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Text: Mr. John Bullock is attending a college graduation today and family comes first.
A year ago, like many other management teams, we all had the deer in the headlights there happening as a result of the pandemic.
Today, we see a very clear future for Darling Ingredients as our dedicated global team of 10,000 plus employees continue to execute our business strategy in a safe and efficient manner.
Our earnings for the first quarter of 2021 we're certainly energized by a rising commodity price environment, which undoubtedly had a positive impact and enabled Darling to report a record $284.8 million of combined EBITDA for the quarter.
The Feed segment's EBITDA was $124.4 million, which was $34 million better than the fourth quarter of 2020 and $54 million higher than the first quarter of 2020.
Protein and fat prices averaged in the range of 40% to 60% higher than the year ago period and have continued to move higher into the current period.
Our Food segment turned in a solid performance to start 2021 with an EBITDA of $46.4 million, which was approximately 18% higher than a year ago.
We continue to see solid growth in our collagen peptide sales and look forward to our biomedical products having an impact in the future on this segment's earnings.
In the Fuel segment, we continue to see solid results from our European bioenergy business, which reported another solid quarter, producing $20.5 million of EBITDA in Q1.
Diamond Green Diesel generated another outstanding quarter with a $2.77 EBITDA per gallon on 78 million gallons sold.
Darling's half was $108.2 million of EBITDA plus our bioenergy results produced a strong $128.7 million of combined EBITDA in Q1 for our Fuel segment.
We continue to experience a favorable commodity pricing environment as the U.S. economy recovers with more and more states lifting COVID restrictions.
As travel increases, we are seeing energy prices go higher as ultra low-sulfur diesel is trading above $2 a gallon in the NYMEX spot for the first time in a couple of years.
Higher levels of economic activity here and abroad we believe will support continued strength in the demand-driven commodity cycle that I'll discuss a little later on the call.
Now I'd like to hand it over to Brad to take us through the financials, then I'm going to come back and discuss the outlook and our increased guidance for 2021.
Net income for the first quarter of 2021 totaled $151.8 million or $0.90 per diluted share compared to net income of $85.5 million or $0.51 per diluted share for the 2020 first quarter.
Net sales increased 22.7% to $1.05 billion for the first quarter of 2021 as compared to $852.8 million the first quarter of 2020.
Operating income increased 62% to $199.5 million for the first quarter of 2021 compared to $122.8 million for the first quarter of 2020.
The 62% increase in operating income was primarily due to the first quarter 2021 gross margin improving approximately $68 million over the prior year and increasing from 24.1% to 26.2%.
This is primarily the result of higher protein and fat prices in our Feed segment during the first quarter as Randy mentioned earlier.
Depreciation and amortization declined $6.1 million in the first quarter of 2021 when compared to the first quarter of 2020.
This reduction was due primarily to certain assets in our Food segment which became fully depreciated and amortized by the end of 2020.
SG&A increased slightly by $1.2 million in the quarter as compared to the prior year and there were $778,000 of additional restructuring and impairment charges related to the biodiesel facilities shutdown in the prior quarter.
Lastly, regarding the improved operating income, our 50% share of Diamond Green diesels net income was $102.2 million as compared to $97.8 million for the first quarter of 2020.
Interest expense declined $2.7 million for the first quarter of 2021 as compared to the 2020 first quarter.
Now turning to income taxes.
The company recorded income tax expense of $28.7 million for the three months ended April 3, 2021.
The effective tax rate for the first quarter is 15.8%, which differs from the federal statutory rate of 21% due primarily to the biofuel tax incentives, the relative mix of earnings among jurisdictions with different tax rates and excess tax benefits from stock-based compensation.
The company also paid $15.6 million of income taxes in the first quarter.
For 2021, we are projecting an effective tax rate of 20% and cash taxes of approximately $30 million for the remainder of the year.
Looking at the Q1 balance sheet, our total debt declined $63.5 million to $1.44 billion and the bank covenant leverage ratio ended the first quarter at 1.6 times adjusted EBITDA.
Capital expenditures were $60.8 million for Q1 2021 and is in line with Darling's planned capex spend of approximately $312 million on capital expenditures for fiscal 2021.
As you saw at the end of March, Diamond Green Diesel successfully entered into a new $400 million senior unsecured revolving credit facility.
The new revolving credit facility matures March 30, 2024 and is non-recourse to the joint venture partners.
The use of funds of this revolver or for general joint venture purposes and as we have indicated in the past, any potential distributions in 2021 wouldn't be considered until the expansion in Norco, Louisiana's in-production in the fourth quarter later this year.
We feel comfortable with the increased range of $1.075 billion to $1.15 billion of combined EBITDA as the increase is coming from two segments, our Feed segment and our Fuel segment.
The Feed segment is certainly benefiting from the rising commodity price environment for both proteins and animal fats and waste oils, and the question you're thinking is how long does this higher price environment.
Darling, just like every other commodity producer is watching this like a hawk.
Our view is that we got into the current situation because of the demand-driven event which started with China.
And unlike a supply shortage driving commodity prices higher, higher prices from a demand driven event can take multiple growing seasons to rebuild feed inventories.
Yes, commodity prices have steepened versus on the futures curve, but that futures price is still 30% to 50% higher than the historical price when you get to that future period.
For now, we think the Feed segment will perform well for the rest of 2021.
We remain disciplined in our evaluation of the volatility this segment can experience and continuing to reduce our expenses and improve efficiencies to enhance the margin environment we are experiencing today.
The other increase in our guidance is the Fuel segment.
DGD turned in a record EBITDA per gallon in Q1.
And with that, the Q2 margin is averaging in the current environment, we are putting a potential range of $2.25 to $2.40 EBITDA per gallon for DGD for 2021.
As our joint venture partner announced several weeks ago, we believe the start-up at Norco expansion will be in the middle of Q4, that DGD will ultimately sell 365 million gallons of renewable diesel in 2021.
Those higher gallons and the range of EBITDA per gallon provided puts Darling's half of the EBITDA from DGD between $410 million and $435 million for 2021.
We are targeting this facility to be operational in the back half of 2023, but the team continues to evaluate if we can improve the timeline and start up Port Arthur earlier.
For Darling, we continue to investigate multiple avenues to expand our feedstock footprint and we believe that we are on a solid pathway to achieve this objective in the very near future.
We are encouraged to see more and more states in the U.S. and other countries passing and preparing legislation for low carbon fuel standards.
In our view of the renewable diesel supply and demand equation, we continue to believe that renewable diesel demand will outpace supply for the next three to four years, then we believe that sustainable aviation fuel market demand should begin to develop and have demand pull for DGD somewhere in that timeframe.
We think our DGD Joint Venture is a highly innovative platform and employees one of the most advanced processes for turning waste animal fats and oils into the greenest hydrocarbon in the world.
And it goes without saying, DGD is one of the best investments we can allocate capital to for high returns for our stakeholders.
But we have other areas of innovation as well.
Since the beginning of 2020, Darling has had 100% ownership of EnviroFlight.
EnviroFlight is a leader in sustainable insect Ingredients designed for animal and plant nutrition, aiming to drive transformative change in the global food supply.
We have made several recent announcements on expanding our operations of EnviroFlight earlier this year and we believe this project will position us as the leading developer of proprietary technologies with the first commercial scale black soldier fly larvae manufacturer in the U.S.
We are also pleased with the development of work going on in Europe with our Biomedical technology team.
Our X-Pure GelMA is our latest addition to our Biomedical range of ultrapure gelatin and collagens to the medical industry, and we anticipate that the product offerings will grow as we move forward and the new products bringing added value to our industry.
Our X-Pure products are unique on the market as they come with ultra-low levels of impurities and fully validated traceability of raw materials.
Our innovative spirit grows as we continue to look for ways to improve our product offerings across the spectrum of the markets we serve.
We view our efforts to add innovative products as well as the ongoing investments we have made to build new and expanded rendering capacity over the past several years as key to improving long-term shareholder value.
Sometimes the cycles may not lineup for us, but when they do, Darling can generate solid returns and strong free cash flow.
I'd like to note that we are proud to be selected by Bloomberg and TV Media Group as one of the 50 sustainable climate leaders in the world.
Darling is the original recycler.
And to us, that makes Darling Ingredients the greenest company on the planet.
With that, lets go ahead and open it up to Q&A.

user
q1 sales $1.05 billion versus refinitiv ibes estimate of $1.03 billion.
qtrly net income of $151.8 million, or $0.90 per gaap diluted share.
increasing our combined adjusted ebitda guidance to a range of $1.075 billion to $1.150 billion for 2021.

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