Darling Ingredients Inc. (DAR) Earnings Call Transcript & Summary

Okay. Thanks, everybody, for joining us this morning. We'll go ahead and get started. I'm Ben Bienvenu. I cover the Food & Agribusiness sector here at Stephens. Darling Ingredients is here with us today. They're going to talk to us about our business. As many of you likely know, Darling is a leading render and recycler of inedible animal products, inedible byproducts, and used cooking oil. They also have a rapidly growing renewable diesel joint venture. And I think fair to characterize it as 1 of the most exciting companies under our coverage. It's been a great couple of years. We're thrilled and delighted to have Randy Stuewe, Chief Executive Officer here to talk about the business with us. This will be a fireside chat format. I'm going to leave the Q&A, but I'll check in periodically with the crowd to see if there are questions, feel free to chime in as you like. Randy, thanks so much for being here today. I appreciate your time.

Thanks, Ben.

I want to start just because it's fresh and new. You guys are ramping DGD2. I'd be curious to hear how that's going? And then maybe for listeners that are less familiar with the story. Just talk a little bit about what makes DGD unique and differentiated from peers or competitors that would like to emulate the same success you've had?

No. First off, it's great to be here. It's always -- it's just a great time to be at Darling and for the newbies in the room, I think we're coming up on 139, 140 years old. I think what makes us 2 years older than Coca-Cola. So -- and I always like to share that it's -- to reinvent a 140-year-old company is really a cool thing. And we went down the road here about 10 years ago today, trying to figure out how we could create another market for animal fats. And if you think back, the last time you heard the word "animal fat" was 1989 when your McDonald's French fries actually tasted good. And then they -- that was the end or the beginning of everybody living longer in a less saturated fat diet. And where did the animal fats go? Well, they kept growing in volume all around the world, but all they became was a calorie to reproduce in animal feed. So they had one really economic proposition, and that was as a chloric enhancer, doesn't take much of the share of stomach, if you will, in the livestock production business. And so we went down the road trying to come up with a solution to add value to animal fats. Why? A, make money; and b, if we could create more value for the livestock producer, then it keeps -- at the time for us, keeps America and North America as the most efficient animal production system in the world. And so we kind of went down that road, we crossed it with the renewable fuel standard in the mid-2007. And then we played around with what we call today Generation 1 technology biodiesel. Biodiesel being simply put as a methyl ester. You use methanol to break the glycerin molecule off of the fat and then you have biodiesel, but the problem with animal fat biodiesel is when it gets cold, it gels. So it's not really a year-round product in all of the -- in the geographies of the U.S. It's hydroscopic. It just really wasn't the right solution for us. And so then we came down the road and went to -- we brought a technology from Honeywell, UOP in Chicago, kind of what I call a black box idea of using a petroleum-based technology to supersaturate the animal fat, hydrogenate it, break off the water and the oxygen molecule, which then specifically makes a hydrocarbon and the petroleum system in the world and in the U.S., it's a hydrocarbon-based transportation distribution system. And so we said, well, if you can make a product that somebody wants, it should be pretty easy to sell. It was serial #01 in 2010 when we started construction, came online in July of 2013, and that's DGD1. It was 137 million gallons at the start, it went to 160 million gallons, did another expansion to 275 million gallons a couple of years ago. And then on October 22, we brought on 400 million-gallon expansion taking this up to around 700 million gallons to 750 million gallons now. So we're at full capacity. We kind of got both -- our timing was incredible, meaning in the sense of getting in the business the first for all the right reasons. It was to derisk our supply chain and create another market for a product and create value. And then we hit the sweet spot now of what I'm going to call the decarbonization movement in the world. And this is the immediate drop-in solution. Yes, wind and solar are good things, but this is the immediate drop-in solution to heavy transportation vehicles in the world to reduce or improve tailpipe emissions. And so -- it's a movement. As I spoke yesterday in New Orleans with the soybean growers, the horse has left the barn, climate change, no matter what you want to argue, talk about, discuss, in reality is it's a fact out there, and we can no longer deny it. And Darling sees itself as a solution in that discussion, in that narrative by repurposing product that would typically go to a landfill and making a green hydrocarbon, and then the other products we make are proteins. And if anybody took a gel cap this morning, you -- that gelatin around it was probably 1 in 4 chance made by us. If you took any collagen, if you had a little vital proteins, we've been watching Ms. Jennifer Aniston out there, that's made by us. And so end of the day, a lot of neat products coming out for us. DGD gets all the glamor right now, but it's a -- we repurpose about 10% of the world's slaughtered animal byproducts today into food and fuels.

So clearly, you all have a pretty differentiated business model, vertically integrated across all the offerings you have. How does that help you all? And can you talk about the challenge -- there's a lot of focus on feedstocks. Can you talk about what logistical hurdles the industry might face in sourcing feedstocks? How you guys are -- you think you're positioned relative to that? And then maybe just a near-term question, too. We've seen a little bit of softness in corn oil in some of the markets. Can you talk about any thoughts you might have on kind of what's going on there?

Yes. I think the number one, DGD2 is online, running and with #1 and so call it, 750 million gallons because I can do easy math, 8 pounds a gallon. So using 6 billion pounds of feedstock out of a 16 billion pound North American market. So today, we say we're using roughly 37% to 40%. And it's not like we're just ramping up. It's been underway for many, many months. DGD3 will come online in early 2023, and it will use another, we'll call it, for easy math, another 4 billion pounds of feedstock. So we'll be using 60% of the North American feedstock at that time. It's really interesting. We went into it as a derisking of our base business and we found it so lucrative that we've now -- we're beyond our own production capability or internal balancing. So we're buying feedstock in the market. What makes Darling so different is we operate on 5 continents today in the core rendering business. And thus, we have perfect visibility to the fats and oils trades in all those continents. And so not only can we have a strong origination network in the U.S. and Canada, but also everywhere else. Is the -- other competitors then contemplate getting in the business, it's such a different supply chain than most people have ever experienced. I mean, if you run an ethanol plant, you buy a unit train of corn. And that's a pretty easy trade. If you want to run a renewable diesel plant, you're going to have to buy 1 railcar from 278 suppliers, and it has to be your railcar. And so the -- as people think about this, it becomes very difficult to get scale into it, given the 130 locations we have in North America, it was just a pretty natural thing. Now the moat -- when I contemplate getting into a business is, can it be sustainable and defensible and how deep and how wide can I build the moat. And so in my world, it came down to basic real estate. And we own oceanfront property in New Orleans; and oceanfront property in Port Arthur, Houston, Texas. And we can originate by water, rail, truck, and outbound can go pipeline, truck, rail, water. And then you got to have the second thing. You got to have -- it's a very energy-intensive conversion here with hydrogen and natural gas. And so you got to have an ample supply of that. And so between the location of the assets itself, the availability of energy and then tied to our system, both for import, export makes this the lowest cost operating assets in the world today. So as the world gets out there and some of these petroleum companies that are trying to repurpose stranded assets, I've always said, once it's a stranded asset, it's always a stranded asset. It was in the wrong place for why is it now in the right place. And so at the end of the day, many will try, it will be very, very difficult for them. You can't be -- we've got guys in Cheyenne, Wyoming; we got Artesia, New Mexico; we got the California guys all trying to put old assets that are tired into the business here. Some will be successful, but I don't think at the rate that they want to -- they at least want to communicate today.

Yes. That's helpful perspective. And on near-term trends in fats oils, any thoughts you have on what you all are seeing and what you think?

Yes. It was interesting. There were many discussions in the boardroom on what impact we would have. And so a lot of smart folks in the room here and hopefully listening and if the professor came in and said, one factory is going to buy 40% of the supply of this flyer, a finite commodity, what's going to happen to price? I think everybody would have answered the same way I did, price was going to go up. And if you think about it, as I said early on, in 1989 as the animal fats got replaced by palm oil into the chemical -- oil chemical industry and the food industry became soybean and corn oil and others. We became about a $0.10 to $0.13 a pound discount or roughly 50% to 60% the value of the vegetable oil alternatives. And so DGD1, we narrowed that from $0.13 to $0.10 discount. DGD1.5 or when we went to 275 million gallons, we kind of narrowed that to probably a nickel. And then as LCFS came on out in California, we were able to, what I'm going to say, gain parity with the vegetable oil alternatives because of carbon intensity and that's another discussion. But what's fascinating to me was when Hurricane Ida came right over top of St. Charles, Louisiana Parish, we took a direct hit, a Cat 5 hit, 156-mile an hour winds for 6 hours. We lost a little insulation on a few tanks, I think about $1 million of damage, had the crew there riding it out. That's not a Disneyland ride I ever want to see my team go through again. And -- but we lost power for 17 days. And it wasn't in Louisiana, the regulatory agency has a responsibility to bring residential back on before industrial, even though the industrial loads 17 -- or 70% of the load in Louisiana. You saw the HeiLong Bridge, the big power lines. That was the grid connector in the St. Charles Parish. So they had to reroute all the substations and then bring everybody on slowly at a time. And then one of the kind of hidden values of what we've done is the integration within the Valero super-sized refineries, both at St. Charles and then in Port Arthur. We've got umbilical cords there for different immune systems and other linkages there. And so it had to come up at the same time we did. We couldn't. And so long story, I didn't mean to bore everybody with it, 17 days down sent a tidal wave of a shock wave through the animal fat business in North America. When you're buying 40% of the North American supply and you say, "Woops, I don't need it for 3 weeks," there's no other use for it. You're either going to pay people to store it, pay people to find an export customer. And so we destroyed the market. I mean, we took $0.20 a pound out of it in a matter of about a week. It came back, shot back up. And now with the -- we're seeing kind of a seasonality dip in biofuels that's happening here. But we're back in the market starting to reload our guns down there for next year. And so I think we'll put a little bit of firmness back in this shortly. But as I told you earlier, Ben, I mean, while carbon intensity will give us a premium for our product, we can't be more than $0.03 to $0.05 over the alternative, whether it be soybean oil in North America's case, and soybean oil can't be exponentially higher than palm oil. So it's this global inter linkage and the thing ebbs and flows right now, we're going to go up and down with it. And so I think I'm bullish fat prices next year. I think and I told the guys down in New Orleans yesterday, it's a buying opportunity.

Yes. I've got one more feedstock question, and then I'll see if the audience has questions. Maybe it's a foolish question, but would you guys ever consider using alternative feedstocks to kind of your core mix today? And how would CI score reductions that you might go after enable that if you were to consider it?

Yes. And I mean, constantly, we're working on the pathways and the carbon intensity. I mean, this is driven off the low carbon fuel standard in California, and as one of our team members says, it's a little more political science than it is science. And end of the day, used cooking oil, which we're the largest collector in the U.S. has got the best CI score out there while distillers corn oil and tallow oil or animal fats are little bit up there, but still 50% better than soybean oil. So at the end of the day, we will look at alternative feedstocks. I mean, for people that think we're only in the waste fats business in DGD, we're not. We do run some soybean oil from time to time. If it gets cheap enough and it makes sense, again, a specific customer quality that we're going to make. We have tried and we're going to continue to do that and I was telling my colleague, Joe Gorder at Valero yesterday. Our goal is to stay off the front of the Wall Street Journal because they're going to develop a food versus fuel debate here eventually. And we want to be the ones that are repurposing a waste, not diverting food or food oil from mayonnaise or salad dressing or a loaf of bread. And so I know there's a long answer to you. I always laugh. I kept waiting for the guys. If you look out of my office window, I can see the ExxonMobil office, just a few miles away over there. And I keep waiting for them to bring me some of that special algae that I see on their advertisements all the time. But there really aren't any other feedstocks out there. Neste runs a waste product out of the palm oil business. But palm fatty acid distillate, but that's really -- we've looked at some other cover crops. Promise, you have to build the oil recovery unit, meaning solvent extraction to have access to that, and that's just another infrastructure piece that will just take too long.

Yes. Okay. Any questions from the audience. Yes, go ahead.

I was just curious. I know you mentioned previously that you're thinking about going into Europe with the green diesel concept. Could you just kind of update what your thinking is right now?

Yes. We got close there. And I mean, unfortunately, we were working fortunately, I guess, there's great customer, Preem out of Sweden, and they were doing a refinancing, and they had to put our MOU out there that we were working with them. We have since walked away from that opportunity, too expensive. And just things cost too much over there, and it just didn't make sense. And what we've done in Europe, though, is put in a significant amount of investment into what we're going to call pretreating. So we own the pretreatment margin over there, and then we'll sell Neste total and Shell just announced the plant over there. So that's kind of where we're going to see -- we looked at Valero, they've got their Wales refinery over there about possibly converting it. It just doesn't make sense. It costs too much. So...

I think I caught it all, but I could be confused, it sounds like you're internally hedged for your feedstock between DGD and your production. But that feedstock is still tied to soybean and palm oil. So I mean, palm oil can fluctuate wherever they go and you are following that pricing. Is that fair?

Yes. That's fair. And I know we were talking -- our commercial manager, DGD yesterday stood up and he said, I just really caught me by surprise yesterday. the correlation now of our fats with soybean oil and palm oil are pretty straightforward. They weren't there for my first 20 years. So it kind of opens up the idea of, can we margin the business in a different way than we've done in the past. And unfortunately, while oil is an important driver of fats in our business model, on a dollar basis, it's very important. But on a tonnage basis, we're still -- remember, there's more protein than there's fat. And the correlation -- you might be able to hedge the fat component, you still can't hedge the protein component. It doesn't -- it has 0 hedge accounting ability with soybean meal or other proteins.

Got it. Would you guys hedge that to lock in at this time fram?

I'm beginning to think about it after yesterday, it really caught me in a different way to think about it because that's always been the challenge in this thing is, a year ago today, the core business, non-DGD was making $504 million or whatever it was. And this year, we're $825 million to $850 million. And we told people that every $0.01 that fats rise is about $10 million annually in EBITDA, not perfect, but kind of directionally correct, and fat prices are up about $0.3 versus last year, thus it's just, I mean, it's straightforward. Now -- and so that's -- so $800 million of base earnings is like a $0.55 fat number, and you're like sitting here, well, if I can lock that in now, that's a really nice return in this business. So...

Got it. It is otherwise meaning to from a view on soybean and palm?

Right. Yes, you have to form a view. But I always -- we've never had that opportunity. Not only is it an accounting nightmare. But at the end of the day, it was the correlation animal fats used to trade from $0.03 under to $0.13 under. And so -- but now with the capacity balancing that we've done with DGD, it just creates a different way to think about it. But keep in mind also, our raw material procurement process is a spot deal. It's priced today or last week or look back. So you may like the selling price over here, but you don't own the raw material. So in a true sense, you're really -- you're speculating on the price of bean oil, which are there. Yes?

Randy, what are your thoughts on soybean and soybean oil moving to next year? I've heard the fall ammonia application has been pretty good, which will tell you a lot of corn still. But what are your experts saying?

Well, we were -- like I said, yesterday, we had the honor of hosting at Diamond Green Diesel, the different soybean trade associations and the National Biodiesel Board. I heard a number of 100 million acres in the next couple of years of beans. Now I don't know. I have the honor of sitting on private investment board that has the largest seed company and then I will tell you, we're not seeing that level of interest in soybean production yet. But everybody's -- the bet is on the come that you're going to need bean oil to make renewable diesel if these guys will come. And then you've got Cargill, Bunge, the co-ops, ADM, all expanding their crush capacity. And as I was telling Ben, I grew up in that business and it was always a finite balance between what you could crush and what you needed to export. China is the largest. They buy half the soybean crop today. We're going to increase crush by 12% or 15% in the U.S. What's China going to do? Are they going to buy soybean meal from us because we don't have enough animals to feed? Or are they going to buy the beans and destroy the margin? So it's going to be an interesting time in agriculture. I will tell you that all the farmers that were in the room yesterday are feeling pretty darn good about life right now. But they're also nervous about fuel prices and fertilizer prices. I mean, their inputs are going up rapidly.

Is there anything -- when you think about China buying beans and crushing the sells, they just buy crushed product here? I mean, is there any big obstacle for them to...

Yes. Their ego. They have all the assets over there and all of a sudden, you take away that in Cargill, ADM, Bunge, Dreyfus, all have assets in China. And it's not only soy, but there's multimillion tons of crushed capacity growing up in Canada to crush seed for renewable diesel again. So that -- what I'm saying is, we haven't grown any more product or seeds. Just where we're going to process them is going to change in the next couple of years, and it's going to get interesting.

I'm sorry, I'm not familiar with the market. What you're saying is acreage isn't going up, but crop capacity is and demand for soy should be pretty high?

Pretty robust.

Good for you. Good for feedstocks

Yes. Good for farmers. You think about while we talked about decarbonization, remember the -- whether we're talking ethanol or we're talking biomass-based diesel, which is biodiesel, renewable diesel. While they're packaged as energy solutions, they're really a way to create markets for ag products in this country. Under the WTO, you can't give direct subsidy to the farmer. So how else do you do it? You create mandates for the products that the farmer makes. And so anybody that thinks these programs are going away, probably needs to kind of wake up a little bit because that's the heartland of America. And those 7 states seem to have a pretty significant poll in who elects -- who gets to be the next President. Yes.

And when do you expect to hear out of Washington. I think a lot of folks need the new set of rules before the stock gets going again and in terms of renewable diesel mandates what have you?

Yes. This is -- we're going to reference we'll call it, there's 2 pieces of the pie that are out there right now. One is the Build Back Better. And when that was a $3.5 trillion dream, we were working hard on the legislation in there for biofuels. And felt pretty good about it but thought it would get somewhat trimmed back. When it went to 1 7, they left it as we had proposed, and we took a strong position in there. It's a 10-year blenders tax credit and then a 10-year sustainable aviation fuel credit in there. And what's interesting about that is that, I think at the end of '26, it transitions to a producer's credit. And so it really is going to build a wall around the U.S. and protect our assets even more from foreign competition and people really haven't understood that yet. That won't get approved -- that will get approved here in reconciliation. I don't know, my feel is maybe before Christmas or early January. And then the second piece is then what are the renewable volume obligations for the fuels, ethanol and biomass-based diesel. They keep leaking stuff out of D.C. I don't know if people are throwing up sound bytes to see what kind of pushback they get. I mean, as Jim Stark and I and Brad talk, typically, we always say, when something's leaked, it's leaked for a reason and typically, it's directionally correct. And it's pretty bullish long term for our products and biomass-based diesel. Not totally for ethanol, but at the end of the day, it will show some pretty good strength. And I don't think you'll see that until after the Build Back Better is done. And then I think there's going to have to be a huddle that's going to say, okay, where are we at with the midterms, who are we going to make mad and what do we need to do to make sure we don't make whoever is up in those farm states really mad at us.

Randy, maybe pivoting a little bit to the food ingredients business, which is a little bit of an unsung here. You'll have a lot of success stories at Darling. The food ingredients is one of it -- one of them. Can you talk about kind of where you are in the evolution of that business, why it's doing so well and kind of what the runway looks like from here?

Yes. And like I said, 10% of the world's slaughtered animal byproducts are picked up by us. Our obligation is to produce the best and highest value product we can in the safest, most environmentally friendly way we can. And so that involves you kind of got to bifurcate and segregate all of the different products by specie, by bones, by guts, by blood, feathers, et cetera. So you're looking at everything there. And the Food Ingredients segment, I always try to keep it real simple to people. In a slaughterhouse that's under inspection, federal inspection when it goes in, when the hide has been pulled and the guts have been dropped, then you're in an inspected piece and the fat, the bones, the skin that come off can be converted into food products. Once it leaves there, then everything that's deboned in the deboning lines and other stuff, that becomes inedible. So our Food Ingredient business is borne out of taking products that can go into the food system. So we take hides and skins and bones and make collagen and gelatin about it. And it's really exciting for me. When we took the business here about 2014, it was -- we were running a $1 billion food company with about $140 million of EBITDA in it. And this year, I think, will come close to $200 million next year, well over $200 million, and I think it's on its way. If we're successful with our products up to the high 2s, 3s over the next 3 years, 4 years. And you're going to say, what are those products? Well, we're watching an evolution in the world move from -- in the gelatin molecule or collagen molecule, we've made -- collagen is an emulsifier by nature, if it's belt dried. If it's enzymatically converted, hydrolyzed, as we say it, it can be turned into a water-soluble product. People don't think of Darling as an innovation company, but I would tell you the greatest innovation in the world so far has been renewable diesel followed by collagen peptides that we've isolated out of the different edible products out of the slaughterhouse. Those peptides then end up in sports drinks, nutrition bars. You'll see it out there as vital protein. You'll see it in the bolt drinks now. Collagen is a wonderful supplement for joint health, bone skin, nail hair growth. And it's really been picked up. Neste acquired a significant portion of the leading company out there called Vital Proteins, which we're proud to be a supplier to help them build that company over the last 3 to 4 years. And then we're moving into Phase 2 of our collagen play. We're moving out of commodity gelatin specialty collagens, which would be the biomedical area. And you're going to say good Lord, what's that have to do with the guy that grinds up dead animals. And -- but it's just another way to isolate the peptide and remove the toxins out of it, call it, the low endotoxin, and then it can be injected for wound treatment and causes -- just accelerates suture repair or wound repair. And then the next piece is once you take out and isolate the different peptides of the native collagens, then you can go ahead and we would call that our biomedical business now in the sense of biomedical devices. And then I'm going to really scare you. We're growing pancreases. Now it's all being done in the lab and in pilot scales, but it's really an exciting business as we try to find higher and better uses in that. So about 80%, 85% of the Food segment is our Rousselot brand of these products. It's a natural fit for us and people go, "My gosh, that's really been selling, hey, anything to do with making fats and proteins." Well, number one, it is a protein. And keep in mind that out of that bone or that skin, 80% of that product is fat and protein and 20% of it is collagen. So that's where the natural fit for us is. You got to think back to gelatin. I used to always think gelatin was something you had at a funeral at the church, and gelatin and when we got in the business, and then I realized that all the application that goes and the most common one that you would see in the confectionery world is HARIBO gummy bears. And now everybody is eating a gummy with something in it. And then it kind of lost luster. It was what Kodak was really big and it was a film coating. And then, of course, when digitized gelatin kind of fell out of -- it got really cheap, really bad business, that's when we bought all the assets. And now it's a resurging to a very, very exciting business as we transform Rousselot from a gelatin company to a collagen and collagen peptide manufacturer.

Randy, you'll have CapEx coming down the line within the JV, but you're going to find yourselves with a lot of cash in the next several years. Can you talk about the use of cash? And then maybe as we think about kind of the distinct opportunities, M&A, potentially forming joint ventures, greenfields, can you rank -- return capital to shareholders and debt reduction. Can you talk about prioritizing those? And kind of what makes you most excited within that suite of opportunities?

Yes. Darling has been a hard company to value. And we're heavily quant fund owned as are many companies. And the algorithms don't understand what I'm going to say is nonconsolidated account. So we got the 50-50 joint venture with Valero. And the only time you see it in a sense is when we bring dividends over. But at the end of the day, we've been reinvesting billions of dollars over the last 6 years into growing the machine. As it said, the light is at the end of the tunnel now. I promise you it's not a train. But next year, we have about $800 million left to spend. And then DGD is fully delevered and that's what you're talking about, Ben. We'll probably, depending on margins and timing and all outflows this year, fourth quarter, I would expect in '22 to start pulling dividends, meaningful dividends, $200-plus million a quarter as we start moving forward here. And then that -- we're delevered at this moment. So then we say, well, what do we do? We've been opportunistically buying back our stock because we're not rocket scientists, but we believe today at where we're trading is way undervalued compared to the run rate we're at and the new run rate we're going to be at for next year. So we've been buying back stock. We'll continue that. We've got authorization up to $200 million from the Board for Brad and I to do that as we see fit. Dividends. We'll start to talk about it, but it's going to be a '23 deal. The debate is you can bring the investment house guys in, and they'll tell you you're going to get a different level of shareholder in here that even if you put a 1% or a 2% dividend underneath it. So we'll look at that. Clearly, we're going to -- Brad and I are looking at investment grade. I mean, not -- I can still tell the story of when I did in my first bank meeting in 2003 with 44 banks in there, and I used the word commodity, and I cleared it out all except for one, GE Capital. And now to be talking investment grade is kind of a smile for Brad and I to think through, but we'll get there. And then the M&A side is we've been one of the few companies in the world that has successfully grown through acquisition without blowing yourself up. And our recipe is so simple. It's -- we bought family held companies, no hostile public takeovers or anything. But we get to know the management company. We make sure it's a good business, put a fair price on it and then put a capital structure that even if our spreadsheet is wrong, we don't endanger or change people's lives and have to go into operation, burn the furniture or something. So we've done it with 20 companies. It's done by personal touch. And as I call it, from first beer to the alter is usually 18 months. We're starting to see companies right now come to market again post-COVID. Why? It's an aging industry around the world, family members, succession planning issues, potential tax changes and, by the way, just like us, they've had a pretty good year and they'd like to say, okay, can you price me off of a 1 year, not a trailing 36 and see if we can get some deals done. Our priority was your question, we are going to go secure additional feedstock around the world. We're already importing into Diamond Green Diesel from 5 or 6 countries around the world. And we don't really talk about it much. But we own the currency, the freight and the production arbitrages on all the continents. And so if we're going to go grow it where we can and see what happens, and it would be pretty -- I think in the next year, we'll get a couple done. Last year, we bought 3 poultry plants in Belgium from a family. We're working on more in Europe. We're working on the green energy strategy. While we -- the question was about renewable diesel in Europe, digesting actually makes a lot of sense in Europe. We're one of the biggest electricity producers powering about 20,000 homes from pig manure and what they call, swill, which is plate waste and making methane, making electricity and then making biophosphate organic fertilizer. So -- we like that model. We think it doesn't have the returns of Diamond Green Diesel, but it has annuity returns of it that stabilize some more of the volatility of the company as we go forward. So it's a really exciting time for us, my short answer would have been, Ben, it's a high-class problem. We're going to have to deal with it. And then Brad and Jim say, it's operation, Jerry Macguire show me the money because every time we get ready to talk about it, I build another DGD. What I can tell you is DGD4 is not on the drawing board. SAF is a potential investment opportunity. It's clearly in the Build Back Better. There's an incentive in there, but there's a challenge. And I hope my airline brethren are watching, right, they're going to have to step forward if they really want to decarbonize and pay for that fuel. It's not going to be subsidized enough to offset or to have no premium to Jet A. When there's a premium established, there will be investment. But at this time, it doesn't make sense. The $1.25 a gallon just doesn't get it done because you can sell road fuel into the low carbon markets around the world at a significant premium to what Jet would trade at today.

Randy, you talked about doing buyback. Is the -- the thing that precludes you or deters you from doing something more aggressive like an ASR given the stock having pulled back, is it that CapEx pipeline that you have, the opportunity for M&A, is it the set of alternatives that you have along the way are more attractive relative to the value of the stock today? Or this is a short-term issue in the stock and market will come to its senses if you do what you're supposed to do?

I think it's a little bit of all of that. I mean, the reality is we could go do an ASR if we wanted to. We're kind of in that tweener time now between when boatloads of cash are going to come in and not. And then there is a lot of M&A opportunity out there. And so we're just kind of -- a year ago today, I was sitting here and the stock was, I don't know, $28 or whatever. And now it went to $86 and it's back to $67 or right now. And one of the investment banks told me the other day, I've never seen anything like this, a stock almost triples in price and everybody's got a buy rating on it. And it just kind of -- it's hard for a new holder to get in here. But I mean our earnings next year will be consistent in the core business. DGD runs 750 million gallons. We think about $2 a gallon. And so you sit there and say, we're a $1.5 billion, $1.6 billion company EBITDA next year. I don't know if you want to give me a Neste multiple of 15, that's a $22.5 billion market cap. If you want to give me a 10, what you've given to me right now, that's a $15 billion. And then Brad has got a, I don't know, $1.2 billion, $1.3 billion of debt left out there. So it's a pretty easy number to get your mind around as we look forward here. And we don't see -- at this time, I mean, we don't see much risk to the model. We built DGD to derisk the core business, and it's doing it. It's doing it well, and we built DGD to bring the price of fats up, which we make more money on. We're getting that accomplished.

Yes. That's great. Any questions -- yes, go ahead, Adam.

Can you speak to -- there's always this recurring drumbeat of this is kind of appearing in the ethanol business because everybody still has a plan. You've been very clear as to how good some of these facilities that are allegedly coming to market and supply and going to work. What do you think the main point is? I mean, our deal obligations said we can handle all of this, somebody put on a press release saying this is a disaster, we might not fall in for a while. How do you get over in a comp like this?

I don't know. I've been unable to win over some of the riders out there. I mean, JPMorgan has 5.5 billion gallons of capacity coming online in 8 hours. It's just -- I don't know. I mean, in only '23 forward, we don't think the margins get any worse for us than $1.25 if the industry is going to run. And so I don't really get too nervous about it. And that's where we say then if you do compress it -- and this is what I always have to remind people, we have never said $2, $3 a gallon is sustainable. We just said enjoy it. We built DGD on a 10-year look back 2009 to 2000 at $0.79 a gallon. That's what the excel spreadsheet said for $3.23 a gallon. So it's been a 4-year, 4.5-year payback. We thought that was a pretty good investment in the world of fuel and ag. It averaged the first 5 years $1.26 when we didn't even have a low carbon fuel standard, we were just competing against the biodiesel guys for road fuel. We were $1.26. The next 5 years, we've averaged now $2.26, I think we'll end up the year around $2.30, $2.35 this year, but that's a big disruption because of Hurricane Ida. So -- and next year, we think around $2. It could be off $0.25 low, $0.25 high probably. But no, I just don't -- next year coming online, very little capacity. I think '23, you might start to see -- I think that's when the Regie plant comes online. There is a crane there, '24, I guess that is -- '24 is probably when some of this stuff might be real. But keep in mind, each year, the decarbonization line in the sand keeps moving. So you need more gallons. And then the hard part for people is there's meaning little benchmarks out there. You can look at fat prices, RIN prices, LCF credits, ULSD price, and then you try to back into a margin. What you don't see is the carbon intensity scoring and the pathways from the customers. The demand side of this thing is less than transparent. What I can tell you is we're sold out for the next 2 years. I mean, the demand is there. And that's without any further mandates of -- that we think are going to happen in the Northeast. I mean, COVID has really kind of screwed up the -- some of this. Canada comes online in '23, but Canada is already a giant customer. So it's only going to get better. And then that's without the jet fuel piece. And then under RED II in Europe, you've got all these different goals from the EU, non-EU countries. And this -- it's going to play an interesting role around the world as we go forward. I mean, you can talk wind, you can talk solar, you can talk electric vehicles. But here you got a drop-in solution that gets immediate results today. And so I think over time, everybody -- the other piece and get me on a rant here and I don't mean to, but all our product doesn't go to California. This is not a California program. This is a global decarbonization mandate. And if you're going to serve the world, where do you need to be? New Orleans and Houston, best economics in the world. And so that's like I said, bring it on, build it. Our core business loves people. I kind of like these high fat prices. Let's keep building it. Now my counterpart, Joe Gorder of Valero says, "easy cowboy," he wants to make sure that DGD makes its returns. But even if you're making $1.25 on a $3 a gallon investment, I mean, that's a pretty darn good return.

And how fast would you expect biodiesel [Technical Difficulty] doesn't work in the winter?

Because one of my team members is the Vice Chairman of the biodiesel industry, it can ever say, I always have to be nice. But clearly, that technology is going to go wayside here. It doesn't have the economics. Renewable diesel, if this capacity is built, replaces that, I suspect. But it will come down to -- the guy that's going to survive is the integrated soybean crusher or canola crusher that has a refinery, a vegetable oil refinery and a biodiesel plant, then they own the arbitrage. They may not run it very often, but they have the way of carving into that market if it does work.

Okay. Randy, thanks so much for your time. Thanks, everybody, for being here.

Thank you.