Small Cap Strategist is published by Crystal Equity Research an independent research resource on small capitalization stocks. Follow along as we discuss the most recent trends in the small-cap sector, investigate interesting companies and pan a few not-so-promising stocks.
week Darling Ingredients(DAR:NYSE) reported earnings
of $100,000 on net sales of $874.7 million in the first quarter ending March
2015. Darling is a recycler of sorts,
collecting by-products of the food production industry and recycling the
left-overs and waste into proteins, fats and leathers.Nothing goes to waste.Every last chicken feather, hide, gallon of
used cooking grease and cake crumb gets up-cycled to a usable material for
feed, food, fuel or clothing.Its customers
include pet food producers, personal care manufacturers and textile users,
used to sell its non-edible oils to the biofuel industry until it entered into
a joint venture called Diamond Green
Diesel with oil and gas giant Valero Energy, Inc. (VLO:NYSE).The joint venture provides a good hedge for
Darling against declines in the prices for its oil, which can weaken against
other oils from corn, soy or palm crops. Diamond
Green produced 37 million gallons of renewable diesel in the quarter.
commodities business is a tough one and Darling had been under some pressure in
recently months from weakened selling prices.Sales in the three months ending March 2015, slipped compared to the
year-ago quarter on lower selling prices for fat products.The strong dollar also trimmed reported
sales. Management seems to have righted
the ship with a cost cutting program and restructuring in some divisions.The company also has some protection if raw
materials prices increase through sales
contract include provisions for selling price adjustments.During the earnings conference call management
characterized margins in the feed segment as ‘normalizing’ and in the food
segment ‘stable’ following restructuring efforts.
breakeven earnings results were better than analyst expectations for the
quarter and offered encouraging evidence that management had regained control
of margins.On a non-GAAP basis Darling generated $0.09 in
earnings per share after excluding acquisition and integration costs and
amortization.This compares to the
consensus estimate of non-GAAP earnings of $0.06 per share.The appearance of an upside surprise was
enough to bring investors and traders back to DAR, which gapped higher in the
first day of trading following the earnings release.
Equity Research has a Buy rating on DAR.The stock appears overbought in the short term, but management’s efforts
to regain profit margins have borne fruit and the stock looks interesting for
investors with a long-term horizon.
Neither the author of the Small Cap
Strategist web log, Crystal Equity Research nor its affiliates have a
beneficial interest in the companies mentioned herein. Crystal Equity Research has a Buy rating on DAR
and Darling Ingredients is included in the Biofuel Group
of the Beach Boys Index of alternative energy developers