In fiscal year 2021, the Company generated $4.7 billion in revenues and $650.9 million in net income attributable to Darling. The Company's stock price is $72.90 with 160.37 million shares outstanding. The five-year monthly beta is 1.23.

The company has recently experienced decline in its Fuel Ingredients revenue due to high cost of diesel fuel and has contemplated to divest itself from this segment. The Fuel Ingredients revenue portion was about 9.10% of the total sales in 2021. Table-1 shows Darling's net sales from fiscal year 2021, 2020 and 2019 continuing operations by operating segment were as follows (in thousands):

Table-1	Fiscal Year		Fiscal Year		Fiscal Year
	2021	% Total	2020	% Total	2019	% Total
Net sales:
Feed Ingredients	$3,039,500	64.10%	$2,072,104	58%	$1,970,561	58.60%
Food Ingredients	$1,271,629	26.80%	$1,185,701	33.20%	$1,119,085	33.30%
Fuel Ingredients	$430,240	9.10%	$$314,118	8.80%	$274,259	8.10%
Total	$4,741,369	100.00%	$3,571,923	100%	$3,363,905	100.00%

 

On January 1, 2022, the Company had net income of $650,914 with the total asset of 

$6,133,728. Table-2 shows the breakdown of the three segments and the company.

Table-2   Business Segments (in thousands):	Food Ingredients	Fuel Ingredients	Feed Ingredients	Corporate	Total
Segment assets on Jan 1, 2022	$2,550,687	$1,170,897	$1,837,805	$574,339	6,133,728
Segment income on Jan 1, 2022	$270,680	$124,256	$195,029	$60,949	$650,914
Depreciation	$32,954	$15,128	$23,744	$7,420	$79,246
Capital expenditures	-$29,782	-$13,672	-$21,458	-$6,706	($71,618)
Total Book Value of the debt	$608,541	$279,352	$438,462	$137,025	$1,463,381

 

Suppose you have been hired as a financial analyst at J.K. Kash Financial Services and have been assigned to value the company and each segment of the company. You have gathered the following information:

Table-3 Consolidated Statements of Operations - USD $ in Thousands	12 Months Ended
	Jan. 01, 2022	Jan. 02, 2021	Dec. 28, 2019
Net sales	$ 4,741,369	$ 3,571,923	$ 3,363,905
Costs and expenses:
Cost of sales and operating expenses	3,499,385	2,688,815	2,589,085
Loss/(gain) on sale of assets	(958)	426	(20,582)
Selling, general and administrative expense	391,538	378,496	358,523
Restructuring Costs and Asset Impairment Charges	778	38,167	0
Depreciation and amortization	316,387	350,178	325,510
Acquisition and integration costs	1,396	0	0
Total costs and expenses	4,208,526	3,456,082	3,252,536
Equity In net income of Diamond Green Diesel	351,627	315,095	364,452
Operating income	884,470	430,936	475,821
Other expense:
Interest expense	(62,077)	(72,686)	(78,674)
Debt extinguishment costs	0	0	(12,126)
Foreign currency losses	(2,199)	(2,290)	(1,311)
Gain (Loss) on Disposition of Business	0	0	2,967
Other expense, net	(4,551)	(5,534)	(6,671)
Total other expense	(68,827)	(80,510)	(95,815)
Equity in net income of other unconsolidated subsidiaries	5,753	3,193	428
Income before income taxes	821,396	353,619	380,434
Income tax expense	164,106	53,289	59,467
Net income	657,290	300,330	320,967
Net income attributable to noncontrolling interests	(6,376)	(3,511)	(8,367)
Net income attributable to Darling	$ 650,914	$ 296,819	$ 312,600
Net income per share:
Basic (in dollars per share)	$ 4.01	$ 1.83	$ 1.90
Diluted (in dollars per share)	$ 3.90	$ 1.78	$ 1.86

 

 

Table-4 Consolidated Balance Sheets - USD ($) $ in Thousands	Jan. 01, 2022	Jan. 02, 2021
Current assets:
Cash and cash equivalents	$ 68,906	$ 81,617
Restricted cash	166	103
Accounts receivable, less allowance for bad debts of $8,196 at January 1, 2022 and $10,815 at January 2, 2021	469,092	405,387
Inventories	457,465	405,922
Prepaid expenses	53,711	47,793
Income taxes refundable	1,075	3,883
Other current assets	38,599	42,289
Total current assets	1,089,014	986,994
Property, plant and equipment, net	1,840,080	1,863,814
Intangible assets, net	397,801	473,680
Goodwill	1,219,116	1,260,240
Investment in unconsolidated subsidiaries	1,349,247	804,682
Operating right-of-use assets, net	155,464	146,563
Other assets	66,795	60,682
Deferred income taxes	16,211	16,676
Total assets	6,133,728	5,613,331
Current liabilities:
Current portion of long-term debt	24,407	27,538
Accounts payable, principally trade	307,118	255,340
Income taxes payable	32,310	17,497
Operating lease liability, current	38,168	39,459
Accrued expenses	350,681	335,471
Total current liabilities	752,684	675,305
Long-term debt, net of current portion	1,438,974	1,480,531
Operating lease liability, non-current	120,314	109,707
Other noncurrent liabilities	111,029	117,371
Deferred income taxes	362,942	276,208
Total liabilities	2,785,943	2,659,122
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value; 250,000,000 shares authorized, 171,734,603 and 169,880,238 shares issued at January 1, 2022 and January 2, 2021, respectively	1,717	1,699
Additional paid-in capital	1,627,816	1,597,429
Treasury stock, at cost; 10,942,599 and 7,679,849 shares at January 1, 2022 and January 2, 2021, respectively	(374,721)	(151,710)
Accumulated other comprehensive loss	(321,690)	(252,433)
Retained earnings	2,347,838	1,696,924
Total Darling's stockholders' equity	3,280,960	2,891,909
Noncontrolling interests	66,825	62,300
Total stockholders' equity	3,347,785	2,954,209
Total liabilities and stockholders' equity	$ 6,133,728	$ 5,613,331
Common stock, par value (in USD $ per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	250,000,000	250,000,000

 

Table-5 Companies Similar to Darling	Symbol	Price	beta	Book Value	Market Cap
				Debt (thousands)	Billions
Sanderson Farms, Inc.	SAFM	213.95	0.56	$28,311	4.23
The Hain Celestial Group, Inc.	HAIN	23.79	0.74	$230,492	2.12
Conagra Brands, Inc.	CAG	35.2	0.61	$8,275,200	16.944
Ingredion Incorporated	INGR	88.93	0.78	$1,738,000	5.768
McCormick & Company, Incorporated	MKC	82.68	0.49	$106,100	22.2
Post Holdings, Inc	Post	82.9	0.56	$6,107	5.046
Hormel Foods Corporation	HRL	47.73	0.11	$3,302,180	26.101
Darling Ingredients Inc	Dar	57.6	1.11	$1,463,381	9.347

 

 

Table-6 Corporate Bond	Coupon	Maturity	Moody's	S&P	price
DAR4814991	5.25	4/15/2027	Ba2	BB+	95.28
DAR5422701	6.00	6/15/2030	Ba3	BB+	94.838
DAR5463168	6.00	6/15/2030	Ba4	BB+	96.985

 

table- 7 Business Segment	Asset Beta	Expected Growth Rate	Cost of Debt
Food Ingredients	0.8	5.00%	4%
Fuel Ingredients	0.9	2.00%	6%
Feed Ingredients	0.6	4.00%	5%

 

Answer the following question if the risk-free rate of interest is 3% and the market risk premium is 5%.

 

What is the value of the Feed Ingredients if its cash flow grows at its expected rate?

 What is the value of the Food Ingredients if its cash flow grows at its expected rate?

 What is the value of Fuel Ingredients if its cash flow grows at its expected rate?