DAR Options: Bearish Outlook Amid Short-Term Rally

Darling Ingredients Inc. is a global developer and producer of sustainable natural ingredients from edible and inedible bio-nutrients. The company creates a wide array of ingredients and customized specialty solutions for the pharmaceutical, food, pet food, animal feed, industrial, fuel, bioenergy, and fertilizer industries. Its core business involves collecting and transforming animal by-product streams into useable ingredients, including collagen, edible fats, feed-grade fats, animal proteins and meals, plasma, pet food ingredients, organic fertilizers, yellow grease, fuel feedstocks, green energy, natural casings, and hides. Key brands include 'Rendac', 'Sonac', 'FASA', 'Ecoson', 'Rousselot', 'Gelnex', and 'CTH'. Darling differentiates itself through a comprehensive, single-source solution for suppliers, utilizing a global network of processing facilities and a diverse product portfolio covering all animal origin raw material types. The company also recovers and converts recycled oils and bakery products into valuable feed ingredients, and provides environmental services like grease trap collection.

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DAR's technical outlook is mildly bearish. The stock price has experienced a significant downtrend over the past 90 days, falling from a high near $39.45 in early July to its current price of $32.59. The price is below its 21-day EMA of $32.38 and well below both its 50-day SMA of $32.15 and its 200-day SMA of $33.44, reinforcing the bearish sentiment. Momentum indicators also suggest weakness. The MACD is negative, with the MACD line positioned above the signal line, although the histogram shows a recent narrowing, suggesting some deceleration in the downtrend. The RSI is at 52.81, indicating neutral momentum but trending downwards. The ADX is at 15.77, indicating a weak trend. While the Stochastic %K is at 48.85 and the %D is at 56.85, they are not providing a strong bullish signal. The recent price action indicates a failure to sustain upward momentum, with the price struggling to break above key moving averages. The Bollinger Bands show the price is not oversold and is likely to continue trending within the bands, suggesting continued consolidation or further declines.

Darling Ingredients' MD&A presents a mixed financial performance and a cautious outlook. For the three months ended June 28, 2025, total `Net Sales` increased slightly to $1,481.5 million from $1,455.3 million in the prior year. However, `Gross Profit` margin increased modestly to 23.3% compared to 22.5% for the same period last year. For the six months ended June 28, 2025, `Net cash provided by operating activities` was $394.8 million, a decrease from $410.4 million in the prior year. The Fuel Ingredients segment experienced a significant decrease in operating income, down $(39.7) million or (71.4)% for the three months ended June 28, 2025, and $(148.4) million or (103.5)% for the six months ended June 28, 2025, primarily due to regulatory changes affecting the renewable fuel industry and the change from the blenders tax credit to the producers tax credit. Management notes that 'global economic conditions continue to be highly volatile' due to various factors, including conflicts in Ukraine and the Middle East, impacting energy and commodity prices, inflation, and supply chain pressures. The company also faces risks associated with climate change and evolving ESG practices. While management believes that cash flows and available credit will be sufficient to meet the company's needs for the next twelve months, they acknowledge that 'numerous factors could have adverse consequences'. The company's substantial indebtedness poses a risk, requiring reliance on dividends and distributions from subsidiaries to meet obligations.

The Darling Ingredients' Q2 2025 earnings call presents a moderately bullish outlook, driven by improvements in the core ingredients business and anticipated benefits from policy changes. While combined adjusted EBITDA decreased to $249.5 million versus $273.6 million in Q2 2024, management highlighted 'early signs of momentum building across our businesses.' They anticipate sequential improvement, with full-year combined adjusted EBITDA expected in the range of $1.05 billion to $1.1 billion. The Feed Segment is expected to benefit from rising fat prices, while protein headwinds are seen as stabilizing. Despite a challenging renewable fuel environment, management remains confident in DGD's long-term value, noting that DGD-3 is scheduled for a turnaround in Q3, positioning it for full utilization in 2026. The company is also advancing its strategic agenda with the Nextida joint venture, expected to contribute meaningfully to earnings in the health and wellness space. Management believes the company is well-positioned to capitalize on a more constructive market environment ahead, particularly with the proposed RVO framework representing a major tailwind.

DAR's financial performance reveals a concerning trend. Revenue has fluctuated, starting at $1420.3M in Q1 2024, peaking at $1614.1M in Q4 2023, but declining to $339.4M in Q3 2025. The gross profit ratio has significantly deteriorated, plummeting from 0.21 in Q1 2024 to a staggering -1.94 in Q3 2025, indicating severe cost management issues or pricing pressures. While operating cash flow was positive at $263.9M in Q1 2024 and $145.8M in Q2 2025, there is no operating cash flow data for the most recent quarter, Q3 2025, raising concerns about recent cash generation. Total debt has remained relatively stable, with $4686.7M in Q1 2024 and $4216.8M in Q2 2025, but no debt data is available for the latest quarter, Q3 2025. The drastic decline in revenue and gross profit, coupled with missing cash flow and debt data for the most recent quarter, paints a worrying picture of the company's financial health and sustainability.

The company demonstrates a moderately bullish profile, characterized by solid revenue growth and improving profitability. Revenue has consistently increased, indicating strong market demand. The gross margin exhibits stability, suggesting efficient cost management. Return on Equity (ROE) has shown positive movement, signaling enhanced profitability and efficient use of shareholder equity. The Price-to-Earnings (P/E) ratio, while elevated, might be justifiable given the growth trajectory and positive ROE trend. The Debt-to-Equity ratio shows a slight increase, which warrants monitoring, but is counterbalanced by a healthy Current Ratio, implying sufficient liquidity to meet short-term obligations. Overall, the company presents a favorable picture with growth and profitability, though the leverage should be watched closely. The combination of growth and profitability suggests potential for continued positive performance over the next 12 months.