The Philippine ingredients maker has left its capex headache behind. Now comes the harder problem: selling more.
For much of the past few years, investors in D&L Industries had a simple question: when would the Batangas plant stop consuming capital and start producing returns? In the first quarter of 2026, the answer became clearer. The new facility, once the centerpiece of a heavy investment cycle and a drag on financial ratios, has now logged its sixth consecutive profitable quarter. Capital spending, no longer the main strain on the balance sheet, has faded from the foreground.
But business stories rarely end when construction does. With the plant finally contributing, a more prosaic but more important question has taken its place: can D&L grow revenues again?
The company’s first-quarter results offered a study in contrasts. Net income rose 5% year on year to ₱716.7m, a respectable showing in a volatile environment. Gross margin improved to 13.4%, from 12.7% a year earlier. Free cash flow turned positive at ₱339m, helped by muted capital expenditure and lower incremental working capital needs. Net gearing fell to roughly 90%, from the mid-to-high 90s at year-end. These are the sorts of figures that should reassure patient shareholders. D&L is no longer merely promising that its big expansion will pay off; it is beginning to show that it will.
Yet the top line told a less cheerful tale. Revenues fell 10%, to ₱12.83bn from ₱14.27bn. Gross profit declined despite the better margin. Food Ingredients, historically one of the group’s core engines, had a particularly poor quarter: volumes fell by 28%, revenues dropped by 16%, and segment profit plunged by 69%. Management described part of this as portfolio optimization — shedding lower-margin commodity exposure in favor of better business. Investors may accept that explanation, but only up to a point. A business can improve its mix by selling less of the wrong things; eventually, it must also sell more of the right ones.
The charm of D&L’s quarter lies in the fact that the company earned more while selling less. The danger lies in the same fact.
The margin machine
D&L has long sold itself not as a commodity processor, but as a customization company: an invisible manufacturer behind food ingredients, oleochemicals, plastic additives, and consumer products. Its best business is not merely shifting volume, but embedding technical know-how into clients’ products. That model showed its worth in the first quarter.
Coconut oil, one of D&L’s important raw materials, had stabilized at around $2,200 per metric tonne after a volatile period. That helped margins recover. The company also relied on price pass-through mechanisms and supplier relationships to cope with swings in petrochemical inputs, which were affected by Middle East-related oil-price shocks. In short, D&L was squeezed by a difficult macro environment, but not crushed by it.
The clearest proof came outside Food Ingredients. The Oleochemicals, Resins and Powder Coatings business, anchored by Chemrez, grew profit 34% year on year, helped by export sales of higher-value coconut-derived products. Specialty Plastics grew earnings 22%, aided by volume growth and modest margin expansion. Consumer Products ODM, still smaller, delivered a 65% increase in profit as the Batangas plant ramped up. The group’s diversified structure did what it was supposed to do: weaknesses in one division were offset by strengths in others.
That diversification is not trivial. D&L’s customers span food, personal care, home care, plastics, construction, health, and nutrition. Such breadth can sometimes blur an investment thesis. In this quarter, it clarified one. The company’s future profits are increasingly likely to come from specialty, exportable, higher-margin products rather than bulk domestic volumes alone.
The balance-sheet handover
The other encouraging change is financial. At the end of 2025, D&L still bore the aftereffects of its expansion cycle and commodity price volatility. By March 2026, the picture had improved, though not transformed.
Cash rose to ₱3.65bn. Borrowings declined slightly to around ₱24.95bn. Net debt fell by roughly ₱595m from year-end, and total equity rose by about ₱707m, broadly reflecting retained first-quarter earnings. Property, plant, and equipment declined modestly, suggesting depreciation now exceeds fresh capital additions. That is precisely what shareholders wanted to see after years of plant spending.
The implication is important. If Batangas is now profitable and capex remains subdued, more of D&L’s operating cash can go toward debt reduction, dividends, or reinvestment in product development. The company is moving from a “build” phase to a “harvest and optimize” phase.
But the balance sheet is not free of pressure. The pressure has merely changed shape. Inventories rose 27% from year-end to ₱15.84bn. Trade payables and other liabilities nearly doubled, rising by about ₱2.99bn. This helped preserve cash, but it also means the quarter’s cash-flow improvement partly depended on supplier financing and working-capital timing. If inventories remain high or payables normalize, cash flow could be tested again.
This is the new investor checklist. The old question was capex. The new question is working capital.
The food problem
The weakest part of the quarter was Food Ingredients. Management blamed a mix of portfolio rationalization, a tough comparison base, external headwinds, and the impact of high fuel and food input costs on parts of the food industry. The explanation is plausible. The Philippines, as a net fuel importer, is sensitive to oil-price shocks. Higher logistics and food costs can affect consumer activity, restaurant traffic, and downstream demand.
Still, a 69% drop in segment profit is difficult to wave away. Food Ingredients remained the group’s largest external revenue contributor in the quarter, with ₱6.70bn in external sales. If that business stays soft, D&L will need very strong growth elsewhere merely to keep group earnings moving.
The company’s response — rationalizing lower-margin commodity exposure — may be strategically sound. But there is a distinction between pruning a tree and watching branches wither. Investors should watch whether Food Ingredients stabilizes in the next two quarters. A smaller but higher-margin Food Ingredients business would be acceptable. A shrinking business with volatile profits would be less so.
Exports: promise deferred
D&L also continues to point to exports as a medium-term growth engine. In the first quarter, exports accounted for 24% of total sales. Management’s longer-term target is 50%. The gap between those figures is both an opportunity and a challenge.
The Batangas plant was designed partly to unlock export potential. Chemrez’s strong quarter suggests the strategy has merit. Higher-value coconut-derived products, sustainable ingredients, and specialized formulations can travel better than plain commodity output. But export growth takes time. It requires customer qualification, regulatory compliance, distribution relationships, and trust. The market should not assume a straight line from capacity to sales.
Still, if D&L is to regain a premium valuation, exports are probably central to the case. Domestic demand can support the business; exports can change its growth profile.
A better company, not yet a faster one
D&L’s first quarter, therefore, deserves neither celebration nor dismissal. The company looks in better financial shape than it did at year-end. Its major capital project is no longer the main worry. Margins are improving. Free cash flow has turned positive. Several specialty segments are growing well. The balance sheet is beginning to heal.
But the company is not yet firing on all cylinders. Revenue contraction was significant. Food Ingredients was weak. Finance costs rose 15% year on year, and interest cover slipped to 3x from 4x. Other income, including forex gains, flattered operating profit. Inventories and payables moved sharply. These are not fatal flaws, but they are reminders that the recovery is still uneven.
For shareholders, the key judgment is whether D&L is becoming a leaner, higher-margin, more export-oriented company — or merely defending profits in a weak sales environment. The first would justify patience. The second would limit upside.
The quarter’s message is thus subtle. D&L has probably passed the worst of its capital-spending strain. The Batangas bet is beginning to work. But factories do not create value simply by existing. They must be filled, efficiently and profitably, with orders.
In 2026, D&L’s story is no longer about whether it can build capacity. It is about whether it can sell into it.
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Disclaimer: This is for informational purposes and is not investment advice. Figures are taken from company disclosures and exchange data; valuation ratios include the author’s calculations based on cited inputs.
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