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Text: Participants on the call are Mr. Randall C. Stuewe, our Chairman and Chief Executive Officer; Mr. Brad Phillips, Chief Financial Officer; Mr. John Bullock, Chief Strategy Officer; and Ms. Sandra Dudley, Executive Vice President of Renewables and U.S. Specialty Operations.
Now I'd like to hand the call over to Randy.
Our core business continues to perform very well.
For the third quarter, we reported combined adjusted EBITDA of approximately $290 million, of which $230 million was directly from our Global Ingredients business.
Like many companies around the world, we continue to face the challenges others are facing when it comes to labor, transportation and higher cost of operations.
Our team continues to execute our business strategy and operate our facilities with great efficiency while improving our gross margin year-over-year and sequentially from the second quarter this year.
As it has been well stated, Hurricane Ida took a big bite out of DGD's performance in Q3.
For the first time in eight-plus years of operating, DGD was shutdown to protect the employees and the assets of the facility from this significant storm.
The great news is there was little damage to the facility, which it took a direct hit from Ida.
With the days of shutdown and the restart process, we lost approximately 17 days of renewable diesel production.
Also, on the great news front, the DGD Norco expansion is running well and is closing in on reaching its production capacity, putting DGD on track to sell 365 gallons or more in 2021.
We also believe DGD could sell over 700 million gallons of renewable diesel in 2022 as the engineering team continues to fine tune the performance of this expansion.
The achievement of Diamond Green Diesel is only possible because of the hard working employees, contractors and service providers at the facility.
While many of these fine people suffered damage to their personal property and disruption to their daily lives from the hurricane, their resiliency to return to work and get the plant back into operation and finish the construction of DGD II was extremely important and exceptional.
We truly appreciate their tenacity for getting the job done.
Also, during the quarter, Darling repurchased approximately $22 million of common stock.
And for year-to-date, we have purchased approximately $98 million worth of stock.
On a year-to-date basis, our Global Ingredients business has earned approximately $628 million of EBITDA, putting us at an annualized run rate of approximately $850 million for 2021.
With that, now I'd like to hand it over to Brad to take us through the financials, then I'll come back and discuss a little bit of our outlook and some -- how things are going to finish up for 2021.
Net income for the third quarter of 2021 totaled $146.8 million or $0.88 per diluted share compared to net income of $101.1 million or $0.61 per diluted share for the 2020 third quarter.
Net sales increased 39.4% to $1.2 billion for the third quarter of 2021 as compared to $850.6 million for the third quarter of 2020.
Operating income increased 61.4% to $205.7 million for the third quarter of 2021 compared to $127.5 million for the third quarter of 2020.
The increase in operating income was primarily due to the $114.1 million increase in gross margin which was a 53.8% increase in gross margin over the same quarter in 2020.
Our operating income improvement was impacted by the lower contribution of our 50% share of Diamond Green Diesel's net income, which was $54 million in the third quarter of 2021 as compared to $91.1 million for the same quarter of 2020.
As Randy mentioned earlier, Hurricane Ida impacted gallons sold in Q3, resulting in lower earnings for DGD during the quarter.
Our gross margin percentage continues to improve year-over-year and sequentially.
Q3 2021 gross margin was 27.5%, which is the best result we have had in the last 10 years.
For the first nine months of this year, our gross margin percentage was 26.8% compared to 24.9% for the same period a year ago or a 7.6% improvement year-over-year.
As you can see on Pages four and five of our IR deck, gross margins have continued on a positive trend for the last four years as our management team across the business has worked to increase the profitability of their operations.
Depreciation and amortization declined $7.9 million in the third quarter of 2021 when compared to the third quarter of 2020.
SG&A increased $7.3 million in the quarter as compared to the prior year and declined $1.9 million from the previous quarter.
The main causes for the higher cost in the quarter compared to a year ago related to labor, travel and other.
Interest expense declined $3.4 million for the third quarter 2021 as compared to the 2020 third quarter.
Now turning to income taxes, the company recorded income tax expense of $42.6 million for the three months ended October 2, 2021.
Our effective tax rate is 22.3%, which differs from the federal statutory rate of 21%, due primarily to biofuel tax incentives, the relative mix of earnings among jurisdictions with different tax rates and certain taxable income inclusion items in the U.S. based on foreign earnings.
For the nine months ended October 2, 2021, the company recorded income tax expense of $126.3 million and an effective tax rate of 20.2%.
The company also has paid $36.9 million of income taxes year-to-date as of the end of the third quarter.
For 2021, we are projecting an effective tax rate of 22% and cash taxes of approximately $10 million for the remainder of the year.
Our balance sheet remains strong with our total debt outstanding as of October two at $1.38 billion and the bank covenant leverage ratio ended the third quarter at 1.6 times.
Capital expenditures were $65.6 million for Q3 2021 and totaled $191.7 million for the first nine months of 2021.
As a reminder, this capex spend does not include our share of the capital spend at Diamond Green Diesel, which continues to be substantially funded by internal resources at DGD.
There is strong momentum for our global platform as we finish out our best year in our history and look to build on that energy going into 2022.
I want to spend a few minutes on capital allocation.
Over the last couple of years, we have discussed our best use of cash at Darling through five points, and those really have not changed.
Those five points are: Investing in DGD, growing our core business, reaching an investment-grade debt rating, meaningful share repurchases and potentially starting a dividend policy for our shareholders.
And we continue to work on the execution of this plan as our free cash flow generation continues to grow.
I do not need to point out that we did make the decision earlier to accelerate the construction of DGD Port Arthur, Texas, which puts a big capital spend on DGD in 2022.
That does push out the potential size of distributions from the venture in 2022, but increases the potential for 2023.
I do also want to add that our M&A funnel of opportunities to grow our low CI feedstock footprint around the world and grow our green bioenergy production capabilities is rising.
This may adjust priorities in our capital allocation plan, but not limit our ability to execute on all of the points I already mentioned.
So with that, Grant, let's go ahead and open it up to Q&A.

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compname reports q3 sales of $1.2 billion.
q3 sales $1.2 billion.

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