Earnings Call Transcript
DARLING INGREDIENTS INC. (DAR)
Earnings Call Transcript - DAR Q2 2021
Operator, Operator
Good morning and welcome to the Darling Ingredients' Second Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Mr. Jim Stark. Please go ahead.
Jim Stark, Corporate Secretary
Thanks, Andrea. Welcome to the Darling Ingredients Q2 earnings call. Participants on the call this morning are Mr. Randall C. Stuewe, our Chairman and Chief Executive Officer; Mr. Brad Phillips, our Chief Financial Officer; John Bullock, our Chief Strategy Officer; and Ms. Sandra Dudley, our Senior VP of Renewables and Strategy. There is a slide presentation available, and you can find that presentation on the Investor page under the Events and Presentations link on our corporate website. 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 could materially differ because of factors discussed in yesterday’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 statements. Now, I’d like to turn the call over to Randy.
Randall Stuewe, CEO
Hey, thanks, Jim. Good morning, everybody. Thanks for joining us on our call this morning. It's great to have everybody here. Over the trailing 12 months, Darling Ingredients' business has generated in excess of $4 billion in sales and now more than $1 billion of combined adjusted EBITDA. To us, this is a significant breakthrough for all of our stakeholders and puts us on an accelerated path to continued growth across all of our business segments in the coming months and years. Darling opportunistically repurchased approximately 76 million shares of common stock during the second quarter because we believe that our diverse green global business will continue to appreciate in value in the near future. We saw many records in Q2 across all segments, including our joint venture Diamond Green Diesel. In total, our Global Ingredients business generated approximately $222 million of EBITDA, and DGD produced $132 million, which is our half, making our combined adjusted EBITDA shy of $354 million for the second quarter. We're very excited about the anticipated startup of the new 400 million gallon renewable diesel expansion in Norco. We're approximately 60 days from the largest project of its kind to begin producing one of the greenest hydrocarbons on the planet. Also, we're pleased that the startup of the 470 million gallon renewable diesel plant located in Port Arthur, Texas, has now moved through the first half of 2023 for startup. Once Port Arthur is online, the DGD platform will have 1.2 billion gallons of renewable diesel production capacity and 50 million gallons of green gasoline capability. With that, now, I'd like to hand it over to Brad to take us through the financials. Then I'll come back and discuss our outlook and why we're raising our guidance for the balance of 2021. Brad?
Brad Phillips, CFO
Okay. Thanks, Randy. We'll take a look at the income statement first briefly. Net income for the second quarter of 2021 totaled $196.6 million or $1.17 per diluted share compared to net income of $65.4 million or $0.39 per diluted share for the 2020 second quarter. Net sales increased 41.2% to $1.2 billion for the second quarter of 2021 as compared to $848.7 million for the second quarter of 2020. Operating income increased 152.4% to $268.3 million for the second quarter of 2021 compared to $106.3 million for the second quarter of 2020. The increase in operating income was primarily due to the $104.3 million increase in gross margin, which was a 48.2% increase in gross margin over the same quarter in 2020. Adding to our operating income improvement was our 50% share of Diamond Green Diesel's net income, which was $125.8 million as compared to $63.5 million for the second quarter of 2020. A quick comment on gross margin percentage as it continues to improve year-over-year and sequentially. For the first six months of this year, our gross margin percentage was 26.5% compared to 24.8% for the same period a year ago, which comes out to a 6.8% improvement year-over-year. We continue to experience higher protein and fat prices in the second quarter compared to the same period a year ago while at the same time maintaining historically high volumes. This better pricing environment and strong volumes are driving the improved results for the first half of 2021, and that trend we believe will continue for the balance of this year. Depreciation and amortization declined $4.1 million in the second quarter of 2021 compared to the second quarter of 2020. This decline is primarily in our Food segment, where certain assets became fully depreciated and/or amortized by the end of 2020. SG&A increased $8.9 million in the quarter as compared to the prior year. The main drivers for the higher cost in the quarter were related to FX, travel, and insurance increases. Interest expense declined $2.7 million for the second quarter of 2021 as compared to the 2020 second quarter. Now, turning to income taxes, the company recorded income tax expense of $55 million for the three months ended July 3rd, 2021. The effective tax rate is 21.7%, which differs from the federal statutory rate of 21%, due primarily to biofuel tax incentives and the relative mix of earnings among jurisdictions with different tax rates. For the six months ended July 3rd, 2021, the company recorded income tax expense of $83.7 million and an effective tax rate of 19.2%. The company has also paid $25.3 million of income taxes as of the end of the second quarter. For 2021, we are projecting an effective tax rate of 22% in cash taxes of approximately $20 million for the remainder of this year. Our balance sheet remains strong with our total debt outstanding as of July 3rd at approximately $1.44 billion and the bank covenant leverage ratio ended the second quarter at 1.71 times. Capital expenditures were $65.3 million for Q2 2021 and totaled $126.1 million for the first six months of 2021, which is in line with our planned spend of approximately $312 million on capital expenditures for fiscal 2021. As a reminder, this CapEx spend does not include our share of the capital spend at Diamond Green Diesel, which continues to be funded by internal resources at DGD. With that, Randy, I'll turn it back over to you.
Randall Stuewe, CEO
Thanks, Brad. Our Global Ingredients business and Diamond Green Diesel have been performing well, so we're updating our combined adjusted EBITDA guidance for 2021 to $1.275 billion, as indicated in our press release yesterday and on slide five of our IR deck. In the first half of 2021, we've produced $638.5 million in combined adjusted EBITDA, and we expect the second half of the year to match the strength of the first. DGD sold 162 million gallons of renewable diesel in the first half, and with DGD II starting up in Q4, we anticipate sales exceeding 200 million gallons in the latter half of 2021. We expect the EBITDA margin per gallon for DGD to return to our original guidance range of $2.25 to $2.40 per gallon over the next six months. Earning $2.97 EBITDA per gallon in the first half exceeded our expectations, and with margins normalizing in the second half, DGD can still achieve over $2.50 per gallon throughout 2021. Our focus at DGD remains on improving efficiencies, reducing carbon index scores, and innovating renewable diesel production and other renewable products, such as renewable naphtha and sustainable aviation fuel. DGD, being the largest platform in North America, will leverage its first mover advantage well into the future. As we approach 2022, we believe it's time to establish expectations for the next calendar year. With our current Global Ingredients businesses nearing $800 million in EBITDA for 2021, we project our base business growth of 5% to 10% for 2022, driven by sustained demand for animal proteins and fats and growing Peptan product sales globally. We expect DGD to earn $2.25 per gallon in 2022 at a sold rate of 700 million gallons, leading to Darling's share of DGD EBITDA being around $800 million. Our outlook for DGD in 2022 is grounded in its optimal location, flexible logistics, processing capabilities, and the expertise of our team, positioning DGD as the lowest cost producer of renewable diesel worldwide. Overall, Darling Ingredients' combined adjusted EBITDA for 2022 is expected to be approximately $1.6 billion to $1.7 billion, which is double our $841.5 million reported last year. The 2022 estimate is significantly higher than what we earned in 2020. Our team must execute to achieve this performance next year, and I am confident they will, as our 10,000 employees have shown remarkable results amidst the challenges posed by the ongoing pandemic. I'm grateful for their hard work and dedication in keeping our global platform operational during these times. With that, let's open it up for Q&A, Andrea.
Operator, Operator
We will now begin the question-and-answer session. The first question comes from Ben Bienvenue of Stephens. Please go ahead.
Ben Bienvenue, Analyst
Hey, good morning, guys and congrats on a nice quarter.
Randall Stuewe, CEO
Good morning Ben.
Ben Bienvenue, Analyst
I want to talk about capital allocation. You bought back some stock in the quarter and while on absolute terms, it was not a significant amount, I think it's important that you guys send the signal obviously of the confidence in the business and your commentary on 2022 underlies that as well. Can you help us think about given all of the cash flow coming in the door in 2022, how do you think about capital allocation priorities? How do you toggle between buybacks or potential special dividends or M&A? And just help us think about that paradigm you're using?
Randall Stuewe, CEO
Ben, this is Randy, and then Brad and I can tag team this. Over the last couple of years, we've used some buybacks opportunistically once again as the market tried to digest the global commodity volatility during the quarter. As we looked at our base earnings, the DGD, current earnings and outlooks, it just felt like the right thing to do to allocate capital to it. I mean, our M&A slate has not developed to a point out there where anything's imminent. Obviously, we'll always look at things. We've been very, very kind of gentle in our approach and controlled over the last four to five years as some things have come to market to not overpay. Clearly, allocating capital to DGD has absolutely been the right thing due to the returns that are available to us. We're at an inflection point, and that's the reason we decided to step out and talk about 2022 today. While we put $800 million out there, you can go $750 million and $850 million, whatever you want to do, you can do it plus or minus $50 million or $100 million, that doesn't change the trajectory that the company is on now. And what I mean by trajectory, the amount of free cash flow that's going to be available to either buy back stock, put a meaningful dividend, or acquire a supply chain or growth assets that make sense as we go forward. As we tried to tell people, as you look into October here and God-willing, a nice startup at DGD and all of a sudden, you've got a 700 million, 750 million gallon asset at $2.25, $2.40 a gallon, now generating significant cash that puts meaningful dividends in the 2022 portfolio, absolutely significant dividends in 2023 and 2024. This is not just a snapshot of the world, as we look forward, we're going to have incredible flexibility as we look to either pay down debt, we've got two bonds out there, we've got a little bit of term B pre-payable. And then we'll go forward from there, I know that we might get questions on sustainable aviation fuel, we might as well hit him up right now, John Bullock and Sandy are working hard on the technology there as to whether it's a bolt-on or whether it's an additional plant as we go forward. But I think the thing that we feel confident about is now that we understand what it takes to make that fuel. We'll comment more later as questions come on what it takes to develop that market, but ultimately, we don't see our business stopping, growing here in the next three to five years. We see a platform now that is really agitated to the point that it can continue to grow and have a lot more fun.
Ben Bienvenue, Analyst
That's great. Thank you for the color. If I think in the near-term quickly, obviously, we're awaiting some sort of verdict around RVO and the RFS, you alluded to turbulence in the commodity markets last year as an opportunity to buy back stock. Could you talk about that dynamic, particularly if we juxtapose it with your outlook and confidence there, the opportunity around SAF, the inflecting cash flow? Is that the sort of event that potentially presents an opportunity to be more aggressive with capital allocation from a buyback perspective? And how do you think, depending on what the range of outcomes might be, how do you think that dynamic ultimately really has an influence on your business?
Randall Stuewe, CEO
I'm going to work together with John Bullock a bit here. It's really interesting to see the palm oil numbers this morning, with palm oil prices rising sharply, which has also pulled bean oil up by another 150 points. I’m not sure if the volatility will decrease in the near term. What we are observing globally is a strong demand for protein due to meat consumption, which I don't think is going to decline. The meat exports from the U.S., whether looking at year-over-year data or frozen stocks, are still quite robust. I believe the U.S. could increase meat production if we could find enough labor, which is currently a significant challenge. The prices for protein feeds for animals seem to have stabilized. Initially, I thought they might decrease in the latter half of the year, but they appear to have leveled off. As for fats, Jim Stark advised me not to celebrate prematurely, but I don't always take his advice. Ultimately, our aim has been to get animal fats to be on par with bean oil, and we are very close to achieving that right now. We’re not talking about the refined, bleached, and deodorized bean oil that some of our rivals are purchasing for renewable diesel plants; we're focused on getting degummed bean oil and animal fats to equal levels, and we've succeeded in that. This has been a long-term goal for us. Additionally, Diamond Green Diesel is beginning to gather the feedstock necessary to operate at its new rates starting in October, and I believe we are beginning to see its effects. This provides us confidence that our core business will remain strong both here, in Canada, and in Europe as we move into 2022. John, would you like to add anything?
John Bullock, Chief Strategy Officer
Yes, I think it's important to put this in context. We have been saying for years that both with the Vion acquisition, the Maple Leaf acquisition and the subsequent growth we did, which was extremely aggressive for five years on building plants, expanding plants. Our volume base has increased magnificently since the last time we had a strong commodity cycle. And we told everybody, listen, we know we're acquiring assets, we're below the 10-year average price. But when the average price swings back to the 10-year or as it has now above the 10-year, you're going to be surprised at what rolls out of our base business. Well, surprise, it's happened. The interesting thing about these commodity cycles that we're now in is we're talking about a demand-driven cycle here. This is not supply disasters around the world. We've got a few cases of that going on, but largely this is demand-driven. It's demand-driven by the ASF issue, which has caused a repopulation of the pig herd in China, and we don't know where that is in the process that will last for a while. A lot of the big commodity companies, the grain companies are saying they think it's going to sustain for quite a period of time. And it's from a biofuel policy that is based on solid climate change issues that have to be addressed by the world. So, from our view, what we see is an extremely strong, I wouldn't call it a commodity cycle, it's a demand cycle that's being created by strong fundamentals. And we would anticipate that would last for a period of time with the volume that we're processing through our machine at this point in time. That gives us great confidence to think that our trajectory, which has been pretty spectacular, has a long way to go as we move forward. And on top of that, we've got cash to be aggressive if we can find the right places to allocate that cash too. So, it's a nice position.
Ben Bienvenue, Analyst
Okay. Randy, John, thanks so much. Congrats and good luck with the back half.
Randall Stuewe, CEO
Thanks Ben.
Operator, Operator
The next question comes from Adam Samuelson of Goldman Sachs. Please go ahead.
Adam Samuelson, Analyst
Yes, thanks. Good morning.
Randall Stuewe, CEO
Morning.
Adam Samuelson, Analyst
I think you almost answered half of my questions in those answers previously, Randy, but I'll give it a shot. Maybe first on the base business as we think about the feed business kind of where it is exiting the second quarter? You talked about veg oil, use of fat, uses oil prices approaching kind of commodity soy oil and food-grade pricing. Can you characterize the implied deceleration in earnings in the feed segment in the back half of the year if those spreads continue to narrow, especially with Diamond Green ramping up, it does seem like you're implying that the second quarter might have been a little bit of a high watermark on feed EBITDA, I'm just wondering what drives that?
Randall Stuewe, CEO
Yes, I wouldn't say that the second quarter was the peak. As Zac Brown would put it, the tides continue to rise. What I mean is that Diamond Green Diesel is currently paying mid-60s for fat, which is higher than the numbers we saw in the 50s during the second quarter. Sandy can provide more details on the margin structure at DGD. We are experiencing some margin compression due to the normalization after high feedstock prices, but these prices give us confidence for the third and fourth quarters. I don't anticipate any weakness in the feed segment for those quarters. Traditionally, the third quarter tends to be a bit weaker, mainly because we offer discounts for lesser quality animal fats during the summer, but now we have machinery that can process those better. This should enhance the value in the North American system. One concern we have is that slaughterhouses are now taking six days instead of the usual five, largely because of a significant labor shortage across the country. I don't see a quick fix for that. Animals are coming in at the expected weight, which is positive, but if we have to run six days while we previously operated on five or five and a half, that affects how we manage our cost structure and maintain margins. Nonetheless, animal production economics in North America remain strong and are favorable globally as consumers have the purchasing power. Unlike the mid-2000s when high corn prices created uncertainty about passing costs along to producers and retailers, people are currently willing to pay for their protein purchases, whether eating out or at home. Although securing a steak at Whole Foods may feel like a challenge these days, I don't see meat consumption slowing down. As we mentioned earlier, various protein sources are aligning globally. Another challenge we face is the disruption in container freight, which is not only more expensive but also less reliable, leading to some logistical issues at our plants, though we are managing it. Overall, the feed segment remains strong, and we expect it to be even stronger in Q4. In the food segment, we are facing challenges due to reduced slaughter activity caused by COVID-19 in South America, which affects our gelatin and Peptan businesses where we process bovine hides. We are navigating these challenges and have been able to continue growing our Peptan sales globally, although it has been challenging to source materials. I believe these conditions will improve as vaccines become more widespread. John, would you like to add anything?
John Bullock, Chief Strategy Officer
No, you hit it.
Adam Samuelson, Analyst
Okay. And then just quickly, if I could follow up, you mentioned earlier about sustainable aviation fuel, and that being a bit of a more of a plant bolt-on to some of the existing infrastructure. At this point, anyway to dimensionalize, maybe what the capital intensity of that could look like, or what it would take from a policy perspective before you think about moving forward with any of that kind of investment?
Sandra Dudley, Senior VP of Renewables and Strategy
Yes, this is Sandy. We have assessed the capital requirements, and it will clearly necessitate the addition of more equipment or specific equipment for a new facility if we decide to build one. We have analyzed the yield profile and what it entails, and we've also conducted thorough background work regarding the feedstocks and consulted with relevant markets. Additionally, we have reviewed preliminary engineering and evaluated the associated economics. As we mentioned in last quarter's call, the current economics do not look favorable. However, we see positive developments. For example, between last quarter and this quarter, the EU introduced the Fit for 55 program, which includes a proposed mandate for sustainable aviation fuel, starting at 2% in 2025 and rising to 62% by 2050. This is significant. We believe this is a promising course, and we hope the U.S. will follow suit. Lately, there has been more discussion in the U.S. regarding incentive programs, typically around a $1.50 level for low carbon feedstocks, with potential for progression. Both of these trends are encouraging, and if the right mandates and incentives are implemented, the market will respond effectively and produce the necessary volumes. As long as these conditions are met, DGD will play a vital role in that process.
Adam Samuelson, Analyst
All right, great. I really appreciate all the color. I'll pass it on. Thanks.
Randall Stuewe, CEO
Thanks Adam.
Operator, Operator
The next question comes from Manav Gupta of Credit Suisse. Please go ahead.
Manav Gupta, Analyst
Hey, guys. Congrats on the good quarter and the guidance raise. You had always said and I wish people were listening that renewable diesel is a learning curve. There is a lot of learning that has gone over the years between you and Valero which is allowing you to deliver these results. Now, one of these refiners who initially thought all you need is a broken hydro treater to bring it on, is now coming out and saying I actually may not even start my plant. So, just sitting here and wondering, there's a lot of capacity announced here, but as some of these new entrants try and copy your model and realize the margins you are generating are absolutely elusive to them. Do you actually think this capacity comes on and doesn't really start, or do you think some of these capacity announcements are actually canceled here?
John Bullock, Chief Strategy Officer
Yes, Manav, this is John. At the end of the day, I think we never want to disparage anybody who's a competitor or a potential competitor. What I would repeat is that building a machine that is well-located, that can handle the low carbon and feedstocks that allow you to maximize your profitability, that has flexibility to hit all of the best markets in the world, is not easy. And everybody that's jumped into this business, many of them have pretended that this is like being in a little wave pool, that you can walk through it and be fine. Running renewable diesel plants is difficult. It takes tremendous expertise. I will tell you, the sophistication that's occurring to manage margins and take advantage of margins and feedstocks that's occurring in Diamond Green Diesel is absolutely startling when you look underneath the covers. So, the fact of the matter is, we see a lot of announcements out there. Some may happen, some may not. We have built Diamond for the long haul. We believe we will always be in the position to have the best margins in the industry. Other people will do what they will do. We're prepared for the competition, and we welcome the race. If others want to come, that's up to them. That's their choice. But we're prepared to have an excellently run facility in the right place with the right capabilities, and it's not easy to do that. It takes a lot more money than a lot of people are pretending that it takes to get into this business. So, they'll do what they're going to do; we're going to do what we're going to do.
Manav Gupta, Analyst
No, perfect. It seems you are definitely on the right track. My quick follow-up is that the feed segment was very strong. When you examine the revenue figures in the 10-Q, quarter-over-quarter, fats increased significantly, the revenue for that segment was notably higher, and proteins also rose, but fats had a much larger increase. I'm trying to understand your consistent statement about this being a demand-driven cycle. Can you help us quantify the markets for fats and proteins? We know both are experiencing an upcycle, but how do they compare in trends?
Randall Stuewe, CEO
Yes, let me take a shot at that. So, I think what you see with most production of fats and proteins in the world is most sources of those produce more protein than they do fat. So, when you see a large increase in production of vegetable material around the world, and as we're starting to see an increase in the upcycle on some of the low-CI feedstocks as we have higher prices here too, you see a combination of a little more fat than you do a meal coming into the marketplace. I think obviously, with the demand coming from China, which has been both a protein and energy or fat-based demand. And then the biofuels market focusing on low CI biofuels market, focusing on the energy side a little bit more. You've seen a little bit more of a drive-up in the price of fats. But I would say quite frankly, and Randy alluded to it earlier, protein pricing is very, very good at this point in time as well. It's not kind of gone up as much. But you really get a combination of fats and proteins from the supply chain that come to us a little less fats normally than protein. So that means fats have gone up a little bit more, but proteins have been very, very strong for us as well.
Manav Gupta, Analyst
Thank you so much for taking my questions.
Randall Stuewe, CEO
Thanks, Manav.
Operator, Operator
The next question comes from Tom Palmer of JPMorgan. Please go ahead.
Tom Palmer, Analyst
Good morning. Thanks for the question.
Randall Stuewe, CEO
Good morning.
Tom Palmer, Analyst
You noted your assumption for the second half for DGD to $2.25 to $2.40 EBITDA per gallon. This would imply some slowdown from current levels. In your assumptions, what drives the startup at DGD pushing up low CI prices, just some conservatism? And to what extent have you already begun to build inventory for the expansion, meaning some of the demand calls are already reflected in market pricing?
Sandra Dudley, Senior VP of Renewables and Strategy
Correct. I believe what we experienced in the second quarter was beneficial for us. We entered the quarter having purchased feedstocks at lower prices compared to what we encountered during that period. Additionally, we utilized a machine that enabled us to take full advantage of those lower-priced feedstocks, without needing to use the RBD soybean that the marginal producer relied on. It’s also important to note that soybean prices increased, and RINs had to make considerable efforts. As a result, this affected our margins. Regarding our preparation for DGD II, we are currently loading feedstocks into our tanks, so we are actively preparing.
Tom Palmer, Analyst
Okay. Thank you. And I just wanted to follow-up. This was brought up on an earlier question, but I'm not sure you fully addressed it. Just on the RVO side? I mean, we get a lot of questions. I do as well, just on how this might shake out for 2022. Do you have any thoughts just on kind of the likely scenario for biomass-based diesel? Do you think volume will take into account capacity that's coming online? I would assume you're kind of pushing that side of it at least?
Sandra Dudley, Senior VP of Renewables and Strategy
Yes, I don't think that we know for sure. The Biden administration has been very carbon intensity focused, very GHG reductions focused. So I think that there's probably a push to keep volumes where they are, not accelerate it. But I don't know that I can't answer that. But it would look strange, I suppose, if volumes reduced for any reason and didn't grow.
Randall Stuewe, CEO
Yes. If I can just add on top of that, we have with the Biden administration the most environmentally focused administration that we've ever had in the history of the United States. It is very apparent that biofuels substantially reduce carbon emissions. It would be extremely odd for an administration that is basing its marker on reducing carbon emissions to do something that would not promote the additional production of carbon emissions. So we feel very good about how this works. The other thing I would point out is this. We are now late in the process of developing the RVOs for 2021, 2022. Historically, when we've gotten into these type of positions, we have never seen them reduce the mandate as they move forward. They always go and hold it where it is, which with COVID has put the diesel and ethanol RINs into a very tight issue and being able to reach compliance. We feel that this market is where it is for a while. The administration is clearly taking their time on coming out, because this is always a political hot button when they do this. But this administration is focused for the interest of Diamond Green Diesel on exactly the right issue, which is carbon emissions. We would anticipate they would stay true to their DNA and be supportive of low carbon emission reductions as we move forward.
Tom Palmer, Analyst
Thank you.
Operator, Operator
The next question comes from Craig Irwin of ROTH Capital Partners. Please go ahead.
Craig Irwin, Analyst
Hi. Good morning and congratulations on that really solid result.
Randall Stuewe, CEO
Thanks, Craig.
Craig Irwin, Analyst
So, Randy, this is an exciting time, right? You've got a line of sight on a double from $800 million to $1.6 billion, $1.7 billion in EBITDA. And we really haven't seen the biggest tailwind ever for the industry on the rendering side cutting in, right? The 15 give or take plants that are either announced or unannounced in renewable diesel. Can you talk about how you see that potentially cutting in, say, a third or a half of those get built? And is this a multi-year process as far as how it impacts feedstock prices? And is there maybe an opportunity for you to get bigger on the rendering side to service that?
Randall Stuewe, CEO
Yes, I think there's a bunch of questions hidden in there. I think as John talked about, I mean, we are not in the boardrooms and the inside baseball of the thinking of some of the petroleum industry or even independents that are trying to enter the business. They have various drivers from margin to environmental, the difference cost to compliance avoidance, who knows what their spreadsheet truly is driven off of. What I know for fact out here is one plant of 180 million or 85 million gallons in Dickinson, North Dakota truly upset the supply and demand of RBD soybean oil in the United States. You don't have to go to Harvard to see what that happened to in the sense of the lack of capacity of the deodorization or a different way, the lack of pre-treatment. And pre-treatment is an easy word that many people use out there. I'm not sure they know what it means, and what it requires and what it gets you and what it doesn't get you. What I know that it's gotten us is eight years of a head start here of learning. What are good fats? What are not so good fats? What can you not process? What kills catalysts? And then you get into the processing technologies, those are still evolving. Clearly, we partnered with UOP to develop a technology. But remember, we spent eight years of the expertise in the system here of refining that process to get not only yield, but catalytic life and really product quality that we're looking for around the world. So, I ultimately believe that someone's going to try. Obviously, now you've seen other people try, one is now deferred their startup. And at the end of the day, if they all start up, you bet there's going to be a feedstock war like never before. What John highlighted before was ultimately whether you were in the high fructose business, the soybean crushing business, the ethanol business, at the end of the day, you've got to be in the right origination and right logistical location and have the right cost structure. I truly believe that the location economics that the team has put together between Norco or St. Charles and Port Arthur are beyond superior. It's hard to put a $0.01 per gallon on it; I won't try. At the end of the day, we can look at different locations that are in the railroad, single railroad, we have double railroads, you can bring it in by barge, you can bring it in by ship, you can ship it out by ship, Jones Act, non-Jones Act, out by pipeline. The flexibility is truly incredible that that's been designed in these facilities. And as Sandy highlighted, now do we bolt-on a jet unit, we build another jet unit, we're looking at the product mix. We're looking at the next five to 10 years as we go out, the learnings that we've had, the expertise that's been developed. And then you marry it with the supply chain that we have here, Europe, and South America. The answer is you bet, Craig. If we can find bolt-on acquisitions that once again give us access to feedstock arbitrages that make sense for our shareholders. We've got the cash to do it. We've got the aptitude. We got the appetite and the expertise, because it's in our fairway to deliver that. So, nothing's off the table. We're just trying to keep, as we say, we're focused on our execution and our execution only. What the rest of these guys do, we'll watch and learn. We'll have a chuckle here and there, and someone will be successful at it, I'm pretty sure.
Craig Irwin, Analyst
Excellent. Well, I can't wait for that feedstock war to be in full effect. Congratulations on the progress.
Operator, Operator
The next question comes from Matthew Blair of Tudor, Pickering, Holt & Co. Please go ahead.
Matthew Blair, Analyst
Hey, good morning. Thanks for taking my question. Randy, I was hoping you could size the RD opportunity in Canada with the CFS coming up in about a year right December 2022. On a big picture basis, the Canadian diesel market is roughly twice the size of the California diesel market. But of course, some of the provinces already have blending requirements and then D.C. has an existing program too. So I guess how do you think about that Canadian opportunity coming up in about a year in renewable diesel?
Sandra Dudley, Senior VP of Renewables and Strategy
Yeah. I think we're very positive about Canada. That's a market that we're serving today and a market that will grow for us, especially as there's more and more demand out of Canada. It's a market that I think that we're well set to serve. We now are able to produce Arctic diesel, which I think is going to be very positive for Canada, and we're able to supply them volumes all year long, which is going to be something new for them. And that's great. And so, I think that Canada is probably one of the highlighted markets for us.
Matthew Blair, Analyst
Sounds good. And then in terms of the feedstock plates or DGD II with the understanding that you'll pick a pretty flexible approach and run whatever is most economic. Could we think about this as being your most likely tallow and white grease, will there be any UCO in that DGD II slates, any sort of general modeling help would be appreciated?
Sandra Dudley, Senior VP of Renewables and Strategy
Yeah. I think what you'll continue to see is, you'll continue to see our typical mix and that mix may change in terms of percentages. But you'll continue to see us using UCO, you'll continue to see us using DCO, and of course, then the animal fats. The animal fats are likely to become a little bit more important as we go forward. But I don't expect anything else to change beyond that.
Matthew Blair, Analyst
Sounds good. Thanks.
Operator, Operator
The next question comes from Ken Zaslow of Bank of Montreal. Please go ahead.
Ken Zaslow, Analyst
Hey. Good morning, guys.
Randall Stuewe, CEO
Good morning, Ken.
Brad Phillips, CFO
Hi, Ken.
Ken Zaslow, Analyst
Can you explain the cost structure differences between your company and the industry? Have you mapped it out and can you provide the spread? It seems there might be a significant return difference on the assets being brought online compared to what you do. Is there a way to quantify this or at least provide some parameters?
John Bullock, Chief Strategy Officer
Yeah. Ken, this is John. I think as this industry is going, there's a lot of folks out there that are now publishing weekly data on what the margin structure is for various types of biomass-based diesel, biodiesel, renewable diesel facilities from various sources. So that's fairly well known in the marketplace at this point in time. And the answer to that is, it's breathtaking when you start to look at a renewable diesel plant that works with CI fats versus any other type of facility that produces biomass-based diesel, whether that be any type of biodiesel facility or whether it be any other type of renewable diesel facility. So, those numbers are pretty well in the marketplace out there. I don't have them off the top of my head right now. But they're out there. And it's breathtaking. Beyond that, though, when we just get down to competition between us and other renewable digital producers. When you look at those folks, you've got to look at, do they have full chain capability? Do they have the right logistics infrastructure? Can they take in rail from multiple railroads? Can they take in truck? Can they take in back by water, either on the river with barges or ocean-going vessels? How can they get their product out? Are they located well to service multiple LCFS markets? What type of pre-treatment capacity do you have? What's the flexibility in that pre-treatment capacity? Because as Randy alluded to earlier, all pre-treatment units are not built equally. We've seen a lot of stuff as we've looked around the world of very various opportunities, and some pre-treatment plants quite frankly when we get back into our car, we look at each other and say, 'Oh my god.' So at the end of the day, it's all about the capabilities. We believe we're at an advantage versus other renewable diesel guys. We'll see as we move forward.
Randall Stuewe, CEO
Yes. And I think John, I mean, try to give Ken a little more granularity there. I mean, RBD is what's trading.
Sandra Dudley, Senior VP of Renewables and Strategy
Yeah. It's probably $0.25 to $0.30 above crude to.
Randall Stuewe, CEO
So $0.25 to $0.30 crude to GM, simple math at $0.08. I mean, you're $2 to $2.40, negative to DGD today. And then you take the CI differential and whether that's if you're running soybean oil or us cooking oil that can be anywhere from $2 to $2.75 disadvantage to the logistical Mecca that John has built and Sandy has built with the Valero team down in Diamond Green Diesel and in Norco and Port Arthur. That's where we get. We try not to exude arrogance on it. That's where we have the confidence that in a Last Man Standing competition, there is no competition from that standpoint because of where you're located.
Ken Zaslow, Analyst
Great. My next question is, Randy, you didn't have a whole lot of cash. You had did buybacks some stock? Is that a new direction for you? Is that something? How do you think about cash employment going forward? Again, you're going to have a lot of it. So have you planned on using it?
Randall Stuewe, CEO
Yeah. Ken, we obviously, during the quarter as whether it was the RVOs that were confusing people, I really don't know what drove the equity or the stock price behavior during the quarter. But as Jim and Brad and I looked at each other, we said, 'Oh my gosh, we're on a $1.275 billion if not higher run rate.' This supports $0.75 to $0.80 a share today, and you're 45 days out from a $1.6 billion to $1.7 billion run rate. And so, opportunistically the board had authorized I think up to $200 million. We just stepped in over the course of time there. I don't know that there was anything magical about $75 million or $76 million. Brad and I looked and said, 'Okay, that's enough.' And clearly, we will continue as it makes sense as we go forward. Clearly, the long-term cap structure will be determined on how quick we start to repatriate cash out of Diamond Green Diesel. And clearly, as we've said, be patient with us. Clearly, we're bringing Diamond Green Diesel II online here in early October; that will be a new run rate. And then clearly as Valero and we've said in our call here, we've accelerated number three to the degree we can with labor materials and all the items into the first half of 2023. That means there's a little stronger spend in 2022 to get you there in early 2023. But after that, there are giant numbers. Clearly in 2023, you start to look at dividends that are extremely significant to the meaning of the company and will require action by the board. While I can't speak for where the board's appetite is today for buybacks or dividends, ultimately we're hoping that there's all options to continue to grow whether it's sustainable aviation fuel or whether it's supply chain opportunities around the world. That makes sense to bolt-on. We'll do that smart and not overpay, if we have to. But we'll also believe that feedstock management and origination also gives that competitive advantage in Diamond Green Diesel that we refer to. So, pretty easy analysis right now, hang with us and for the balance of your watch DGD II start up, watch the cash come on board, watch the new run rate, and then it'll be a fun discussion.
Ken Zaslow, Analyst
And I'm going to sneak one more and I know, we're only allowed two questions, but I'm going to ask another one. Collagen, you didn't talk much about that. I know, you moved the food to $200. It may not be as sexy as all the other businesses, but can you just give us an update? And this seems to just be a nice cash generator with a little bit of growth?
Randall Stuewe, CEO
Yes, we're very enthusiastic about collagen and collagen peptides. Their growth trajectory has reached double-digit percentages, or high single-digit growth in food, pharmaceuticals, nutraceuticals, and cosmetics. Our main challenge has been bringing capacity online and delivering the product to markets eager to purchase it. We're finally seeing progress in that area. In South America, we've faced difficulties due to reduced slaughter rates caused by COVID-related issues in slaughterhouses. However, we're on track with our expectations and expanding in that business. We believe it's a strong business opportunity that will attract capital due to its margins. It's exciting to see growth in the food segment beyond the 130 to 140 range, with increases of 40% to 50%. We still have much potential with collagen peptides and are just beginning to explore our biomedical applications and our X-Pure product. As Peptan develops, more biomedical applications will emerge. We're enthusiastic about how this business aligns with Darling, and we expect the food segment to catch up, so stay tuned.
Ken Zaslow, Analyst
Thank you very much.
Operator, Operator
The last question will come from Sam Margolin of Wolfe Research. Please go ahead.
Sam Margolin, Analyst
Hey, everyone. Thanks a lot.
Randall Stuewe, CEO
Hey, Sam.
Brad Phillips, CFO
Hey, Sam.
Sam Margolin, Analyst
I have a theory I want to run by you, and I'll catch it by saying I stole it from someone, so if you don't like you can, it's not my fault. But it's about the effect of the renewable diesel startup. So if we assume for a minute that everybody's going to be able to start up without any friction. And the outcome of that is that the whole soybean oil, waste oil, rendered fat complex is going to start to trade off of CI Score, so that, you know, rendered fats might actually trade at a premium to soybean oil. And obviously, that has huge implications across all your segments. And I was just curious, what you think about that if that's feasible? Or if that's an outcome that you might consider within the planning range?
John Bullock, Chief Strategy Officer
So this is John. I think the way to look at that is obviously, when you're talking about renewable fields, carbon intensity has a value proposition associated with it that it doesn't happen in the traditional feed cycles. We have expected for years that as we increased our renewable field space, we would see some type of an impact on the relationship of low fat waste CI versus traditional vegetable oils. Indeed, we have seen some of the impact. Although, I would caution you that just because you see that impact for a couple of months doesn't necessarily mean that that's going to sustain; there's volatility around the relationship. We'll see as we move forward. We're comfortable that the field that we're producing out of Diamond Green Diesel has an excellent margin structure, because of our competitive positioning in the marketplace, the capability location, all the stuff we've talked about time and time again. At the end of the day, if the question is does the price of the low CI feedstocks ultimately diminish the value of our margin proposition and diamond? We don't think so. Could it have a positive value in relationship to Charlie's business? Absolutely.
Sam Margolin, Analyst
Thanks a lot. That's it for me. Appreciate it.
Operator, Operator
The last question will come from Ben Kallo of Robert W. Baird. Please go ahead.
Ben Kallo, Analyst
Hey, everyone. Regarding feedstock, where does palm oil stand in terms of environmental impact? I know Nestle trades at a high multiple and uses a lot of palm oil, but I've always thought that's not ideal. My second question is about the consolidation at Cargill and what it means for you. Thank you.
Brad Phillips, CFO
So I'll answer the first part of the question about palm oil. Palm oil is not considered as good appeal as certainly, other vegetable fats are or in particular, low CI stocks all around the world. We don't believe you will see any usage of palm oil in the United States or Canada, in relationship to their carbon programs. Europe will allow some of it particularly around the PFAD side. So, we're very comfortable with our feedstock. You'll have to talk to others about what feedstock they use; I'm not going to comment on that. But clearly, we like the fact that we are using what has systematically and universally been described as the greatest carbon reduction feedstock's in the world that is good for the environment and good for all sorts of environmental and sustainability purposes.
John Bullock, Chief Strategy Officer
Yes, PFAD is considered a waste fat under some programs. It won't be in the United States or won't be in Canada, at least we don't believe it will be. In Europe, it's allowed under the waste category, essentially under our waste fat classification. So it's utilized in Europe, and I'll leave it to others to argue whether that's correct or not as a designation for PFAD.
Randall Stuewe, CEO
Yeah. That's kind of the answer. Remember that Nestle procures a lot of PFAD as part of their mix, which is viewed as a waste oil in the markets they operate in today. The second question, Ben, relates to Sanderson Farms. I want to acknowledge Joe Sanderson, Lampkin Butts, and Mike Cockrell; they have been great partners for many years. We play a significant role in processing their product, and we have a very close relationship with them. We do not expect any changes or risks to our business if the transaction is approved and goes through. We are well-positioned for their factories, and we have been doing this for a long time. I just don’t foresee any changes in our relationship going forward.
Ben Kallo, Analyst
Thank you.
Operator, Operator
This concludes our question-and-answer session. I would like to turn the conference back over to Randall Stuewe for any closing remarks.
Randall Stuewe, CEO
Thanks, Andrea. We appreciate everyone's time today and hope you stay safe and healthy. There's a list of upcoming IR events that Jim has is presenting at in the IR deck. We look forward to getting back out on the road here seeing everybody and talking to you and making you more confident in our model as we go forward into 2022. With that, thank you again for joining us today. And we'll talk to you again in November.
Operator, Operator
The conference has now concluded. Thank you for attending today's presentation. And you may now disconnect.