Darling Ingredients (DAR)

Sustainable ingredients producer Darling Ingredients (NYSE:DAR) reported Q3 CY2025 results exceeding the market’s revenue expectations, with sales up 10% year on year to $1.56 billion. Its non-GAAP profit of $0.16 per share was 28.7% below analysts’ consensus estimates.

Company Overview

Turning what others consider waste into valuable resources, Darling Ingredients (NYSE:DAR) collects and transforms animal by-products, used cooking oil, and other bio-nutrients into valuable ingredients for food, feed, fuel, and industrial applications.

Ingredients, flavors, and fragrances companies supply essential components to food, beverage, personal care, and household product manufacturers. These firms develop proprietary formulations that enhance taste, scent, and texture, creating customer stickiness through specialized expertise and regulatory-approved ingredient portfolios. Tailwinds include growing consumer demand for natural and clean-label products, expansion in emerging markets, and innovation in plant-based and functional ingredients. However, headwinds persist from volatile raw material costs, particularly for agricultural and petrochemical inputs. Regulatory scrutiny over synthetic additives and fragrance allergens poses compliance challenges, while consolidation among major customers increases pricing pressure and negotiating leverage against suppliers.

Darling Ingredients' competitors in the rendering and ingredients space include Cargill, Tyson Foods, and JBS. In renewable fuels, it competes with other biofuel producers such as Renewable Energy Group (acquired by Chevron), Neste, and traditional petroleum refiners expanding into renewable fuels.

A company’s long-term sales performance can indicate its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.

With $5.84 billion in revenue over the past 12 months, Darling Ingredients carries some recognizable products but is a mid-sized consumer staples company. Its size could bring disadvantages compared to larger competitors benefiting from better brand awareness and economies of scale.

As you can see below, Darling Ingredients’s demand was weak over the last three years. Its sales fell by 1.3% annually, a tough starting point for our analysis.

This quarter, Darling Ingredients reported year-on-year revenue growth of 10%, and its $1.56 billion of revenue exceeded Wall Street’s estimates by 4.5%.

Looking ahead, sell-side analysts expect revenue to grow 5.7% over the next 12 months, an acceleration versus the last three years. This projection is above the sector average and indicates its newer products will spur better top-line performance.

Darling Ingredients has bad unit economics for a consumer staples company, giving it less room to reinvest and develop new products. As you can see below, it averaged a 23.5% gross margin over the last two years. That means Darling Ingredients paid its suppliers a lot of money ($76.53 for every $100 in revenue) to run its business.

Darling Ingredients produced a 24.7% gross profit margin in Q3, up 2.7 percentage points year on year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Operating margin is a key profitability metric because it accounts for all expenses enabling a business to operate smoothly, including marketing and advertising, IT systems, wages, and other administrative costs.

Darling Ingredients was profitable over the last two years but held back by its large cost base. Its average operating margin of 6.8% was weak for a consumer staples business. This result isn’t too surprising given its low gross margin as a starting point.

Looking at the trend in its profitability, Darling Ingredients’s operating margin decreased by 3.4 percentage points over the last year. Darling Ingredients’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

This quarter, Darling Ingredients generated an operating margin profit margin of 4.6%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

We track the change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

In Q3, Darling Ingredients reported adjusted EPS of $0.16, down from $0.21 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects Darling Ingredients’s full-year EPS of $0.86 to grow 139%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Darling Ingredients has shown impressive cash profitability, giving it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 8% over the last two years, better than the broader consumer staples sector. The divergence from its underwhelming operating margin stems from the add-back of non-cash charges like depreciation and stock-based compensation. GAAP operating profit expenses these line items, but free cash flow does not.

Darling Ingredients’s free cash flow clocked in at $134.2 million in Q3, equivalent to a 8.6% margin. The company’s cash profitability regressed as it was 6 percentage points lower than in the same quarter last year. This warrants extra attention because consumer staples companies typically produce more consistent and defensive performance.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Darling Ingredients hasn’t been the highest-quality company lately because of its poor revenue and EPS performance, it historically found a few growth initiatives that worked. Its five-year average ROIC was 17.4%, higher than most consumer staples businesses.

Darling Ingredients reported $107.1 million of cash and $4.34 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $874.7 million of EBITDA over the last 12 months, we view Darling Ingredients’s 4.8× net-debt-to-EBITDA ratio as safe. We also see its $97.23 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Darling Ingredients blew past analysts’ adjusted operating income expectations this quarter. We were also glad its revenue outperformed Wall Street’s estimates. On the other hand, its EPS missed. Overall, this print had some key positives. The stock traded up 1.6% to $36.28 immediately after reporting.

Before making an investment decision, investors should account for Darling Ingredients’s business fundamentals and valuation in addition to what happened in the latest quarter.

Darling Ingredients’s business quality ultimately falls short of our standards. To kick things off, its revenue has declined over the last three years. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its declining EPS over the last three years makes it a less attractive asset to the public markets. On top of that, its gross margins make it more difficult to reach positive operating profits compared to other consumer staples businesses.

Darling Ingredients’s P/E ratio based on the next 12 months is 17.3x. While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $47 on the company (compared to the current share price of $36.28).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.