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Text: 2020 was a year with many facets.
We started the year confident that the commodity price headwinds faced over the past several years would ultimately transform into tailwinds.
Then a pandemic hit and basically turned all of our worlds upside down.
Like most other public companies have started in the earnings cycle, navigating the choppy waters of 2020 was truly a challenge.
Our priorities during the COVID-19 pandemic continue to be protecting the health and safety of our employees, while continuing to provide our essential services to the industries and communities we serve.
We implemented significant changes and safety protocols across our global operations to protect our employees, serve our customers and ensure business continuity.
We did incur direct costs of about $7.5 million related to these actions to protect our employees from COVID.
This doesn't include the plant disruptions, production slowdowns or customer order delays.
The result of our efforts allowed us to continue our operations through fiscal 2020 with minimal disruption.
Your hard work made 2020 one of our best years in Darlings long history.
We finished the year strong with a combined EBITDA, adjusted EBITDA of $214.5 million in fourth quarter.
All of our segments in the Global Ingredients platform put up solid results as the $146.3 million of EBITDA in the base business was the best quarterly performance of 2020 and reflected the growing momentum of an improved pricing cycle.
The Feed segment ended the year with a solid performance of $90.2 million of EBITDA, driven by the higher raw material volumes and better prices in both proteins and fats for the quarter.
The commodity price momentum has certainly carried into 2021 as prices are close to their 10-year mean reversion average.
We believe that 2021 results for the Feed segment should increase significantly over the previous year.
I'll dive into that a little later in the call.
Our Food segment continued to show strength, finishing 2020 with its best quarterly performance in our history.
Our collagen peptide sales drove better results posting approximately $50 million of EBITDA for the fourth quarter.
With our three new Peptan facilities online last year, we anticipate solid growth in this segment for 2021.
Now, as we had indicated on our third quarter call, Diamond Green Diesel had its turnaround in early fourth quarter, which led to DGD selling approximately 57 million gallons of renewable diesel at $2.40 per gallon or contributing $68.2 million of EBITDA to Darling during the fourth quarter.
For the year, DGD certainly met our expectations, selling 288 million gallons of renewable diesel at an average of $2.34 per gallon.
Darling's share of EBITDA from DGD for 2020 was $337.3 million.
Our European Bioenergy business reported another solid quarter, which we believe will be steady through 2021.
This decision was based on the go-forward unfavorable industry economics for biodiesel.
Our action does free up valuable low carbon feedstocks that can be sold to DGD and also helps us focus our energy on making DGD the best low cost renewable diesel producer in the world.
Brad will cover the particulars of the asset impairment charge related to these shutdowns a little later in the call.
Our current take on the economic recovery is bullish.
Ag commodity markets are experiencing a very favorable pricing environment.
The energy market also is stronger than a year ago with ULSD trading above where it was at the end of February 2020.
These two together make for a strong operating environment for Darling and DGD.
We believe as the U.S. and world economies reopen later this summer, demand for eating out, taking road trips will help us to maintain a good percentage of the improved commodity price environment we are experiencing today.
At the top, we'd like to point out that our fiscal 2020 was a 53-week year with the extra week in our fourth quarter.
Also I will speak to several adjusted amounts, which reflect the shutdown of our two biodiesel plants with a restructuring and asset impairment charge recorded in the fourth quarter of 2020 and also adjusting the Q4 '19 and fiscal year 2019 results for the retroactive blenders tax credits related to 2018 and 2019 all being recorded in our fourth quarter 2019 results.
We think this will give a better comparison of our results period-to-period.
The previously mentioned pre-tax restructuring and asset impairment charge of $38.2 million related to the shutdown of the two biodiesel facilities included a goodwill impairment charge of $31.6 million, other long-lived asset charges of $6.2 million and $0.4 million of restructuring charges.
Now, for a few of the highlights; net income for the fourth quarter of 2020 totaled $44.7 million or $0.27 per diluted share compared to a net income of $242.6 million or $1.44 per diluted share for the 2019 fourth quarter.
Net income for fiscal 2020 was $296.8 million or $1.78 per diluted share compared to $312.6 million or $1.86 per diluted share for fiscal 2019.
In the fourth quarter of 2020, we recorded a 30.6 million after-tax restructuring and asset impairment charge related to the shutdown of our Canada and U.S. biodiesel facilities.
Excluding this charge, adjusted net income was $75.3 million or $0.45 per diluted share.
Additionally, the fourth quarter of fiscal 2019 included retroactive blenders tax credits related to 2018, as well as for all of 2019.
Excluding these credits for periods prior to the fourth quarter of 2019 resulted in an adjusted net income for the fourth quarter of 2019 of $50.1 million or $0.30 per diluted share.
Excluding the restructuring and asset impairment charge related to the shutdown of the two biodiesel facilities adjusted net income for fiscal 2020 was $327.4 million or $1.96 per diluted share.
Excluding the retroactive blenders tax credits related to 2018 adjusted net income for fiscal 2019 was $226 million or $1.34 per diluted share.
Now, turning to our operating income, we recorded $74.4 million of operating income for the fourth quarter of 2020 compared to $293.3 million for the fourth quarter of 2019.
Excluding the pre-tax $38.2 million restructuring and asset impairment charge adjusted operating income for the fourth quarter of 2020 was $112.5 million.
Excluding the retroactively reinstated blenders tax credits recorded in the fourth quarter of 2019 for prior periods, the adjusted operating income for the fourth quarter of 2019 was $100 million.
Therefore, on a comparative basis the fourth quarter of 2020 adjusted operating income improved $12.5 million over the fourth quarter of 2019.
The fourth quarter 2020 gross margin increased $29.8 million over the prior year amount, which partially offset the $38.2 million impairment charge and a $10 million increase in depreciation and amortization, which was partially attributable to the Belgium Group and Marengo acquisition assets added in the fourth quarter of 2020.
Operating income for fiscal 2020 was $430.9 million as compared to $475.8 million for fiscal 2019.
Excluding the $38.2 million restructuring and impairment charge, the adjusted operating income for fiscal 2020 was $469.1 million.
Operating income for fiscal 2019 was $475.8 million.
Excluding the retroactive blenders tax credits related to 2018 adjusted operating income for fiscal 2019 was $389.2 million.
The $79.9 million increase in adjusted operating income for fiscal 2020 as compared to fiscal 2019 was primarily due to a gross margin increase of $108.3 million and a larger contribution and equity earnings from our renewable diesel joint venture Diamond Green Diesel.
These improvements more than offset a $20 million increase in SG&A, asset sales gains of $20.6 million in fiscal 2019 and a $24.7 million increase in depreciation and amortization.
SG&A increased $20 million in fiscal 2020 as compared to fiscal 2019, primarily due to increases in insurance premiums, labor cost, COVID-related costs and foreign currency effect, which were partially offset by lower travel cost.
Interest expense declined $1.7 million for the fourth quarter 2020 as compared to the 2019 fourth quarter amount and declined $6 million for fiscal 2020 as compared to fiscal 2019.
Turning to income taxes, the company's 2020 effective tax rate of 15.1% is lower than the federal statutory rate of 21% primarily due to the biofuel tax incentives.
Tax expense and cash tax payments for 2020 were $53.3 million and $36.8 million respectively.
For 2021 we are projecting the effective tax rate to be 20% and cash taxes of approximately $40 million.
Looking at the balance sheet at year-end January 2, 2021 debt was reduced $141.4 million during the year with a net paydown of $189.8 million.
The bank covenant leverage ratio ended the year at 1.90.
Capital expenditures totaled $280.1 million for 2020 as we plan to spend approximately $312 million on capital expenditures in fiscal 2021.
The company received $205.2 million in cash distributions in 2020 from our Diamond Green Diesel joint venture.
Lastly, we repurchased approximately 2.2 million shares of common stock totaling $55 million during fiscal 2020 and paid approximately $29.8 million in cash in the fourth quarter of 2020 for the Belgium Group and Marengo acquisitions.
Now diving into 2021, with the commodity price improvement and continued strong raw material volumes, we believe that our Food, Feed and Fuel segments prior to adding Diamond Green Diesel should generate between $565 million and $600 million of EBITDA.
That's a conservative 12% to 20% improvement over 2020.
DGD, we believe will be able to earn at least $2.25 a gallon EBITDA in 2021 and should produce between 300 million gallons and 310 million gallons this year, which would generate between $335 million and $350 million of EBITDA for Darling share.
This range does not include any additional upside for renewable diesel gallons that could be produced in 2021 as the 400 million gallon expansion is on track to commission in early Q4.
We should know better in the middle of the year the exact timing of when the Norco expansion will be approximately online.
Now, the DGD Port Arthur location is making excellent progress with all key long lead equipment items ordered and site work nearing completion.
This 470 million gallon renewable diesel facility should be operational by the back half of 2023 securing Diamond Green Diesel's leadership position as the largest low-cost producer of renewable diesel in North America.
We anticipate all costs of both expansion projects will be funded by the internal cash flow of Diamond Green Diesel.
However, we still anticipate DGD putting a non-recourse revolver in place shortly.
Now, let's do something different and turn to the feedstock question.
I will try and answer this question now but sure you will ask it again during the Q&A.
Darling believes there's adequate low carbon feedstocks to supply the 1.2 billion gallon renewable diesel platform of DGD.
We do expect growth in animal fats and certainly think that used cooking oil will recover a little this year and grow in the future years.
Our approach for keeping our feedstock advantage for DGD is twofold.
What can Darling do to render or collect more out of our footprint today, either through process or technology improvements or competitive positioning and what are the bolt-on opportunities to grow our volumes of animal fats and waste oils around the world?
We do believe there are multiple avenues for us to pursue in expanding our feedstock footprint and we have faith that our large global presence will put us on a pathway to get results that others might not be able to achieve.
Operating animal byproduct businesses on five continents allows us to see what no one else can see and provide supply chain arbitrage that will make our renewable diesel platform second to no one.
As we grow another year older and wiser we continue to position our company in the best place to take advantage of the changing times.
We are excited about our outlook for 2021, encouraged by the growth of our low carbon fuel standards around the world and we are doubly pleased with the great progress at Diamond Green Diesel and our joint venture partner Valero as we are now inside of nine months of the biggest renewable diesel project in North America starting up.
So with that Alicia, let's go ahead and open it up to question and answers.

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q4 adjusted earnings per share $0.45 excluding items.
q4 net income $0.27 per gaap diluted share.

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