Earnings Call Transcript - DAR Q1 2026

Operator, Operator

Good morning, and welcome to the Darling Ingredients Inc. conference call to discuss the first quarter 2026 financial results. Today's call is being recorded. I would now like to turn the call over to Ms. Suann Guthrie, Senior Vice President of Investor Relations. Please go ahead.

Suann Guthrie, Senior Vice President, Investor Relations

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. Bob 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 available with a transcript of this call once it is posted. 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 statements. Now I will hand the call over to Randy.

Randall C. Stuewe, Chairman and Chief Executive Officer

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 favorable operating environment. We are 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 the first quarter was $406.8 million, including $255.6 million from our global ingredients business and $151.2 million from Diamond Green Diesel. Our Feed Ingredients segment had a fantastic quarter. We saw steady volumes with strong global poultry volumes offsetting a 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 are already seeing a favorable 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 are 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 glucose control product is currently pending a patent in the U.S. for production processes and for the use of Nextida as a dietary supplement ingredient, offering a nonpharmaceutical 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 hand the call over to Bob to take us through some financials. Then I'll come back and discuss my thoughts on the second quarter. Bob?

Robert Day, Chief Financial Officer

Thank you, Randy. Good morning, everyone. As Randy said, the first quarter was very strong across all measures, and 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 the 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 favorable lower of cost or market 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 totaled $95 million in the quarter. Our bank covenant preliminary leverage ratio was 3.17x as of quarter-end, versus 2.9x 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 first 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 negative $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.

Randall C. Stuewe, Chairman and Chief Executive Officer

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 can control, driving operational excellence, prioritizing capital and focusing on balance sheet strength, we position 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.

Operator, Operator

Our first question comes from the line of Heather Jones with Heather Jones Research LLC.

Heather Jones, Analyst (Heather Jones Research LLC)

I was just wondering on, first of all, on Diamond Green. Should we expect the hedging and LIFO losses, do you expect that to reverse in Q2? Or will that take longer throughout the year?

Robert Day, Chief Financial Officer

Heather, this is Bob. So we did realize a lower of cost or market benefit in the first quarter. And I think just to make sure everyone is aware, in order to have the opportunity to realize the benefit in 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 exhausts all available lower of cost or market. So going forward, as long as the business is profitable, we do not anticipate any lower of cost or market benefits. And so then to your question on LIFO, the LIFO will be based on an average cost paid for feedstock during the period. And 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. So 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. And hedges...

Heather Jones, Analyst (Heather Jones Research LLC)

And what about on the hedging side? Yes.

Robert Day, Chief Financial Officer

Yes. So hedges, I guess what I can say about that is, at DGD, we do hedge. We're very disciplined about hedging. There is some flexibility in terms of which instruments we use to hedge our risk, and we don't disclose that for competitive reasons. I think what you can point to this quarter is that clearly we had a significant increase during the period in heating oil futures, in crude oil futures, in soybean oil, whatever sort of instrument you're looking at. And we managed to absorb the cost of whatever hedges we had and still put out a very positive result. And I think it just speaks to the risk management capabilities of the business.

Heather Jones, Analyst (Heather Jones Research LLC)

Okay. And then my follow-up is just given the volatility we're seeing in the energy markets and the feedstock markets, this question seems particularly relevant. So 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. I remember at one point, it was more like 30 to 60 days and then I think it increased to 60 to 90. But if you could just update us on how we should be thinking about that.

Randall C. Stuewe, Chairman and Chief Executive Officer

Heather, this is Randy. So clearly, you've framed it pretty well. I mean what we saw in Q1, remember, as we came out of Q4, we had forward sales into DGD getting ready to run full that were put on in October as we anticipated the RVO. And then we saw prices soften as the RVO kept getting delayed. Ultimately, as we came into Q1, cash prices, FOB, most of the North American factories were actually flat or lower than Q4. Those have now accelerated. They started to accelerate in March for us. That will 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 pricing models down there, which takes 30 to 60 days. So I think we've righted that now. So overall, the ingredients business will have a stronger Q2. How much of the acceleration in prices flows through would be reflected in our conservative approach to guidance there. Remember, this is the first call we've done where we haven't seen period 1 of the next quarter, and we won't see those numbers here for another week or two. Ultimately, we're looking at basically a March run rate and extrapolating that with some improvement. Conversely, DGD has done a very nice job of getting out in front of this. We've had a strong bias that feedstock prices would accelerate once the industry wakes up, and so that should flow through in much better margins in DGD as we go through Q2 and through the balance of the year.

Operator, Operator

Our next question comes from the line of Tom Palmer with JPMorgan.

Thomas Palmer, Analyst (JPMorgan)

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 and then once it fully ramps, and whether that's going to be enough to fulfill mandates or if we do need to shift to imports even with the maybe less favorable tax treatment.

Robert Day, Chief Financial Officer

Tom, the first thing I'd say is we do believe that quite a bit of biofuel capacity is back online. 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 going to depend a lot on run rates as well as bringing idle capacity back on the market. As everyone knows, keeping a renewable diesel unit up and running has its own challenges. So it's going to depend a lot on that. Bottom line is we think that the industry is capable of meeting the mandate 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 incentivize U.S. production to stay in the United States. When you put all those things together and add capacity and run hard as an industry, and you look at what we did in 2024, it's reasonable to expect that we can meet the demands of the RVO.

Thomas Palmer, Analyst (JPMorgan)

And a follow-up on second quarter expectations. When we think about Q2, what are 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? And does that range contemplate where prices are today or that there are any changes relative to that run rate?

Randall C. Stuewe, Chairman and Chief Executive Officer

Yes. There's always a bit of seasonality in the business. When the ballpark's open, at least in North America, you'll see a few more in barbecue season. 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 is red meat has more fat. We can process more poultry and still not make as much fat as when we were running all the beef. So a little less fat into the discussion. As far as the modeling of guidance, that's really March extrapolated with some improvement. Clearly, fat prices are much higher than they were in Q1 cash prices right now, and we're out there selling it. So 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—80% of the byproduct that comes out of that business is fat and protein, and so it's feeling a benefit. We're seeing the tariffs had their impacts on our specialty proteins business, and those markets are back open again with the lower tariffs. So we're seeing a nice improvement in protein prices. But clearly, fat prices— I think the DGD bid right now today is close to $0.80 a pound. Those are big numbers up from where they were in October and November, so that will start flowing through very nicely here as we get towards the end of the quarter.

Operator, Operator

Our next question comes from the line of Pooran Sharma with Stephens.

Pooran Sharma, Analyst (Stephens)

Congrats on posting really strong results. Maybe just on Fuel here, and DGD and really just renewable diesel. What are your thoughts on diesel prices in regards to 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?

Randall C. Stuewe, Chairman and Chief Executive Officer

It sounds like a question for our partner, Valero, more than us. But Bob, you'll take a shot at it.

Robert Day, Chief Financial Officer

I think we're not really qualified to answer detailed questions about diesel capacity and constraints. But what we can point to is just an increased cost of the raw material inputs that everyone is using to make fuel energy products. What's interesting from our perspective is how much tighter today renewable fuels are and total cost relative to conventional fuels, and how current events have bridged the compliance gap in the RVO. Ultimately, we expected margins like what we're seeing today in the market, but perhaps thought it would take more time until compliance dates forced convergence. This conflict and higher energy prices underlying all of this are allowing margins in renewable fuels to move to what they probably should be as a result of a strong RVO, and it's allowing it to happen more quickly. It's also showing that renewable fuel is an important component of total supply. Without it today, we'd have much higher prices of conventional fuels.

Randall C. Stuewe, Chairman and Chief Executive Officer

I think the other thing Bob highlights is that fossil diesel in Scandinavia is $10 a gallon, and in the Netherlands it's $12 a gallon, and renewable diesel is actually cheaper by almost 25% today. The industry is going to run as hard as it can. What's special about renewable diesel is it can be used at 100%. So anyone that can produce renewable diesel will be running at full capacity right now. You're also seeing countries where producers of fats and oils—such as palm oil—can shift fats and oils into energy when the price per barrel gets to the level we're seeing now. Usually that shift starts around $80 a barrel. There's a huge incentive globally to move fats into energy, and that's going to keep the world feedstock markets pretty constructive until things back off.

Pooran Sharma, Analyst (Stephens)

Appreciate the color. Maybe just shifting to the balance sheet, I wanted to understand with the implied step-up in EBITDA in the overall business, I think leverage should come down naturally. How are you thinking about actively deleveraging versus allocating capital elsewhere?

Robert Day, Chief Financial Officer

I think we've been pretty clear in recent quarters that we're focused on paying down debt. We've talked a lot about trying to get our debt down below $3 billion. We're still committed to that. We do have an Investor Day on May 11. At that time, we'll be able to talk more about what our capital plans are. But to summarize right now, we're focused on getting that debt number down to about $3 billion. At that point, that opens up a lot of potential options for Darling in terms of what we do going forward. It will depend on our outlook 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. We think we'll get down to that $3 billion number relatively quickly. At that point, we think the outlook is still going to be very strong.

Operator, Operator

Our next question comes from the line of Manav Gupta with UBS.

Manav Gupta, Analyst (UBS)

I actually wanted to ask a little bit of a policy question. The EPA is proposing starting 2028 you get 50% RIN on foreign feedstock. I'm trying to understand whether it's positive for Darling if that goes through. Domestic UCO and tallow would price higher. Some competitor facilities overly dependent on foreign feedstock might be forced to quit the business. But at the same time, you are also importing a little bit of tallow through FASA for some of your plants. I'm trying to understand the puts and takes if this policy change does go through and you only get 50% RIN for foreign feedstock.

Robert Day, Chief Financial Officer

Manav, to answer that we'd need to understand what the tariff structure is at that point. If we're looking at a 50% RIN and there are no origin tariffs on any of the feedstocks that we're importing, then it will depend on what the demand for those feedstocks is outside the United States and whether the value of those international feedstocks adjusts for that 50% RIN and the 45Z credit. Ultimately, if the U.S. is the strongest market and international feedstocks discount themselves so they can be competitive coming into the United States, then we see it as a pretty big positive for Darling because it would support U.S. and Canadian feedstock prices and the core DAR business. It would also give DGD access to international feedstocks to make fuels, sell those into the United States or re-export elsewhere. So it depends on global dynamics, but overall, we don't see it as a negative.

Manav Gupta, Analyst (UBS)

Perfect. My second quick question, on Q2 guidance and where the Street is. When we look at the Street numbers, which I think are closer to $440 million, and your guidance, to get to that guidance, DGD would have to give you about $170 million. Given where their margins are on DGD, it seems very possible that DGD could easily give you $170 million. Could you talk a little bit about your guidance versus where the Street is on Q2?

Robert Day, Chief Financial Officer

We won't guide DGD. We did say we expect 320 million gallons for the quarter. We are willing to say that we think second quarter at DGD will be stronger than the first quarter. So if you kind of put all that together, backing into what you're saying doesn't sound unreasonable. But there isn't a lot more we can say about DGD's numbers.

Randall C. Stuewe, Chairman and Chief Executive Officer

Manav, the DGD margin environment is constructive right now. It's still sorting its way out. We're running at capacity. 320 million gallons is the number we're putting out for Q2. I suspect Q2 earnings power is greater than Q1 and Q3 will even be stronger. But we've opted to avoid trying to guide because it's difficult due to timing of sales and feedstocks.

Operator, Operator

Our next question comes from the line of Derrick Whitfield with Texas Capital.

Derrick Whitfield, Analyst (Texas Capital)

Congrats on a 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 realizations flowing through to higher EBITDA from a price sensitivity perspective over the course of the year if prices remain elevated?

Randall C. Stuewe, Chairman and Chief Executive Officer

Clearly, Europe has been lagging the U.S. run-up because it's more of a domestic feedstock game. South America was impacted by tariffs and higher ocean freight, which required us to adjust spreads and pricing models. We always look back at why we built DGD: to own the arbitrage between animal feed and fuel. Animal feed value today is less than $0.30 a pound and fuel prices are north of $0.70 a pound FOB. So we've made the right decision there. As we go into May and June, you will start to see a lot of that flow through. We believe we've called a bottom in Brazil and have adjusted spreads accordingly. In Europe it's more resilient and is starting to move up. I've seen South America move in the last few sales up $50 to $100 a ton from the start of April. That will start to flow through. I'd categorize the guidance we're putting out on the core business as potentially somewhat conservative right now. Protein prices have improved; Rousselot is benefiting as tariffs are down. Our biogas businesses in Europe are strong. The tailwinds are building; we've been a bit cautious given the prior years, but we'll see how it flows through.

Derrick Whitfield, Analyst (Texas Capital)

Perfect. And then maybe shifting over to DGD. Given the higher diesel and jet crack spreads we're seeing globally, how are you viewing the international markets relative to what you can get in the U.S.? If favorable, what degree of flexibility does DGD have to further increase sales into those markets?

Robert Day, Chief Financial Officer

DGD has always maintained a lot of flexibility and agility in terms of markets it can sell to. We have seen attractive opportunities around the world. DGD has been a consistent exporter and we expect that to continue. Looking forward, the strength of the RVO in the U.S. points to a U.S. market that should continue to increase in margins and keep barrels inside the United States. Over time, we expect the market to create that dynamic and keep more barrels domestic.

Operator, Operator

Our next question comes from the line of Dushyant Ailani with Jefferies.

Dushyant Ailani, Analyst (Jefferies)

Congrats on a strong quarter, guys. I know the focus has been on RVOs. I just want to pivot a little bit to LCFS where pricing has been weak but is starting to trend a little higher. Want to get your thoughts on how you're seeing the California market evolve through the course of the year.

Robert Day, Chief Financial Officer

LCFS is an interesting, dynamic market. Immediately after the RVO, we saw an increased amount of production and more sales into California, creating some more credits than previously. California has only about 3.6 billion gallons of total diesel demand. Perhaps 300 to 400 million of that is biodiesel, leaving roughly a 3 billion gallon demand market for renewable diesel. The RVO mandates more production than that. If you add up all the LCFS programs in the U.S., the RVO is larger, and including imports it's larger than all those LCFS programs. So we're going to have a lot of supply into those states, but renewable diesel alone can't satisfy all requirements. We expect LCFS credits to continue to increase in value, and we may see renewable diesel trading at a discount into California because it's offset by LCFS premiums. It's complicated, but we do think LCFS credit premiums are likely to increase.

Dushyant Ailani, Analyst (Jefferies)

Got it. And then my follow-up, maybe just going back to the core business. Margins have been strong in Q1. How should we think about margins across the board—Feed and Food as well—if pricing expectations remain elevated? And operationally, are there any tweaks you're making?

Randall C. Stuewe, Chairman and Chief Executive Officer

Across the portfolio: in the Fuel segment, non-DGD is an annuity business that should get some lift from biogas in Europe. Rousselot is predictable and closer to consumer business; we've seen tailwinds as global collagen demand picks up. When you extract collagen you also make fat and protein feedstocks, so directing more to collagen can affect gelatin volumes but is positive overall. The Feed segment has the most commodity exposure; it's essentially a timing exercise for when proteins and fats across North America, Europe and South America flow through. You'll see additional margin expansion there. We're proud that our rendering businesses are operating at a high level of capacity and efficiency now. Many challenges from prior years are behind us and we're doing well. The only downside is there's less beef in the system today compared to prior years, and chicken produces less fat than red meat, so you won't get 100% of prior-year uplifts. But overall, it should be strong and accelerate through the year.

Operator, Operator

Our next question comes from the line of Andrew Strelzik with BMO Capital.

Andrew Strelzik, Analyst (BMO Capital)

I wanted to follow up on your comments about internal improvements in the base business. Is there a way to quantify how much better your plants are running and how much more margin opportunity there is relative to the last time we saw fat prices at these levels, net of the beef versus chicken dynamic?

Robert Day, Chief Financial Officer

When you point back to 2022 and 2023 and the large acquisitions Darling made with Valley Proteins, FASA and Gelnex, the operations and integration have manifested themselves in the high-quality proteins we're making and the premiums we're capturing in high-end pet and international markets. As those operations have come together and we understand the quality and demonstrate consistency, we're able to hit those markets more consistently. Same is true for Gelnex and Rousselot. This is a very complex global supply chain, and our ability now to leverage these assets by consistently meeting customer needs and moving product internationally has enabled us to identify the right origins and destinations and get maximum value. The improvement is incremental quarter-to-quarter, but much of what's underpinning our strong results is improvement in operations and coordination, not just market tailwinds.

Andrew Strelzik, Analyst (BMO Capital)

That's helpful. Also on the RIN outlook beyond 2026, now that we have the RVOs, how are you thinking about the environment through 2027 and beyond and how much of a kicker that could be versus today?

Robert Day, Chief Financial Officer

Looking out through the end of 2027, the answer depends on global fuel prices, tariffs, and how well the industry performs in the U.S. and the amount of production and supply created. When we look at this RVO through 2027, the industry needs to produce and run hard, and even when it does, margins need to remain strong to incentivize players to make enough product to meet the RVO. RINs will need to play their role as the equalizer to create margins for enough volume to satisfy the RVO.

Operator, Operator

Our next question comes from the line of Ben Kallo with Baird.

Ben Kallo, Analyst (Baird)

A couple of questions on the Food business. Could you talk about progress with the JV and then with a larger partner for the peptide side of the business? And then Randy or Bob, on the acquisition front, you commented last quarter about some smaller acquisitions. Any update on use of proceeds of cash?

Robert Day, Chief Financial Officer

Starting with the joint venture agreement we've signed with Tessenderlo, we're in an antitrust review process and need to get through that before closing. We're excited about forming that JV. Demand for hydrolyzed collagen continues to increase, and the Tessenderlo business would add capacity that enables us to efficiently utilize their production and increase sales into the growing collagen market. They also provide origination in countries where we don't have presence, allowing growth without significant new capital. Regarding acquisitions, we participated in an auction to buy three rendering assets from the Patense Group in Brazil through a Chapter 11 process, which was a great opportunity to add assets that fit well with the FASA network at a discount. Those are the types of opportunities we pursue—buying assets at a discount that fit our network.

Operator, Operator

Our next question comes from the line of Conor Fitzpatrick with Bank of America.

Conor Fitzpatrick, Analyst (Bank of America)

Feed prices continue to run up. Forward soybean oil is in the mid-70s right now. How much more room do feed prices have to run up from here? To answer that, why did the ramp in biodiesel utilization appear to be lagging a bit in March? Could higher pricing for physical delivery in parts of the Midwest, cash constraints on realizing 45Z credits, or hesitancy to restart facilities explain it? Are you seeing any of those factors weighing on marginal biodiesel production and overall feed consumption?

Randall C. Stuewe, Chairman and Chief Executive Officer

Clearly, restarting Gen 1 biodiesel plants coming out of winter takes time. There's seasonality of demand and rebuilding supply chains that have been shut down for about 18 months takes time. Interest rates are higher, so working capital constraints matter—without the blenders' tax credit, you need a working capital line to run those plants. Integrated players can switch more easily, but free-standers take longer to come back online.

Robert Day, Chief Financial Officer

A lot of small, independent biodiesel producers practically don't have access to the production tax credit in the near term. They can generate the credit and find a way to sell it, but it would come at a big discount to 100 cents on the dollar. Near-term they won't have access to that revenue, so margins need to increase further to incentivize those producers to come back online. It will take more time, but that capacity will be valuable when margins move to levels that cause it to be.

Conor Fitzpatrick, Analyst (Bank of America)

Since many biodiesel producers lack pretreaters, what's the split between opportunity for veg oils, which require less pretreating, and fat oils and greases that Feed Ingredients produces? Veg oils might have a chance to run up a bit more.

Robert Day, Chief Financial Officer

There's enough demand that can now utilize non-veg oil feedstocks where they're probably going to continue to trade at their CI-adjusted values. We don't expect veg oil to run up relative to other products because there's sufficient capacity that can utilize it. Biodiesel can run on 100% soybean oil as long as refiners can buy refined oil or pretreat the oil.

Operator, Operator

Our next question comes from the line of Matthew Blair with TPH.

Matthew Blair, Analyst (TPH)

Could you talk about the feedstock slate at DGD? In the past you ran 100% low CI feed. Has that changed? Are you running more soybean oil in 2026 with some of the changing credit values around 45Z providing more subsidy for veg oil-based feeds?

Robert Day, Chief Financial Officer

DGD is set up to maximize opportunities depending on what is the lowest cost, net of CI score, feedstock to run for that barrel. That implies an increase in utilization of veg oils into the mix, and it's fair to say that's occurring. It will depend on market movements, which vary quite a lot, and DGD will take advantage of whichever feedstock opportunity is best.

Matthew Blair, Analyst (TPH)

You mentioned the RVO will require more renewable diesel than what the West Coast LCFS markets can handle, implying marginal U.S. producers may have to sell into non-LCFS markets while the market still needs RINs from those marginal producers. That suggests a steepening cost curve supportive for margins and stronger RIN prices. Do you agree?

Robert Day, Chief Financial Officer

Yes, that's how we see it. RINs will need to be the great equalizer to create margin to make enough volume to satisfy the RVO. The extent to which RINs need to increase will depend on feedstock costs and global fuel prices, but the environment today eases the burden and we are seeing strong RIN values.

Operator, Operator

Our next question comes from the line of Betty Zhang with Scotiabank.

Y. Zhang, Analyst (Scotiabank)

I wanted to ask on DGD, the Q2 guide of 320 million gallons—is that essentially running at maximum levels? If not, is there any reason to not run at max?

Robert Day, Chief Financial Officer

Betty, it's close to max. Given the margin environment, we are incentivized to run as hard as we can. 320 million is pretty close to max and we're going to do our best to run full out in this environment.

Randall C. Stuewe, Chairman and Chief Executive Officer

You're being slightly positive, Bob, but yes, it's pretty close to full out.

Y. Zhang, Analyst (Scotiabank)

Okay. And on the differential between SAF and renewable diesel, SAF has had a premium over RD historically. Given many moving pieces including the RVO, can you speak to the economics of producing SAF versus RD currently?

Robert Day, Chief Financial Officer

Short answer: for sales into the U.S. and voluntary markets there is more of a fixed premium to RD where SAF continues to be a better opportunity and better margin. In Europe it's more dynamic, tied to mandates, and sometimes RD margins in Europe are better than SAF. We expect that volatility to continue. We're happy with the voluntary market in the U.S. and the premiums we can consistently get from SAF, and we're meeting our commitments from the investment we made in SAF at Port Arthur.

Operator, Operator

Our next question comes from the line of Jason Gabelman with TD Securities.

Jason Gabelman, Analyst (TD Securities)

Given Darling is uniquely positioned running domestic feedstocks and also importing feedstocks to DGD from the international market, are RIN prices today sufficient enough to attract international feedstocks to be run in the U.S. market, especially given those feedstocks no longer qualify for the producer tax credit?

Robert Day, Chief Financial Officer

That depends on who's making the fuel. For Diamond Green Diesel, given our cost of production, efficiency and logistics for importing international feedstocks, we can make renewable diesel with those products and sell into the U.S. and make a good margin. I don't think everyone can say that. For that reason, we expect margins to continue to strengthen and expect to see a difference in feedstock prices in North America relative to the rest of the world.

Jason Gabelman, Analyst (TD Securities)

Do you expect biodiesel producers to ultimately need to rely on international feedstocks as well for the industry to meet the RVO?

Robert Day, Chief Financial Officer

No, I don't. We think biodiesel producers should see a sufficient amount of U.S. and Canadian veg oil to supply their needs.

Operator, Operator

There are currently no more questions waiting at this time. I will pass the call back to the management team for any closing remarks.

Randall C. Stuewe, Chairman and Chief Executive Officer

All right. Thanks, everybody, for your questions today. As you know, we'll be hosting an Investor Day on May 11 in New York. It will be simultaneously webcast. It's an exciting time for us as Suann, Bob, Carlos, myself and David van Dorselaer will lay out a lot of these topics that we discussed today in addition to what our future looks like and the three-year road map as we see it today. If you have any questions, follow up with Suann. Stay safe and have a great day. Thanks again.

Operator, Operator

Thank you. That will conclude today's conference call. Thank you for your participation. You may now disconnect your lines.