you know, looking forward, and the strength of the RVO in the U.S., it really points to a U.S. market that should continue to increase in margins and keep barrels inside the United States. I think over time, we'll see the market create that. It won't be because of, you know. It'll be market driven and that's what we're expecting to see.
Thank you. Our next question comes from the line of Dushyant Ailani with Jefferies. Dushyant, your line is now open.
Good morning, everyone. Thanks for taking the question, and congrats on a strong quarter, guys. Maybe, I know the focus has been on RVOs. I just wanna pivot a little bit to LCFS. We know pricing has been weak. It's starting to trend a little higher. Wanted to just get your thoughts on, you know, how you're seeing the California market evolve through the course of the year maybe?
Thanks, Dushyant. This is Bob. LCFS, it's an interesting market. It's a dynamic and hard to understand, quite frankly. I think what we saw initially, immediately after the RVO was, you know, an increased amount of production and more sales into California. On a very short-term basis, we created some more credits there than at least at a rate that was a little bit higher than what we had. The reality is California's only got around 3.6 billion gallons of total diesel demand. 300 million to 400 million of that is gonna be satisfied with biodiesel. There's probably a little bit of conventional diesel that's gonna always stay there.
You're looking at kind of a 3 billion gallon demand market for renewable diesel, and the RVO essentially mandates more production than that. If you add up all the LCFS programs in the U.S., the RVO is larger, and certainly when you include imports as well, it's larger than all those LCFS programs. We do think we're going to have a lot of supply into those states. We can't satisfy all of the requirements from the California Air Resources Board just with renewable diesel. What we expect is we're going to see LCFS credits continue to increase in value, and we'll probably see renewable diesel trading, you know, at a discount into California, because it's going to be offset by LCFS premiums. It's a complicated one though, but it's a long way of saying we think LCFS credit premiums are gonna increase.
Got it. Thank you. My follow-up, maybe just going back to the core business. I know you guys have been, you know, margins have been strong in one. Can you guys give some thoughts there? Maybe, how do we think about, obviously pricing, you know, expectations are, you know, expected to be elevated? How do we think about, margins across the board, you know, feed, food as well? How does that kind of, you know, shake out? Maybe operationally, if there are any tweaks that you guys are making, if you can, you know, talk to that.
Yeah. When, you know, if you look across the ingredient portfolio and kind of little bit right to left in the Fuel segment, non-DGD, very much an annuity business, but it's gonna get a little bit of lift from the biogas business in Europe and as we move forward through the year. Rousselot, very much a predictable, more closer to consumer type business. Somewhere we're getting some tailwind there now as global collagen demand is really picking up. You know, when you make, when you do the extraction, you make a raw material or a feedstock, then you can make gelatin or collagen. As you defer or direct it to the collagen pipeline, you then take it away from the gelatin.
Ultimately, we're seeing some improvement there because gelatin margins came under some pretty significant pressure the last couple years due to some capacity additions in South America and China. Ultimately, we look at that segment as pretty stable, maybe a little bit of improvement. Clearly, the feed segment has the most commodity exposure. It's really just, as we say, a timing exercise right now on how the better proteins and fats on the three big rendering continents of North America, Europe, and South America all start to flow through. You'll see some additional, what I'm gonna call margin expansion there.
I think that that's really the thing that Bob and I feel so proud about is the businesses in the rendering side are really operating at a high level of capacity and efficiency right now. Any of the challenges that we had in the prior years, I think are behind us now, or I believe, I know they're behind us, and we're really starting to do well. The only downside, if we look back at years when there were, you know, commodity uplifts like this, you know, we've got less beef in our system today than we've had in the past. Like I said, a chicken is less fat than red meat. You know that you won't get 100% of what, you know, if you're trying to extrapolate prior years, but it's still gonna be darn good. It should accelerate throughout the year here.
Thank you. Our next question comes from the line of Andrew Strelzik with BMO Capital. Andrew, your line is now open.
Hey, good morning. Thanks for taking the questions. I just wanted to follow up on the kind of the internal improvements in the base business. Is there a way to kind of frame or quantify how much better your plants are running, how much more margin opportunity there is relative to the last time we saw fats prices at these levels, kind of net of what you're saying on beef versus chicken?
Thanks, Andrew. Yeah, this is Bob. I think, you know. Probably when you think about like the operations of our business and you, and you point back to 2022 and 2023 and the large acquisitions that Darling made with Valley Proteins, FASA and Gelnex. You know, the, the operations and sort of understanding how these assets all fit together are probably manifesting themselves most right now in the form of the high-quality proteins that we're making and the premiums we're able to capture because of the markets we're able to reach, whether it's high-end pet markets or high-end international markets. As, as those operations have come together and we understand the quality and demonstrate the consistency that we're able to produce, we're able to hit those markets more consistently. Same is true for the Gelnex acquisition and Rousselot.
This is a very complex global supply chain and our ability now to really leverage the value of these assets by, consistently meeting customer needs, moving product, you know, internationally from Brazil or wherever in the world to the Europe and the United States. We've really been able to identify what are the right origins and destinations and get maximum value out of that. You know, the value that you see is it's really incremental quarter-to-quarter. You know, a lot of what's sort of underpinning the strong results that we've had and what we're expecting as we go forward is improvement in our own operations and coordination. You know, it isn't just market tailwinds.
Okay. That, excuse me, that's helpful. I also wanted to ask on kind of the RIN outlook generally, and I appreciate that there's a lot of focus in the market on the near term right now. I would just be curious to kind of get your perspective on the RIN landscape beyond 2026, now that we have the RVOs, and kind of how you're thinking about comparing what the environment could look like then versus what we're seeing today, how much of a kicker that could be versus kind of where we stand today now that we have, you know, formal policy in place. Thanks.
I mean, right now what we can see out as far as, you know, through to the end of 2027, that's the RVO that's in place. A lot of the answer to your question, it's gonna depend on, you know, global prices of fuel energy, conventional energy. It's gonna depend on tariffs. It's gonna depend on how well the industry performs in the U.S. and the amount of production and supply that we create for the market. All of those things, you know, I'd really have to know the answers to those to answer the question about where RINs are gonna go. What we do see when we look at this RVO through 2027 is that the industry needs to produce, it needs to run really hard.
Even when it does, margins need to remain very strong in order to continue to incentivize all of the players to make enough product to meet that RVO. You know, that's the picture we see. Bottom line is RINs need to play their role in all that to be the great equalizer that creates a good renewable diesel and sustainable aviation fuel margin.
Thank you. Our next question comes from the line of Ben Kallo with Baird. Ben, your line is now open.
Hey, guys. Thanks for all the information. Just a couple questions on the food business. Could you just talk about progress there with JV and then just like with a larger partner for the peptide side of the business? Randy or Bob, just on the acquisition front, you guys commented it last quarter that there was some smaller acquisitions, but just use of proceeds of cash, if you give us an update there. Thanks, guys.
Starting with the joint venture agreement that we've signed with Tessenderlo Group and we're hoping to close sometime soon. I think, you know, we've been pretty clear that we're in an antitrust review process, and that's really what, you know, we need to get through before we're able to close on that deal. You know, look, we've never been more excited about the potential of forming that joint venture, you know, than we are right now. We continue to see significant increases in demand for hydrolyzed collagen. We continue to develop, you know, science and technology around the Nextida portfolio of products.
What PB Leiner, the Tessenderlo Group business would bring, the overall Darling collagen business is added capacity that enables us to really efficiently utilize what they have and be very cost-effective in production and continue to increase sales to really feed into this strong and growing collagen market. They also offer, you know, the opportunity to originate product and raw materials in a couple of countries where we don't have presence. You know, it all allows us to continue our growth without having to, you know, invest a lot of new capital and which also takes time to add that capacity. That's still going forward. We're still in this process, and we hope to conclude it, you know, sometime soon.
The proceeds that we used before that I think you're referring to is, we participated in an auction to buy three rendering assets from the Patense Group in Brazil. This was a really fantastic opportunity through a Chapter 11 process for us to add assets that fit very well with the FASA network of assets that we previously acquired in 2022. That those are the kinds of things that, you know, we really, we really look forward to and hope will continue to arise. You know, essentially buying assets at a discount to full value that fit very well with our network.
Thank you. Our next question comes from the line of Conor Fitzpatrick with Bank of America. Conor, your line is now open.
Good morning, everybody. Feed prices continue to run up. Board soybean oil is in the mid-$70s right now. I guess the question is: how much more room do feed prices have to run up from here? To answer that, I think we need to know why the ramp in biodiesel utilization appears to be lagging a bit in March. It's possible that higher pricing for physical delivery in parts of the Midwest, or cash constraints on realizing 45Z credits, or general hesitancy to restart facilities could explain it. Are you seeing any of those factors weighing on marginal biodiesel production and overall feed consumption in the market?
I think, you know, Bob and I can tag-team this. I mean, clearly in the, you know, gen one biodiesel business, restarting those plants coming out of winter just takes a little bit of time here. There's a seasonality of demand of that product. You know, trying to rebuild supply chains that have been shut down for a year and a half take a little bit of time. I think you'll see that industry start to ramp up from where it was. You know, interest rates are higher too, working capital, people forget that when you don't have that blender's tax credit, you've got to have a working capital line to run those plants. You know, clearly the integrated guys, that's an easy switch for them and you're seeing that.
The free standard takes just a little bit longer to get there, would be my read on it. I don't know, what do you think, Bob?
Yeah, I think the other thing a lot of people miss on this one is, for the small independent biodiesel producer, they really don't have access to the production tax credit, practically speaking. Ultimately they can get it. They, you know, they certainly can generate the credit. They can eventually find a way to sell the credit. It would come at a pretty big discount to $1.00 on the dollar. In the near term, they're not gonna have access to that revenue. Margins need to really increase from where we are today in order to incentivize all of these guys to come back online. It's just gonna take a little bit more time. Eventually, that capacity is going to be valuable in our opinion, because margins are going to move to levels that cause it to be.
Okay, great. I guess relatedly, since a lot of those biodiesel producers are kind of constrained on the feed optionality side, not having pretreaters, what's kind of the split between opportunity for veg oils, which require less pre treating, and fats, oils, and greases, that Darling Ingredients produces? The entire complex should run up, but veg oils might have a chance to run up a bit more.
Yeah. I mean, look, I think, I think the reality is, there's enough, there's enough demand out there that can, that can now utilize, you know, the non-veg oil, veg oil feedstocks, where we're probably gonna just continue to trade at sort of their CI score adjusted values. I, we're not really expecting to see veg oil run up relative to the other products just because, like I said, there's enough capacity that can utilize that. The thing with biodiesel is it doesn't, you know, as long as it can buy refined oil or it's able to, you know, pretreat or clean the oil from that standpoint, then it doesn't need as much, you know, pretreat capability, and biodiesel can run on 100% soybean oil.
Thank you. Our next question comes from the line of Matthew Blair with Tudor, Pickering, Holt. Matthew, your line is now open.
Thanks, and good morning. Could you talk about the feedstock slate at DGD? I know in the past you ran 100% low CI feed. You know, has that changed? Are you running more soybean oil in 2026 with just some of the changing credit values around 45Z and, you know, providing more of a subsidy for veg oil-based feeds?
Thanks, Matthew. You know, DGD is well set up to maximize opportunities depending on what is the lowest cost, you know, net of CI score feedstock and run for that barrel. You know, that implies that there's an increase in the utilization of veg oils into the mix. You know, I think it's fair to say that that's occurring. It's just gonna depend on, you know, these markets are, they move around quite a lot and so, you know, as they're just gonna be able to take advantage of the opportunity, whichever it is.
Sounds good. The comments earlier I thought were pretty interesting, you mentioned that the RVO will basically require more RD than what the West Coast LCFS markets can handle. You know, the implication to us is that the marginal U.S. producer will actually have to sell into non-LCFS markets. Of course, the market will still need the RINs from those marginal producers. Overall, it just seems like a steepening of the cost curve and something that should continue to be pretty supportive for margins. Very likely come through in stronger RIN prices. Is that your take as well? Do you agree?
Yeah, I think that is how we see it. Ultimately, yes. I think that's how we see it. RIN, you know, at the end of the day, like I said earlier, RINs will need to be the great equalizer that creates the margin that we need to make enough volume to satisfy the RVO. You know, the extent to which it needs to go is gonna depend on all these other factors: feedstock costs, you know, global fuel prices. Certainly the environment that we're in today, it eases the burden of the RIN. Even with that, you know, we're seeing very strong RIN values.
Thank you. Our next question comes from the line of Betty Zhang with Scotiabank. Betty, your line is now open.
Thank you. Good morning. I wanted to ask on DGD, the 2Q guide is 320 million gallons. Is that essentially, you're running at maximum levels? If not, is there any reason to not run at max?
Thanks, Betty. It's close to max. You know, I think right now, you look at the margin environment, we are incentivized to run as hard as we can. 320 is pretty close to max. You know, I don't know what else there is.
You're being slightly positive, Bob, but it's, that is pretty close to full out.
Yeah. I mean, we're gonna do our best to run full out in this environment.
Okay. Perfect. Then I wanted to ask on kind of the differential between SAF and renewable diesel. I know in the past, SAF has had a bit of a premium over RD. You know, given a lot of moving pieces, including the RVO and so on, can you just speak to maybe the economics of producing SAF versus RD currently?
Yeah. I think the short answer is for sales into the United States and the voluntary markets, there's more of a fixed premium to RD, where SAF continues to be a better opportunity and better margin. In Europe, it is more dynamic than that. Europe is based on mandates and, you know, we see times when margins in Europe for RD are better than SAF. We expect that to continue to be kind of volatile or up and down. You know, we're really happy with the voluntary market we have in the U.S. and the premiums that we can consistently get, you know, from SAF. Overall, you know, we're still meeting our commitments from the investment we made in SAF at Port Arthur.
Thank you. Our next question comes from the line of Jason Gabelman with TD Securities. Jason, your line is now open.
Morning. Taking my questions. Given Darling is uniquely positioned running domestic feedstocks and then not only producing but importing feedstocks to DGD from the international market, I was wondering if you could provide some color on if RIN prices today are sufficient enough to attract those international feedstocks to be run in the U.S. market, especially given those feedstocks no longer qualify for the production tax credit.
Good question. The answer to that is gonna depend on who's making the fuel. For Diamond Green Diesel, you know, given our cost of production, the efficiency, the logistics that are available to us when it comes to importing those international feedstocks, we can make renewable diesel with those, with those products and sell into the United States and make a good margin. I don't think everyone's able to say that. You know, for that reason, we do think we'll continue to see margins, you know, strengthen. You know, we expect to see a difference in feedstock prices, you know, in North America relative to the rest of the world.
Do you expect that biodiesel producers are gonna ultimately need to rely on international feedstocks as well, in order for the industry to meet the RVO?
No. I don't. You know, I think biodiesel producers should see a sufficient amount of U.S. veg oil or, you know, U.S. and Canadian veg oil, to supply their needs.
Thank you. There are currently no more questions waiting at this time. I would like to pass the call back over to the management team for any closing remarks.
All right. Thanks, everybody, for your questions today. As you know, we'll be hosting Investor Day on May 11th in New York. It will be simultaneously webcast. It's an exciting time for us as Suann, Bob, Carlos, myself, and Dave Van Dorselaer will lay out a lot of these topics that we discussed today, in addition to what our future looks like and a three-year roadmap as we see it today. If you have any questions, follow up with Suanne, and stay safe and have a great day. Thanks again.
Thank you. That will conclude today's conference call. Thank you for your participation. You may now disconnect your lines.