Participants

Suann Guthrie; Senior Vice President - Investor Relations, Sustainability and Global; Darling Ingredients Inc

Randall Stuewe; Chairman of the Board, Chief Executive Officer; Darling Ingredients Inc

Brad Phillips; Chief Financial Officer, Executive Vice President; Darling Ingredients Inc

Robert Day; Chief Strategy Officer; Darling Ingredients Inc

Matt Jansen; Chief Operating Officer, North America; Darling Ingredients Inc

Manav Gupta; Analyst; UBS

Dushyant Ailani; Analyst; Jefferies

Derrick Whitfield

Heather Jones; Analyst; Heather Jones Research

Andrew Strelzik; Analyst; BMO Capital Markets

Matthew Blair; Analyst; Tudor Pickering & Co.

Davis Sunderland; Analyst; Baird

Jason Gabelman; Analyst; TD Cowen

Presentation

Operator

Good morning and welcome to the Darling Ingredients Incorporated conference call, to discuss the company's fourth-quarter 2024 and fiscal year 2024 financial results. After the speaker's prepared remarks, there will be a question-and-answer period. (Operator Instructions) Today's call is being recorded.
I would now like to turn the call over to Ms. Suann Guthrie. Please go ahead.

Suann Guthrie

Thank you for joining the Darling Ingredients' fourth-quarter 2024 and fiscal year 2024 earnings call. Here with me today are Mr. Randall C. Stuewe, Chairman and Chief Executive Officer; Mr. Brad Phillips, retiring Chief Financial Officer; Mr. Bob Day, our new Chief Financial Officer; and Mr. Matt Jansen, Chief Operating Officer of North America.
Our fourth-quarter 2024 and fiscal year 2024 earnings, news release, and slide presentation are available on the investor page of our corporate website. And we'll be joined by a transcript of this call once it is available.
During this call, we will be making forward-looking statements which are predictions, projections, or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties.
Actual results could materially differ because of factors discussed in today's press release, and the comments made during this conference call, and in the risk factors section of our Form 10-K, 10-Q, and other reported filings at the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statement.
Now I will hand the call over to Randy.

Randall Stuewe

Thanks, Suann. Good morning, everyone, and thanks for joining us for our 4th quarter of 2024 and fiscal year 2024 earnings call. As previously announced, Brad Phillips will be retiring after 36 incredible years at Darling and Greetings. After the 10k is filed at the end of this month, Bob Day will assume the CFO position.
Because this will be Brad's last earnings call. I want to thank Brad for his many years of service. The memories are numerous, as Brad and I have done many of these calls with you, and I think I speak for everyone in this room and on the call that we will truly miss you. As you proceed to the next chapter of your life. Congratulations and best wishes to you and your family. Stay healthy, my friend. You will be dearly missed, but it's time for the next chapter of our history, and we welcome Bob Day into that exciting role.
Now turning to the quarter and the year, Darlene Ingredients delivered its strongest quarter of the year in 2024 and one of its top years in its 142 year history. While global markets were incredibly volatile, we focused on what we could truly control through effective margin management and CapEx stewardship. We paid down $353 million in debt, reducing our financial leverage ratio to 3.68 times. We received $179.8 million in dividends from Diamond green diesel and successfully started up the largest sustainable aviation fuel unit in the world under budget and ahead of schedule.
For the fourth quarter, our combined adjusted Eva was $289.5 million which was net of a $59 million lower cost to market adjustment noted in last week's press release for our share of the joint venture ownership in diamond green diesel.
The company continued its focus on operational excellence, which resulted in gross margin improvement in the 4th quarter of 2024 compared to the 3rd quarter of 2024, despite lower fat prices. We also want to point out that we delivered a significantly improved global safety record, frankly an all-time record for our global team.
Turning to the feed ingredients segment, global rendering volumes remained as expected and continued strong. The regulatory environment is improving and clarity has arrived. With the recent notice from the US Department of Treasury on the 45Z clean fuel production tax credit and the updatedre model, we believe what we have and what we need to begin calculating and monetizing the credit. As noted in our press release, waste fats have been steadily improving and should provide a nice tailwind for darling ingredients into 2025.
Once again, our focus on spread management, smart CapEx deployment, and operational excellence resulted in nice gross margin improvement in the feed segment. We went from 21.5% in the third quarter to 22.6% in the fourth quarter. I want to thank our global operations teams for the bold and aggressive execution they delivered.
Now turning to our food segment, we saw a slight improvement in sales in the fourth quarter compared to the third quarter as industry conditions improved. The company is continuing to focus on margin management, which resulted in a nice improvement in gross margins from 23.9% in the third quarter to 25.7% in fourth quarter. Our first sales of Nita, our revolutionary natural glucose moderation, collagen and peptide, have hit the market, and the demand is beginning to accelerate. We're excited to have several more of these products now in the pipeline.
Okay, turning to our fuel segment, Darling Ingredients received a cash dividend from Diamond Green Diesel of $68.6 million in the fourth quarter of 24 and $179.8 million in cash dividends for the full fiscal year. Subsequent to the quarter close, we have now received another cash dividend of $86.4 million in January of 2025. DGD continues to outperform its peers on many metrics and continues to be the best in class producer. We have thoroughly reviewed the 45Z clean fuels production credit guidance with third party auditors and are aligned in determining that it provides a clear, safe harbor for the company's accounting treatment of the tax credit. As a result, we are confident in our ability to book the credit and fully realize its value. Well, there are a few details to iron out regarding feedstock options and certification by product and destination, CGD strategic locations, logistical flexibility, and capability to process a diverse range of feedstocks positions as well to maximize the value of this credit.
With that, I'd like to turn it over to Brad to take us through some financials, and then I'll come back with my thoughts on 2025.

Brad Phillips

Right, okay, thanks, Randy. Net income for the fourth quarter of 2024 totaled $101.9 million or $0.63 per diluted share compared to net income of 84.5 million or $0.52 per diluted share for the fourth quarter of 2023.
Total net sales were $1.4 billion for the fourth quarter of 2024 as compared to $1.6 billion for the fourth quarter of 2023. Operating income decreased 36.4 million to 122.4 million for the fourth quarter of 2024 compared to 158.8 million for the fourth quarter of 2023, primarily due to a lower gross margin from significantly lower fat prices, which was substantially offset by lower SGNA. Higher earnings from DGD, lower restructuring and asset impairment charges, a favorable change in fair value of contingent consideration and lower depreciation and amortization expense.
Total other expenses decreased 18.7 million in the fourth quarter of 2024 as compared to the same period in 2023.
Primarily due to lower interest expense as well as increased property insurance recoveries related to prior property casualty losses for fiscal year 2024, net income was $278.9 million dollar $0.73 per diluted share as compared to net income of $647.7 million or $3.99 per diluted share for fiscal 2023.
Net sales for fiscal year 2024 were $5.7 billion compared to net sales of $6.8 billion for the same period of 2023. Operating income decreased 481.5 million to 468.2 million for fiscal 2024 compared to $949.7 million for fiscal year 2023.
The decrease was primarily the result of a lower gross margin in global ingredients and lower earnings from DGD, somewhat offset by lower SGNA, lower restructuring and asset impairment charges, and a favorable change in fair value of contingent consideration.
Total other expenses decreased $2.1 million for fiscal year 2024 from $234.8 million to $232.7 million as compared to fiscal year 2023, primarily due to lower interest expense and increased property insurance recoveries related to prior property casualty losses that were substantially offset by foreign currency losses. For the three months ended December 28, 2024. The company recorded an income tax benefit of $25.5 million primarily due to the biofuel tax incentives. The company also paid $20.3 million of income taxes during the quarter.
For the 12 months ended December 28, 2024, the company recorded an income tax benefit of $38.3 million. The company's effective tax rate for the year is a negative 15.5%, excluding the biofuel tax incentives and a change in valuation allowance related to deferred tax assets, the effective tax rate is 23.6%. The company paid $102.7 million of income taxes in 2024.
As the Clean Fuel Production Tax Credit is a transferable income tax credit replacing the lenders' tax credit beginning in 2025. As previously indicated, we believe the guidance released by Treasury last month provides a line of sight to realize and monetize these credits. We are vigorously working through the details with our business partners. We look forward to providing an update soon. In the fourth quarter of 2024, we paid down approximately $162.9 million of debt. And as Randy previously said, $353.4 million of debt was paid down for fiscal year 2024. The combination of effective working capital management, CapEx stewardship, and solid receipts and dividends from the Diamond green Diesel joint venture assisted in the company's ability to delever while also purchasing about $34.3 million or about 1 million shares of our common stock.
The company's total debt outstanding as of December 28th, 2024 was $4 billion compared to $4.4 billion at year end 2023. Our bank covenant preliminary leverage ratio at 24 2024 was 3.93 times, and we had approximately $1.2 billion available to borrow under our revolving credit facility.
Capital expenditures totaled $73.3 million in the fourth quarter and $332.5 million for fiscal year 2024. As Randy mentioned earlier, we received $68.6 million in cash dividends from DGD during the quarter and $179.8 million for fiscal year 2024, with an additional $86.4 million that was distributed in January 2025.
While the 2025 operating plan calls for a slight increase of capital expenditures to approximately $400 million it will be judiciously managed based on market conditions.
Now turn the call back over to you, Randy. Thanks.

Randall Stuewe

Brad. Well done. We're optimistic about 2025. We have begun the year with strong momentum and expect that to continue to build throughout the year. Global raw material volumes remain robust, and stronger fat prices in the 1st quarter should provide a lift as pending tariffs and clean fuel production credit provide even greater certainty to the value of domestic feedstocks.
This is very advantageous for our core ingredients business, as Garling ingredients is the largest producer of waste fats in the world and the only truly vertically integrated renewable producer. With regulatory clarity on US biofuel policies such as 45Z and California's low carbon fuel standard, we believe the market is stabilizing. A sharp decline in foreign biofuel imports and early signs of capacity rationalization in the domestic biodiesel and renewable diesel production indicate a more balanced supply and demand environment for 2025. These dynamics combined with our strategic positioning and operational expertise uniquely position us to capitalize on the market and drive growth. As the market continues to work through the details on the clean fuel production tax credit, I expect our ingredient prices and rims to adjust and solidify throughout the year.
Our priorities for 2025 are very clear. We're staying focused on disciplined capital deployment, efficient working capital management, operational excellence, and margin management. Our goal is to maintain a strong financial policy with a focus on deleveraging, aiming for a 2.5 times bank leverage ratio in the future. We will continue to drive robust research and development in the collagen peptide space, delivering a powerful portfolio of natural collagen solutions with holistic and targeted health benefits. We'll also continue to explore expansion opportunities in the renewable natural gas as those markets evolve in the United States and Europe.
And as our SAF sales book continues to build nicely, we are looking at ways to convert more renewable diesel into SAF. We expect 2025 to be stronger than 2024, gaining momentum throughout the year as DGD turnarounds are completed and SAS sales command a larger percentage of our mix. Given the fourth quarter 2024 run race and with only one period into the new year, I am providing guidance of 1.25 to 1.3 billion combined adjusted IIDA for 2025, and we'll provide updates as the year progresses.
With that like to go back to Q&A now.

Question and Answer Session

Operator

(Operator Instructions) Manav Gupta, UBS.

Manav Gupta

Good morning, Randy and congrats Brad. You've been very helpful over the years. My question relates to 45Z. Like when we look at 45Z, it feels like it was custom created fordar almost like one of the senior management members broke into the room where it was being written and wrote it for them. There is no credit for imported AD, no credit for adi from imported Yuko. Waste oil is getting a much bigger credit than bean oil, no credit for canola. All these things should help dar. So help us understand all the ways in which, 45 we makes dar a relative winner in the space.

Robert Day

Yeah, look, this is Bob. Thanks, man.
I'll go first.
I think Randy stated very clearly in his opening remarks about, how we feel about 45, but I'll just reiterate and say that, 45Z is law.
The due diligence and advice that we've gotten make us confident that the current notice provides safe harbor, the ability to realize the credit value, unless or until a new notice is provided, so. We're very pleased with what's out there today and what we're able to do with that. You pointed out in your question, this is a CI score adjusted tax credit and it's only eligible to US biofuel producers.
That's for reasons that have nothing to do with Darling's influence, but it has more to do with just the environment that we're in and what's good for policy.
It is very positive for Darling. The, primary reason for that is being a CIA adjusted. A tax credit. Darling produces the lowest CI score of feedstocks that are eligible for this credit, global animal fats and US used cooking oil. We are the largest producer of those two things. And then it's also extremely positive for diamond green diesel.
They also are able to benefit from low CI score feedstocks, and if those feedstocks earn a higher margin in producing biofuel. A diamond green diesel is well placed to process, to pre-treat and process those feedstocks better than than anyone else has proven to be able to do, and eliminating foreign biofuels from eligibility of the PCC, it certainly plays to DGD strengths given the amount of US production that they have.

Manav Gupta

Perfect guys, I'll ask a very quick follow up. Randy, in your opening comments you did say looking to make more staff versus RD. Can you just elaborate on that a little?

Randall Stuewe

No.

Matt Jansen

This is Matt, yeah, so, we, we've mentioned in the past how, once we got the our first SAF line up and up and running that we would be looking to for other opportunities next individual steps in adding additional SAF capacity and that's exactly what we're doing. And so as only about half of our production at DGD 3 is channeled towards the SAF line and so whether whether we actually go in and invest to. Add the capacity there in Port Arthur or if we do something in in Norco, but these are all things that I think will transpire over the coming months. And, looking at, now that we have, one of the big hurdles was, okay, this is new for us, so we want to get and be able to build the plant, B process and make spec. And see sell it. And so we're, we've accomplished all of those at this point and so that's what's giving us the confidence to work towards our next SAF plan.

Operator

Dushyant Ailani, Jefferies.

Dushyant Ailani

Morning guys.
Thank you for taking my question, Brad. It was a pleasure working with you and Bob. Congrats on the new role.
My first question is on the LCM adjustment.
Maybe could you share more about what that, like more about what the actual adjustment is it truly non-cash and then maybe thinking about 2025, the guy that you've given the 1.25 to 1.3, does that as of today, does that exclude any impact from LCM adjustments?

Robert Day

Do you want to take the guide question? Yeah.

Randall Stuewe

Dean, this is. I'll take the guide question. Obviously the the core ingredient business in Q4 set a much higher run rate than 2024. We're coming out conservative at DGD, but basically equivalent to the per gallon run rate that we had last year at this time. And no, it doesn't include any LCM pickup. It's not hard to see DGD doing much better than the combination of 900 or a billion in the core ingredients and 250 or 350 within within the combined adjusted there. We're just trying to take a conservative view at this moment. Clearly there's been a lot of questions on what you can monetize, I think Bob did a really nice job. I mean, one more time to reiterate it and so we don't have to answer it another six times today.
45 is law. We know how to calculate it. Our advisers and tax councils are comfortable with how we're calculating it, and we believe it can be monetized and will be recognized. So we're operating the business with that view right now. We fundamentally view that, and we'll talk about this and maybe Bob can comment a little bit on it. We'll talk about the tightening of the RI S&D and the curtailing of capacity. And so Bob, you want to go to LCM and that then.

Robert Day

Yeah, and Brad, feel free to jump in, but trying to explain LCM would be and how it works, it'd be impossible on this call, but it is a non-cash expense, we recognize it. It's, for those that want to pull it out, it's relatively easy to do so and and it's part of a of an accounting system that is pretty typical for the oil and gas industry.

Brad Phillips

The only thing I would add on LCM Deonan is obviously, DGDs financials which will be attached, audited financials which will be attached as an exhibit to our 10k in a couple of weeks, in that audit, the LCM is called out. That's the way. It is audited, recorded, and we follow that. Our partner has different opportunities there, and we understand the analysts for the most part back it back it out, but we'll continue to record it as the audited number, our share of that LCM.
Back to you, Bob, or anything else.

Dushyant Ailani

That's that's perfect.
Perfect, thank you guys. I appreciate that. And then maybe just the next one on next data, could you share kind of more details on what the ramp looks like in 2025 and then maybe if possible could you quantify what how much of the food sales was next in 4Q.

Robert Day

Well, I think, we don't disclose what what sales were in the 4th quarter, but what we can say is that we are working with a number of CPG companies to help them determine what they can say about the product, its efficacy, and, really support the rollout of different brands of getting this as an ingredient in there and. You know what we're seeing is, some interesting traction there. This is the kind of product that requires consumer education and so our CPG customers are, investing a lot to educate customers on how to use the product and, we're just really confident that we're going to continue to see traction. This is a hot topic in our environment today and a lot of people are trying to figure out what do they do after they're done using the pharmaceutical products, and this is a great solution to that problem.

Operator

Derrick Whitfield, Texas Capital.

Derrick Whitfield

Good morning all and thanks for taking my questions. Also congrats to to both Brad and Bob on your respective announcements.
With my.

Brad Phillips

Welcome back, Derrick.

Derrick Whitfield

Happy to be back guys. Happy to be back. With my first question, I wanted to lean in on 45Z from a macro perspective because I know you guys are consistently calculating real-time spreads for the sector. While I agree 45Z was exceptionally positive for your business for both the upstream and downstream segments, the marginal SBO RD operator has taken a near $0.80 per gallon hit, and that has been partially offset with lower SBO costs. But from here it seems that to us that either the rin has to improve or SPO has to go lower to further offset that loss, assuming we still need those volumes after backing out RDM biodiesel imports.
To you guys, like, what does your crystal ball say on how this market will firm?

Robert Day

Yeah, look, This is Bob.
I think so you know what I would add to your, to your question is not only, just 45z kind of lay these things out and make it challenging from a CI score standpoint for some others, but there's a lot of complexity inside 45Z in terms of how to comply, certifications required, different mix of feedstocks for different products.
Diamond Green is really well positioned to, understand that up front and prepare for that and be agile as it works through that. We think that a lot of companies are going to struggle, with that in addition to just general eligibility. And so all of that really points towards lower production of biofuels, fewer imports of biofuels, which decreases rin production and increases the value of rins and LCFS credits. And so, we're seeing it already. It's just that rins don't trade like a like a mature futures market would trade. Where you've got a lot of speculative liquidity in the market and it's valuing products in the forward book, we need to see the tightness in the near term supply and demand before we see price reaction, but we're starting to see that, and our crystal ball says that we're going to continue to see more of that as the year goes on.

Derrick Whitfield

Terrific. It may be focusing on the upstream aspect of 45 as you guys commented on backing out Yuko imports and removing canola certainly increases the value of SBO and it should also increase the relative value of your domestic fats. Are you guys seeing greater non-DGD demand to start the year, meaning are your competitors getting better at running waste mats?

Matt Jansen

Good morning. This is Matt again. I would say that yes, we are, although I would say it's still early in the game. There's been just so much time and energy spent on digesting the 45z and what that means and how that all plays, and there was also a lot of call it logistical preparation going into the transition from 24 to 25. So yes, we have, but it's a little bit slower to play out than what you might imagine, but we fully expect that to continue.

Operator

Lauren Sharma, Stevens.

Great thanks for the question.
I wanted to start off and just kind of dig into the to the dividend on the release you you mentioned the the JBs debt free, so, an uplift to the distributions and then, the January figure was pretty large so just want to, get your thoughts on how to think about that dividend for the year, is is.
It is January, is there something in there that that made that number large or just any color and that would be helpful?

Brad Phillips

Yeah, this is Bradle. We've mentioned before, but I'll repeat it's a monthly distribution calculation on a given day.
So why do I say that's a good question. I mean, the $86 million obviously was a was a calculation off the very end of 2024.
There is a third party revolver, as you mentioned, it was the JB's debt free when a distribution is made, but because it's on a given day with some forward-looking forecasting involved, it'll be, kind of up and down, but as we look at 25 and moving into the PTC. You saw what the number was for the full year 24. What I would say out there is where we see things right now, we see distributions and obviously with a with a solid start there being greater than 24, is there going to be a larger distribution. In total and the way that works is going to be, as you may recall, PTC coming back through the JB outside the distribution policy, the PTC credits that are sold as we monetize them, those will come back to diamond or to Darling via diamond, and then that combined with dividends that we would foresee out of there, the combination of those two we would see being somewhat larger than this past year.

Matt Jansen

I would just add on to that that other than our two ongoing catalyst turnarounds in Q1, looking forward, do not see anything in terms of significant CapEx beyond what would be just normal run rate CapEx.

Got it appreciate that color, and I guess just as a follow up here wanted to dig into the staff opportunity a little bit more, from the operational side. I think you guys mentioned that the production incremental production costs are are lower for lower cost operators like yourselves. I just wanted to get some color around that and then secondly if you could maybe just talk about maybe the the progress you've been making on the commercial side you've made some announcements within the past month but just wondering if if you could kind of give us a state of the union on that.

Matt Jansen

Here, this is Matt again. I would say that from a from a cost standpoint, yes, we believe that we are favored or or in in a strong position in terms of our cost to operate the the sack production. And then you're right, we have made some announcements on some of the commercial contracts that we've made. Just point out that not all of these contracts come on to a public release for competitive reasons. In many cases, our customer chooses not to to make a public release, but we see strong demand continued through 25 and 26, not only in the US but also in in Europe.

Operator

Heather Jones, Heather Jones Research.

Heather Jones

Good morning and congratulations on the retirement, Brad. It's been a great working with you for many years.
So my question was on fat pricing so I think Matt you mentioned that the catalyst is still on the catalyst change is still ongoing at Diamond Green, but I mean we've seen.
Very strong moves in fat pricing over the past.
A few weeks here in the US and then European fats have just taken off, so.
In the US market, is that just simply a function of just a sharp Shut off of feedstock imports, is it the commission in a geyser expansion just what do you see driving that giving y'all are in the catalyst change and you know the uncertainty around 45%. There's been some pull back in producer demand. I just would love to see hear what y'all have seen in that market.

Matt Jansen

Sure, Heather, first of all, keep in mind that we, our catalyst change is not across all of DGD 3. So while we have had in the in the month of January, a catalyst change in DGD 2 and then DGD 1 and through the course of this month, but we still have been able to run at a a let's say an expected rate. On the on the plants that we have not had the changes on. So in other words, DGD1 ran in January and DGD 3 is running continuously. So we have continued to procure and originate fats on an ongoing basis. I would say that starting probably in early December, we saw a slowdown of imports. And that was, I think, largely related to just the transition from the BCC to the BTC. People were managing the inventories around that. And so that's picking up. And so we're trying to get back to what the market is trying to get back to a standard run rate and that's refilling the pipeline, I think, in many cases, and you're right, we have seen a significant bump in fat prices, but it's something that, it's obviously market driven. And not only is DGD continue to buy, but the other the other producers in the market are also buying as well.

Robert Day

Yeah, I would just add, Heather, this is Bob.
2025 is, let's say it's kind of the 1st year where we've got substantial staff demand from a volume standpoint and you know what we're seeing is as we sort of move into 2025, the availability broadly in the market of staff is, it's not quite where a lot of others suggested it would be. And so we're just seeing a tightness of the S&D and prices are falling.

Heather Jones

And following up on that and the European piece, I mean, Yuko have been getting stronger, all through late 24 and continues to be strong, but the animal fats have taken off and is that related to the new staff mandates there and having to can't use vegetable oil for those?
I mean, what do y'all see driving that business?

Robert Day

I think first of all, animals, I mean if you look at 45, that's very supportive to global animal fat, so that that's that's probably where, what's driving a lot of that European staff demand as well is going to support that. So I think really it's all those things combined that that's moving us in that direction.

Operator

Andrew Strelzik, BMO Capital Markets.

Andrew Strelzik

Hey, good morning. Thanks for taking the questions. My first one, I wanted to ask about the focus on operational excellence, which obviously we've talked about in prior quarters as well. But can you talk about anything incremental that happened on that front in the 4th quarter, maybe even into 2025, given kind of the decoupling of the trends in fats and your margins, is there a way to frame the contribution from that in the quarter?
I understand.

Matt Jansen

I don't know that I would call call something out specifically other than just what what I would say is this is an ongoing effort and we're we're starting to see the dividends that we've done, over the last two years, especially in the US and the eastern shore where we've done a lot of work to to streamline and to add capacity, and reliability and decrease cost to to the system and that's that's showing now through the numbers.

Randall Stuewe

Yeah, and I would say, Andrew, I mean, globally, when you get into a deflationary market which we were in since, really the winter of 23 and all and most of 24, it just takes a while to make a lot of adjustments out there on the procurement side. Each contract, each supplier, each geography is a little bit different. Same goes for the Russolo business and it, we're now starting to see the fruits of our labor of of of that starting to flow through the P&Ls here, there's been a lot of, we've always tried to operate as a low cost operator out there, not mounting giant cost cutting initiatives because you shouldn't be in that position anyway. Our biggest piece is simply in the procurement side and making sure that we get compensated for the risk we're taking. Kind of the replacement cost of equipment out there has skyrocketed and ultimately, it just takes a little while. I don't know that we made a lot of friends and a lot of abattoirs and slaughterhouses and integrated providers around the world, but they also recognize that our reliability has to be incented and paid for, and I think I'm very proud of what the team did.

Andrew Strelzik

Okay, that's helpful color. And then I wanted to ask about also the food segment where, you had a nice sequential step up quarter over quarter. Is there seasonality in that business that would have helped that? Are you seeing kind of underlying improvements? Maybe you could talk about what you're seeing in terms of destocking and demand and competitive dynamics that you've addressed in the in the past couple of quarters. Thanks.

Robert Day

Yeah, I don't, I don't think there's a tremendous amount of seasonality in the business, but I think you touched on something that's important, and we had been in a market that was, relatively high in inventories has been destocking, and we're starting to see, kind of get nearing the end of that and and and some improvement so, sales are good and and margins are stable.

Operator

Matthew Blair, TPH.

Matthew Blair

Thank you and good morning and Brad, congrats on your long and successful tenure and wishing you the best on your future endeavors.
Thank you.
Circling back to the 2025 guide, if I heard correctly, it sounds like the the core business would be around 900 to a billion, that's included in that guide. If we analyze Q4, I think we're looking around 840, but Q4 does tend to have some seasonal tailwinds in feed. So could you talk about what's what's the incremental upside? Into 2025, is that simply higher fast pricing from 45% that it's boosting seed and are there any other growth initiatives or what else is helping push the numbers up for your core business in 2025?

Randall Stuewe

Oh, this is Randy Massals as we saw, but they've accelerated, 4 to $0.05 a pound in the February period here, and that'll start to flow through. So clearly procurement improvements that we referenced in the last question, improving fat prices and demand for low CI feedstocks both from DGD and other processors, protein demand around the world feels pretty darn strong. I think that's been referenced by the soybean guys, there's strong demand for protein out there, so we feel pretty good about what's going on there. The Russolo business is doing quite well, and buy anything you want to.

Robert Day

Add, I think we covered on the last question. Demand has been solid and margins are stable and, we've got some new products on the market, so.
Sounds good.

Matthew Blair

And then you're aiming to pay down about $400 million of debt in 2024. Looks like you almost hit that target. Could you discuss any targets for debt reduction in 2025 or 2026?

Brad Phillips

Yeah, Matthew, this is Brad. In 2025, where we see things right now and and the guys have been talking about kind of the environment right now that's, recently showing some move up, we see debt reduction outside anything abnormal, anywhere from 350 to 500 million this coming year. Randy said earlier, obviously our Where we're headed is is 2.5 times on leverage. I think, by the end of this year we're going to be very far along that path with that debt reduction.
Yes, we're about a year behind, but, due to market conditions, that that hit us about 15 months ago.
But that that's kind of the outlook that we see right now.

Randall Stuewe

Yeah, and I mean it's not hard to do the math. You're at 4 billion now if you pay down $400 to $500 million next year, you take it to 36, you get to 1,350 to 1.40 and you're at the 2.5 times.

Operator

Davis Sunderland, Baird.

Davis Sunderland

Hey, good morning guys.
Thank you for the time. I appreciate you taking the question. I just want to start by adding my congratulations to Brad and Bob.
Thank you for all the help, Brad.
Most of my questions have already been answered. If I could just circle back to one about staff, Randy, I think you talked earlier in 2024 about contracting and the process for these staff contracts taking longer than you guys had initially planned just due to many different suppliers in the supply chain and moving pieces in the market and obviously just being a new product. And I just wondered, is there any sense of now that some deals are out there and there's a template for how to do these deals, maybe any kind of acceleration with new deals that you're seeing now having moved into 2025 or how do we think about that market developing from from your guys' contracting perspective?

Matt Jansen

This is ma. I'll take that one. I would say that, we continue to contract on staff for 12, and 3 years going forward, mostly front end loaded, and I think there was just a call it a digestibility or an acceptability to, can DGD actually come to market with these with this staff in a in a reliable way and we're now have the, we've proven that we can and the confidence, so we're actually seeing a pickup in interest. Going forward, but despite the fact that we, we'd already had a pretty healthy sales book, already developed.

Davis Sunderland

Great, I'll take the rest off fine thanks guys.

Operator

Betty Jang, Scotia Bank. Please go ahead.

Hi, thanks. Good morning. Thanks for taking my question.
For my first question, I wanted to ask about RG, what kinds of opportunities are you guys looking at? And, specifically what types of feedstocks?
And how do you see your competitive advantage translating into the RNG space?

Robert Day

Hey, this is Bob. I'll take that one, Betty.
So first I just start by saying that we have a large, call it RNN to electricity business in Europe today. So it is a capability that Darling has and understands quite well.
What we've seen more recently is a lot of interest in voluntary demand for renewable natural gas that would support investments in the United States. We started by forming an agreement with with a group called Green Gas where we are covering our wastewater treatment ponds.
And converting biomethane into renewable natural gas that way.
We are, looking at opportunities to scale that up and darling, with our position in the United States, our access to freight, animal waste streams, and food waste streams, we're really well positioned to pull that together and take advantage of, what we see as an improved market. And so we're continuing to evaluate that opportunity and we really, think the United States is a very interesting region to see that develop.

That's helpful, thank you. For my second question I wanted to ask about CapEx.
I think for 2024 it came in a bit lower than what we were expecting, at kind of the beginning of the year and also, you're seeing maybe a small step up to around 400 for 2025 if you could maybe just walk us through the moving pieces there.

Randall Stuewe

Yeah, Betty, this is Randy. Yeah, 333 was the number for 2024, and right now, 400 has a little bit of growth CapEx and the bottlenecking of different factories and also some greenfield construction of some new assets that we're working on out there right now, we, as we've explained to our team, as we build momentum during the year, that number will move around. But right now 400 feels like a good number. I think the thing that's most important. For me and the team is that the the the number that we delivered last year did not capital deprive the assets out there and so there's, I don't want it to be thought of as makeup capital because it wasn't, we just delayed some growth projects.
A year while we levered a little bit here, so 400 is a good number, as Brad said in his comments, judiciously manage it if if we're wrong with something here and continue to put the company in good position for the future.

Operator

Jason Gabelman, TD Cowen.

Jason Gabelman

Yeah, hey, thanks for taking my questions, and Brad, congrats on retirement. It was it was great working with you.
Yeah, thank you. The first question, yeah, the first question is kind of a broad policy one.
Right now you're selling staff into Europe and Europe obviously has anti-dumping duties for renewable diesel and biodiesel, not for SA then do you see that as a As a potential risk for your staff sales into the region if if that happens, are you able to get grandfathered in because of your contracts or or move volumes while retaining the margin and then kind of a broader part of that, do you see any other regulatory risk out there besides, of course, the 45Z?

Matt Jansen

Hi Jason, good morning. This is matt. I would say there's a lot of hypothetical in that question in terms of the way that we would deal with that would be, if and when there is something that comes down the pipe, but today we don't see that on the horizon.

Robert Day

Yeah, I just say, look, I think with with respect to sales to Europe.
We're selling based on, we sell a price that is, we offer a price and our customers are going to deal with, certain regulatory hurdles if they need to get through those.
We're not only selling to Europe, we're selling a lot in the United States as well. And so I think, diamond Green is well balanced as far as the regulatory environment in 45, I think, it's a good point because, we've gotten this notice and we're working with this notice. Could that notice change or could a new notice be put out? That's certainly possible. But what we see is really broad bipartisan support for US biofuel policy, maybe not all environmental policy, but biofuel policy and And so, however that shakes out, we're confident given sort of the global network that we have and the integration between Darling and Diamond Green Diesel and Valero that we'd be able to adapt to whatever regulation unfolds.

Randall Stuewe

Yeah, and I think just following up on Matt, I thought he did a nice job of explaining. At the end of the day our customers don't feel that or share that risk right now, as it's optional origin when they pick up out of the Gulf where they're going with the product, whether it's the West Coast, whether it's up north or whether it's on to Europe.

Jason Gabelman

Got it. Great, thanks for that color. And my follow up is on the LCFS program. I think there was some hope with the new amendment that that LCFS prices would start to move higher. They've clearly come off lows, but maybe not at the triple digit levels that some had hoped, hoping you could reflect on kind of why you think LCFS prices have not rebounded maybe to the expectations that some have had and and and your assumption. For LCFS prices for 2025 within your guidance.

Robert Day

Yeah, so I think, and this is Bob, the amendments that Car passed.
Would be effective April 1st and you know we're just continuing to wait for wait for confirmation of those amendments. I think if the market sees that we'll we'll start to see, we'll start to see that change, but similar to rens, LCFS credits, they don't trade like a mature futures market does. And so, we are coming into this year with a lot of credits of big bank, the market really needs to eat through that bank before we start to see credit values increase. And and so specifically with LCFS credits that's probably something that happens slowly throughout the course of the year.

Operator

Thank you.
This concludes our question and answer session. I would like to turn the conference back over to Randall Stey for any closing comments.

Randall Stuewe

Thanks everybody. Great questions today. Really appreciate it.
Well done by our team describing the situation. Brad, we want to just say thank you for everything you've done for 36 years. You'll truly be missed. And as always, if you have additional questions, feel free to follow up with Sue Anne. Stay safe. We'll see many of you in the conferences over the next coming couple months here.
Thank you.

Operator

The conference is now concluded.
Thank you for attending today's presentation. You may now disconnect.