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Darling International (NYSE:DAR)

Q1 2013 Earnings Call

May 10, 2013 8:30 am ET

Executives

Melissa A. Gaither - Director of Investor Relations

Randall C. Stuewe - Chairman and Chief Executive Officer

Colin Stevenson - Chief Financial Officer, Principal Accounting Officer and Executive Vice President and

Analysts

Chip Moore - Canaccord Genuity, Research Division

Daniel J. Mannes - Avondale Partners, LLC, Research Division

William D. Bremer - Maxim Group LLC, Research Division

Farha Aslam - Stephens Inc., Research Division

JinMing Liu - Ardour Capital Investments, LLC, Research Division

Kenneth B. Zaslow - BMO Capital Markets U.S.

Tyson L. Bauer - Kansas City Capital Associates

Operator

Good morning, everyone, and welcome to the Darling International Conference Call to discuss the company's first quarter 2013 financial results. With us today are Mr. Randall C. Stuewe, Chairman and Chief Executive Officer of Darling International; and Mr. Colin Stevenson, Executive Vice President and Chief Financial Officer. [Operator Instructions] This call is being recorded and your participation implies consent to our recording this call. If you do not agree to these terms, simply drop off the line.

I would now like to turn the call over to Mrs. Melissa Gaither, Director of Investor Relations for Darling International. Please go ahead, ma'am.

Melissa A. Gaither

Thank you, Amy. Good morning. Thank you for joining us to review Darling's First Quarter 2013 Earnings Results. Randy Stuewe, our Chairman and CEO, will begin today's call with an overview of first quarter operating performance and discuss some of the trends that impacted our results. Colin Stevenson, Executive Vice President and Chief Financial Officer, will then provide you with additional details about our financial results. Randy will conclude the prepared portion of the call with some general remarks about the business, after which time we will be happy to answer your question.

Before we begin, I need to remind everyone that this conference call will contain certain forward-looking statements regarding the business operations of Darling and the industry in which it operates. These statements are defined -- identified by words such as may, will, begin, look forward, expect, believe, intend, anticipate, should, estimate, continue, momentum and other words referring to events to occur in the future. These statements reflect Darling's current view of future events and are based on its assessment of and are subject to a variety of risks and uncertainties beyond its control, including disturbances in world financial, credit, commodity, stock markets and climatic conditions, a decline in consumer confidence and discretionary spending, the general performance of the U.S. and global economies, global demands for biofuels and grain and oil seed commodities, which have exhibited volatility and can impact the cost of feed for cattle, hogs and poultry, thus affecting available rendering feedstocks.

Risks, including future expenditures relating to Darling's joint venture with Valero Energy Corporation to construct and complete a renewable diesel plant in Norco, Louisiana and possible difficulties completing and obtaining operational viability with the plant on a timely basis or at all. Risks relating to possible third-party claims of intellectual property infringement, risks associated with the development of competitive sources of alternative, renewable diesel or comparable fuel, challenges associated with the company's ongoing enterprise resource planning project, economic disruptions resulting from the European debt crisis and continued or escalated conflict in the Middle East, North Korea or elsewhere, each of which could cause actual results to differ materially from those projected in such forward-looking statements.

Other risk and uncertainties regarding Darling, this business and the industry in which it operates are referenced from time to time in the company's filings with the Securities and Exchange Commission. Darling is under no obligation to and expressly disclaims any such obligations to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise.

With that, I would now like to turn the call over to Randy.

Randall C. Stuewe

Thanks, Melissa. Good morning, everyone. Thanks for joining us. My pleasure to welcome you to Darling International's Earnings Call to discuss our financial results for the company's first quarter that ended on March 30. Our first quarter operating performance marks a solid start to 2013, one that strategically sets the stage for upcoming commissioning of our Diamond Green Diesel plant, which I'll discuss later in more detail. An overall improved and less volatile pricing environment, coupled with steady raw material volumes, led to a net income of $32.4 million or $0.27 a share, a 15.1% increase versus year-over-year first quarter.

So let's put a little color around our performance. Fat prices recovered nicely from the fourth quarter 2012, but still were down 4% year-over-year. Protein markets improved year-over-year, but basically remained flat sequentially. We saw strong demand for our value-added poultry proteins lead the way. Meat and bone meal prices improved despite the continued closure of the Indonesian market. Our value-added protein price strength was primarily driven by tight global supplies of soybeans and a strong fish meal market. The improved fat prices were largely driven by the ramp up in biofuel demand, as the RFS2 mandate begins to another fulfillment cycle.

Exports of fats remained sluggish at best, and ultimately, the market is awaiting the start-up of our Diamond Green Diesel facility and the new demand it will create.

Let's take a look at how volumes played out during the quarter. To meet increased domestic and export demand, poultry and pork suppliers increased slaughter and processing rates, driving higher raw material volumes relative to the first quarter 2012 and sequentially from our fourth quarter. As we anticipated, beef raw material tonnage pulled back due to a combination of poor slaughter economics and sluggish demand as the consumer chooses a more economical protein.

We anticipate that due to tight cattle supplies, this trend will continue to win our business through much of 2013. Additionally, the mild winter led to lower debt stock volumes. We're also monitoring a new strain of bird flu, referred to as H7N9, in humans reported in China at the end of the first quarter. This could ultimately impact the poultry industry both here and abroad.

Our Bakery Feeds in the bakery business segment contributed nicely during the first quarter of 2013, with higher finished product prices for cooking meal, tracking the higher corn prices. Volumes reflected a more normalized production situation within the bakery industry versus the start of 2012.

Now turning to Diamond Green Diesel. Construction is nearing complete and we are at the early stages of a phased commissioning of our new joint venture with Valero. Rail unloading or tank farm, wastewater treatment and our pretreatment system are all in the commissioning phase. The ecofiner unit, the heart and soul of the facility, is nearing construction completion and will begin a rigorous commissioning shortly.

We anticipate a late second quarter startup and barring any unforeseen issues, full production during the third quarter. We always like to give you a pro forma snapshot of this perspective so that Diamond Green Diesel had been operating at planned capacity in first quarter based on our average raw material cost and finished product prices for the quarter and operating at nameplate capacity, our earnings per share would have been approximately 10% higher -- $0.10 a share higher. As a reminder, the facility will consume about 1.2 billion pounds of fat and produce about 137 million gallons of renewable diesel when operating at nameplate capacity. Valero's construction and Darling's operations team has done a fantastic job in bringing construction to completion, with an excellent safety record and we are very excited to see commissioning commence.

With that, I'd like to turn the call over to Colin to give us a brief financial review. After Colin concludes, I'll come back and provide some closing comments and then we'll open it up to Q&A. Colin?

Colin Stevenson

Thanks, Randy. For the 2013 first quarter, the company reported net sales of $445.4 million compared to $387.1 million in the year-ago period. The $58.3 million increase in sales primarily resulted from higher selling prices for our finished products and higher raw material volumes. As Randy mentioned, on a year-over-year basis, protein prices increased significantly, which more than offset a 4% decline in fat prices.

Net income for the fiscal 2013 first quarter increased to $32.4 million or $0.27 per share on a fully diluted basis as compared to net income of $28.6 million or $0.24 per share for the 2012 comparable period. As noted in our press release, the $3.8 million increase in net income for the first quarter resulted primarily from higher finished product prices, followed by higher raw material volumes. At the segment level, rendering generated net sales of $367.2 million for the first quarter of 2013 as compared to $322.3 million in the first quarter of 2012. Bakery segment sales contributed $78.2 million in the first quarter compared to $64.8 million in the year-ago period. These increases are primarily due to higher commodity market prices and improved volumes during the quarter.

Our aggregate expenses for depreciation and SG&A increased in the 2013 first quarter compared to our prior year's first quarter expenses. The SG&A increase reflects plan for additions in payroll to grow our used cooking oil business, as well as support our new ERP platform and the rationalization of our benefits and incentive compensation plans for the former Griffin employees. The increase in depreciation expense was primarily due to a general increase in capital expenditures. Interest expense was $5.6 million for the 2013 first quarter compared to $6.9 million in the year-ago quarter, a decrease of $1.3 million, primarily due to a decrease in debt outstanding as a result of our prior year payout of the company's term debt facilities and a reduction in deferred loan costs write-offs of approximately $0.7 million when compared to the same period in fiscal 2012. Other income was $1.1 million in the first quarter of 2013 compared to an expense of $0.6 million in the first quarter of 2012. The increase is primarily due to insurance recoveries on a prior year fire loss received in the 2013 first quarter compared to no such proceeds in the year-ago period.

Relative to the company's investment in our joint venture with Valero on the balance sheet, we reported an investment of $73.8 million at March 30, 2013, as compared to $62.5 million on December 29, 2012. On the statement of operations, we reported a net loss of $1.2 million for the first quarter of 2013. This loss is largely due to non-capitalized expenses as we finish out the construction phase.

Let me provide some additional balance sheet detail. On March 30, 2013, the company had working capital of $190.8 million and its working capital ratio was 2.56:1 compared to working capital of $158.6 million and a working capital ratio of 2.2:1 on December 29, 2012. The increase in working capital is primarily due to the increase in cash and a reduction in accrued expenses. At March 30, 2013, the company had unrestricted cash of $121.8 million and funds available under the revolving credit facility of $384.9 million compared to unrestricted cash of $103.2 million and funds available under the revolving credit facility of $384.9 million at December 29, 2012.

During the first quarter 2013, the company incurred capital expenditures of $26.4 million as compared to $24.7 million in the 2012 first quarter for a net increase of $1.7 million. Additionally, included in our capital expenditures, our costs associated with the implementation of our new ERP system, which is expected to be phased in over the next 2 years. I will now turn the call back over to Randy.

Randall C. Stuewe

Thanks, Colin. We ended the first quarter with strong results, carrying some pretty good momentum into the second quarter. However, we cannot ignore the anticipated improvements in the global supplies of grains and oilseeds that will be felt later in the year. For now, fat prices are steady and poised to move higher with strong biofuel demand. Protein prices may flatten somewhat, as we transition from pet food to agriculture and summer feeding programs. Raw material input seem to be steady with our used cooking oil business showing some signs of improvement. Our balance sheet and capital structure is solid. We have a healthy cash position, and we continue to look for opportunities to grow. Our platform is built, and we look forward to delivering solid results with the addition of Diamond Green Diesel.

With that, I'd like to now open it up to questions and answers, please. Q&A, operator, please?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from John Quealy at Canaccord.

Chip Moore - Canaccord Genuity, Research Division

This is Chip Moore for John. Randy, for DDG, if you get close to putting the final touches on the Ecofining unit, what exactly needs to be done or tested before the plant fires up?

Randall C. Stuewe

Well, the construction phase is in the 97%, 98% complete here. So we expect all the construction to finish up here in the next couple of weeks. You're in the final phases of steam tracing and insulating and doing all those things. The pretreatment facility is in the early stages of commissioning the equipment right now and getting material through it. So somewhere here in the next couple of weeks, we'll be starting to -- towards the end of the month, start commissioning the Ecofining. There's nothing major left there, Chip.

Chip Moore - Canaccord Genuity, Research Division

Okay. And once you get it up and running, is there opportunity to accelerate production here with RIN's prices being strong?

Randall C. Stuewe

Yes. It's painful sitting here watching it not run right now. So I know the team will do everything they can to get it up as quick as possible.

Chip Moore - Canaccord Genuity, Research Division

Okay. And then just lastly, which will you be thinking for in terms of timeframe once you get this ramped up and running in terms of capital deployment next steps and then just as a related question, how's the M&A environment? Is it still pretty competitive out there?

Randall C. Stuewe

Well, essentially, I mean, our commitment into the facility, we would, as Colin said, I think we have almost $74 million in there. The Valero team's done a pretty marvelous job of slowly paying off some of the suppliers here. So you'll see that ramp up with probably another $20 million to $30 million going out the door here in the next 45 to 60 days. So you'll end up with $105 million, $110 million in there when that's all said and done. We're still in a pretty significant cash build mode around here right now. So the M&A environment seems to have some life out there, but nothing eminent at this time.

Operator

Our next question comes from Dan Mannes at Avondale.

Daniel J. Mannes - Avondale Partners, LLC, Research Division

Randy, I don't mean to be glib, but if there were something on the M&A front, would you tell us?

Randall C. Stuewe

Of course not, Dan, you know that.

Daniel J. Mannes - Avondale Partners, LLC, Research Division

So real quick, first, I was going through your 10-Q and I noticed -- and this is in conjunction with your commentary on the potential for rising supplies of corn. It looked like you did put in some hedges on your -- for your bakery business for corn. Can you talk a little bit about maybe where you're hedged out for the balance of the year, and how much protection you've been able to put in?

Randall C. Stuewe

Well, what we've done there, Dan, is obviously, the trick for us or that is one of those businesses that has exposure to corn. You buy it off a corn, you sell it off a corn, off the track central Illinois. So when you look at the tools in the market or the derivatives available, what we've done is collar the margin exposure in that business for the balance of the year here. That's about as deep as I'd like to go into it. But it's approximately about 75% of the business has -- we've locked the margin in for the balance of the year at what I would say is pretty close to current levels.

Daniel J. Mannes - Avondale Partners, LLC, Research Division

When you say current levels, current future levels or spot levels?

Randall C. Stuewe

Current margin run rates. And obviously, the market's inverted so the back half of that has got a little less than the front half. But we've had a view here that the green crops, aside from being a little wet right now, will get planted in there. There could be some pressure on the back end of this thing a little bit.

Daniel J. Mannes - Avondale Partners, LLC, Research Division

Anything for '14 or just for 2H '13?

Randall C. Stuewe

Well, we have a large program right now involved. It's rolling the hedges forward, at least, through the first quarter to the point where we understand both the size of the crop and then the view of the world going forward.

Daniel J. Mannes - Avondale Partners, LLC, Research Division

Got it. Real quickly on Diamond Green, the $0.10 number, it sounds like that's up a little bit. Can you maybe just walk us through the components of the $0.10 right now? I don't know if you -- I know in the past, you've kind of done a bit of a walk-through on where that -- on how that earnings plays out between your view or where diesel RINs and the tax that kind of played out in the quarter.

Colin Stevenson

Dan, this is Colin. I'll take a quick walk through that for Randy. As you know in the past, what we presented is our analysis. It really starts with Gulf policy on #2 Diesel, and then we have the RIN value of that and the biodiesel tax credit, which right now is $1 per gallon.

Daniel J. Mannes - Avondale Partners, LLC, Research Division

And you're getting the full amount that would all accrue to you or to DDG?

Colin Stevenson

Yes. So we factored that into our per gallon price. As results we've disclosed in the past, we have some byproducts, which produced somewhere around $0.31 to $0.32 per gallon for naphtha propane and butane, and that drives our total per gallon price. We then look at the feedstock cost. As you know, we've got a variety of feedstocks that can feed into this, including used cooking oil and edible corn oil or distillers corn oil, poultry fat, tallow, et cetera, and we look at a blend of that to come up to an average feedstock cost basis. It is about 8.3 pounds of feedstock to produce a gallon of renewable diesel, and so that gets our feedstock cost. As we've disclosed in the past, our estimated production cost is around $0.38 per gallon and then layer in $0.07 for transportation cost.

Daniel J. Mannes - Avondale Partners, LLC, Research Division

Got it. So I guess -- and what was -- can you say what the -- what your average RIN price was in the quarter because RINs have obviously been trading up pretty meaningfully. I had actually thought it might even be a little bit more than $0.10 for the quarter. It was I guess...

Randall C. Stuewe

Yes, we use $0.64, Dan. You're right. It's been moving around here pretty rapidly.

Daniel J. Mannes - Avondale Partners, LLC, Research Division

Okay, great. And then the last thing I was going to ask is on DDG. Just in terms of the timing, I think you had mentioned before maybe the pretreatment is one of the earlier things you would commission. Can you talk about a little bit of how that's been performing during commissioning? Or is it too early to talk about that?

Randall C. Stuewe

It's too early to -- I mean, it's in the early phases. I mean, we've moved from a complete hydro treat now over to running some fat through it, and obviously, it's a very mechanical piece of equipment down there, lots of tanks and centrifuges and bleaching filters. And so they continue to make progress every day, and really, if there was an artsy form of what has to feed the hydro treater is pretty much temperature and the pressures system. This is where the Valero guys have to learn how to run a vegetable oil refinery much as we've got experience at Darling and our prior backgrounds into agriculture here. It's fairly new for them. So that -- we wanted to bring that up 2 to 3 weeks to 30 days earlier here so they'd have a chance to run, and it right now, at this time, it's performing as expected.

Operator

Our next question comes from William Bremer at Maxim Group.

William D. Bremer - Maxim Group LLC, Research Division

Maybe for me, as we go into the balance of the year, good commentary regarding the underlying volume and prices, with the forward market specifically in corn and the color that you have on bakery being hedged, how's your long-term strategy going to develop there?

Randall C. Stuewe

Well, I think number one, as we've always said, that the rendering side of that fat and bone side of the business, 70%, 75% of that is on a formula. A significant portion of our restaurant services, our cooking oil business is on formula. The bakery business, we've talked about being hedged. I mean, there's no ignoring the Chicago Board of Trade and the inverse with December corn of $1.00 in a quarter, $1.50 from the front end here from $7 down to $5.50, and that will have an impact on it. Now as we've talked about the combination and the development of our business model, the belief that we've had is that Diamond Green Diesel would take the fat component, which when you do break out our formula business is the one we have the most exposure on and provide some footing for that market not to totally track or to decouple its relationship with the following corn market. I mean, protein, if you look at the soybean meal market, it's down to -- it's pretty flat at $3.45 a ton when you get out towards new crop and forward. So we're going to see some fall off there in the protein prices. The -- there's 2 parts of protein in this company. There's the meat and bone meal off the room and inside, it will track with soybean meal and some relationship as it always has. The value added poultry proteins are more driven by what happens in the pet food market and the aquaculture market. We're in that transition time, as we said, between where the pet food pack slows down and the aquaculture market starts to pick up, and so we're right in there. We got a little softness happening right now, but that should provide some support there. So I mean, going forward, this is going to be a really fun test of the model that we've built going forward here. I mean, we're out of the block strong, and we should carryforward, obviously, the inverse here, through second quarter. And then third quarter could get a little bit interesting here, depending on how much of the crop they get in the ground. Now what's important there is it's still very wet. It's supposed to be very cold in some parts, again, early next week and then it's supposed to dry out. The farmer has proven time over time with the size of equipment they use now that they can get that crop in a much shorter period than ever before. But what it ultimately means is with tight supplies this year in the bins, you're not going to get the early crop off that you were. So we think this thing will roll forward a little bit further before it may come off sharply here or potentially as the world starts to recognize the larger supplies of feed grains and oilseeds. I think we're pretty well positioned going into it.

William D. Bremer - Maxim Group LLC, Research Division

Good color, Randy, thank you. And then, one, just for Colin, a little housekeeping in terms of the corporate expense line. You called out that little firming up of the Griffin acquisition there. Can you give us some guidance in terms of the corporate expense line going forward?

Colin Stevenson

Yes, Bill. A big piece of that was with the Griffin organization and their incentive comp plans, their benefits plans, getting those coordinated and rationalized under the Darling plan, but that was part of the number that you saw in Q1.

William D. Bremer - Maxim Group LLC, Research Division

Okay. Can you share what was sort of like a one timer there and give us a sort of a run rate going forward?

Colin Stevenson

Bill, that's not a one timer.

Randall C. Stuewe

It was an alignment of making all the employee programs fair and balanced between the 2 companies so that what you see is pretty much an ongoing run rate now.

Operator

Our next question comes from Farha Aslam at Stephens.

Farha Aslam - Stephens Inc., Research Division

So in your base business, your volumes outperformed our expectations. Could you just provide some color on what, if you had anything notable, to drive volumes?

Randall C. Stuewe

I wouldn't say that there was -- I think, number one, it looks very good between rendering and bakery. I mean, bakery was clearly, if you rewind the movie a year ago today, we were sitting here dumbfounded with about a 10%, maybe, greater falloff in bakery volume from a year ago. Maybe it was 5% to 10% from year-over-year, down from where we anticipate it to be in 2012. So that came back. So it was pretty -- as I say, it was pretty steady to fourth quarter. Rendering, the fat and bone side, was pretty much where we thought it would. We had pretty good poultry numbers in there. The B side ran a little strong and then it backed off pretty sharply as the per head economics are pretty red there. And then really, no -- as I've said, no debt stock in there. It was a pretty mild winter, per se, lots of snow, but not really the super cold temperatures. The used cooking oil business, we've seen a nice uptick in that. And that's probably a combination of programs that we got going on there that Bryan Griffin's group that hits the streets out there is doing a real nice job working with the customers and there's some growth in there. Our theft prevention team's finally making some headways there and we're getting some help from both the state and the federal government in a couple of places to shut down theft. So really, at the end of the day, poultry was strong. Beef was a little weaker and starting to show trends of weakness. Bakery was up year-over-year and cooking oil showed some signs of life. So it seems to be carrying forward here, Farha, right now. So I mean, I still think that I'm kind of -- you're the protein expert here. I mean, I think that cattle side could have some interesting volume or lower volumes here as we get to that September, October, November timeframe.

Farha Aslam - Stephens Inc., Research Division

Okay, that's helpful. And then just on Diamond Green Diesel, when do you start filling up those tanks and taking in product?

Randall C. Stuewe

They're pretty darn -- we've been quietly filling those tanks in front of your eyes here since December. So we were quietly, as the market dipped down, we used the storage capacity down there. So Clay's been building a really nice pipeline down there. We have not put into play yet. It's only starting to ramp up the full -- turning the stick on, if you will, turning the Darling system towards Diamond Green Diesel, and then some of the outside purchases there. I think one of the things we did was -- you saw us last summer acquire a facility in Central Iowa or Southeast Iowa, Muscatine, Iowa. Muscatine, Iowa was set up as a terminal with some pretty significant storage up there to source and supply corn oil to the gulf. That's been well underway. So it's quietly been happening in front of your eyes, and that might be why the fat market started to show some signs of improvement in first quarter.

Farha Aslam - Stephens Inc., Research Division

And so do you anticipate, as Diamond Green Diesel starts getting up and running, for it to be supportive to fat prices or do you anticipate fat prices to pick up from current levels?

Colin Stevenson

Well, that would be -- there seems to be a little bit of a Harvard Business study going on and a debate in-house on that. There's split beliefs around here. One, we think that there's adequate -- one belief is that we think there's adequate corn oil supplies now in the market to offset that new demand point. My argument, though, is that -- you have to sit on this side of the table, my argument with that is, is that's already known in the market and that's priced in the market, but we've not turned on the machine that has to unload 18 to 20 cars a day, starting here shortly. So I think it's -- worst case, it's supportive and we'll see where it goes from there.

Operator

Our next question comes from JinMing Liu of Ardor Capital.

JinMing Liu - Ardour Capital Investments, LLC, Research Division

Randy, first question. You mentioned that you saw some improvement here in yellow grease during first quarter. Can you share more details with us?

Randall C. Stuewe

Can I share what?

JinMing Liu - Ardour Capital Investments, LLC, Research Division

The details of how improvement in the yellow grease sales in the first quarter?

Randall C. Stuewe

I think when I refer to improvement, it seems to be a reduction in the decline that we've been seeing. So for us, I think that we use the word around here, I think we've seen bottom. We started to add some new accounts around the country. We're deploying different types of equipment out there now that deter theft. We've got a very solid program of putting indoor units in to some of our key accounts. So it's not a giant increase, JinMing, but I've seen numbers come back that I haven't seen. Volumes' up 2%, 3%, 4% from where they were. So we're hoping it's a trend, but in the world of statistics, it's only one dot on the line right now.

JinMing Liu - Ardour Capital Investments, LLC, Research Division

Okay, got that. Switch to Diamond Green Renewable Facility. It seems like you will outsource some of the raw material and just how do you control the quality if you outsource some of the raw material?

Randall C. Stuewe

It's a really good question. There has been, for the last 2 years, a very extensive laboratory and supplier approval process underway. We've used Texas A&M extensively to analyze potential suppliers, probably 60 to 75 different supply points around the country. Some work, some don't work, and some work a little better than others, and so that's what we would consider to be very confidential to the facility. I anticipate that the Darling system will supply somewhere between 50% and 70% of the volume to it, and then from there, it will be outsourced to whatever is the most favorable feedstock, both in the form of quality and price.

Operator

[Operator Instructions] Our next question comes from Ken Zaslow of Bank of Montréal.

Kenneth B. Zaslow - BMO Capital Markets U.S.

A couple of questions. One is on the spread between the poultry for pet food, that spread has actually been very, very strong of late. It's coming down a little bit. But can you talk about what you're kind of thinking about for the future on this? Is there a demand shift that's keeping this level? Is there any -- just kind of give us an outlook of what you think about that spread.

Randall C. Stuewe

Yes, I think, well said. I think you picked up on it. You're a student of the business. I mean, while we spent time referring to pricing in our analysis here relative to trade publications in Jacobsen, the cash prices of the poultry proteins or the spreads over typical feed grade did widen out and supplies were very tight in the first quarter. There was a strong pet food demand, repacked or packed, whatever retail pack that went on here. It would seem that the pet food guys, both here and abroad, seem to have an insatiable appetite for chicken products right now. Part of that's driven off of the tight soybean meal supplies around the world, the tight fish meal prices. But over all, I see it softening here just a little bit from a retail perspective, which it typically does more seasonality driven. We run a chicken parts business that makes chicken meal. That's done very well. So at the end of the day, chicken is king right now. Our facilities are running full and the demand is very good. Feather meal spiked up pretty good in first quarter. It's come off a little bit. The pet grade poultry products spiked up very nicely, quite a bit higher than what the trade sheet showed momentarily just on spot demand, not what I call normal demand there and at the more than normalized now. So I see it pretty good going forward, and I don't see anything out there that changes it to go higher or anything, supply side that would push it lower. I mean, if you're bullish, eggs set and increased poultry, slaughter, there may be a little bit of pressure, but it seems that especially with the tight fish meal supplies and the aquaculture side coming on, that should -- to say it bluntly, we had more visitors from China from the aquaculture side this year than last year. So I think that we'll see some pretty good support there.

JinMing Liu - Ardour Capital Investments, LLC, Research Division

And my follow-up question just is in terms of the cash flow, you guys have been talking about acquisitions for some time. Is there a tipping point of saying, "Look, there really may not be acquisitions coming to the market, and we need to deploy our cash some other way." Can you talk about the time period for which you make that decision and what you would do with it?

Colin Stevenson

Yes. I think, obviously, to openly talk about M&A is very difficult. So I try not to. There are opportunities out there. It's the start of a new year. There's always opportunities, whether or not they'll be priced at a level that is reasonable and something we think that is sustainable and accretive to our shareholders. That's another discussion. I think from our perspective, we've got -- as we settle along, we want to get Diamond Green Diesel up and running, and make sure that there isn't any significant capital that would be required there to either finish it out, tweak it, make it work. It doesn't appear that there is at this time. So we've got a pretty large war chest. Plan B is see if we can deploy that capital in the M&A markets to something that makes sense, and then the final piece is if we're unsuccessful in that during what I'd say is probably second quarter here and Diamond Green Diesel is up and running, then the board has a decision to deploy the capital back to the shareholders, either in the form of a buyback or some type of ongoing meaningful dividend. Both are under discussion. They've been prioritized, as I discussed. And so if nothing happens here that we can grow the company in a sense, the shareholders will benefit from the amount of cash the company continues to throw off.

Operator

Our next question comes from Tyson Bauer at KC Capital.

Tyson L. Bauer - Kansas City Capital Associates

In regards to the RIN situation, obviously, we have the increased mandate levels this year with the tax credit. We would expect those producers to have a little stronger carry out going into next year given the uncertainty of that tax credit. Along with the Brazilian movements, they have done with their sugar cane ethanol, keeping that supply in country as opposed to exporting here, what are you looking at as a true volume consumption level here in the U.S. as we get through the remainder of this year? And then also, if that continues to be the case, where we're filling a lot of those D5 requirements and that capacity, where do you see that going forward? Are we going to be stabilized and growing that mandate level as we get into August, September and going forward?

Randall C. Stuewe

Yes. I think if you take the current run rate and you can make some assumptions out there with us coming online, this thing, at least in the D4 bucket, looks pretty strong through late fall, October, November. From there, given like as you highlighted, the sugarcane side, the D5 bucket becomes a bucket then that we would move over to. So I don't see the cliff or the falloff that we saw last year on fulfillment. And then, obviously, we're trying to come up with the '14 volume is. We're anxious for that number to be published and finalized, and we're hopeful that it's a minimum of 1.6 billion gallons. So I think we remain optimistic. Obviously, we're focused on today, which is get it up and running and make as much money as you can today. But I think, internally, we feel that we've got a good year, 1.5 years, ahead of us coming here without any issue. I mean, obviously, the change in the ethanol RINs and what's happened there with the blend wall is something that -- as we always say, we give you the good and the not so good. The not so good is obviously the ethanol side is paying a whole lot for RINs right now when you go from $0.03 to $0.60 to $0.80 to $1.00, whatever the number is moving around. That clearly starts to make that material to our partners in the petroleum industry, and so at the end of the day, they've got some issues to work out there to make sure that RFS doesn't glean any more political attention than it rightly deserves. So I think we're fairly optimistic that will work out for now. But right now, I think we've got a pretty good year, 1.5 years ahead of us.

Tyson L. Bauer - Kansas City Capital Associates

Randy, your comments, are you suggesting that we may see a immediate barbecue season than our normal spike up in slaughter volumes due to the freezer volumes that are already in place? We may see that a little bit muted this year so we're not expecting kind of that little bump we've gotten in years past?

Randall C. Stuewe

Yes. It seems like it's starting out a little slower, freezer volumes. I mean, you've pegged it. I just think it will be a delayed barbecue season here, if you will. But at the end of the day, it's kind of hard from a consumer's perspective. Beef is really expensive right now. We love beef, but at the end of the day, the consumer is going to make the choice of what protein they're going to buy, and usually, it's very well chosen off a price. So I think you'll see that -- you got the egg set prices were ticking up. You got some capacity being tweaked in the poultry industry out there. I think you'll see that start to pick up here in the second half of the quarter here.

Tyson L. Bauer - Kansas City Capital Associates

And since you mentioned fresh meal, and that's kind of my wheelhouse, we've seeing record prices, $1,800, $2,000 per metric ton. Norway has opened up for inclusion rights up to 40% for low-ash poultry. It's a fast-growing marketplace, especially for what you have to offer. What kind of price relationships do you have with the low level or average quality fish meal?

Randall C. Stuewe

Well, it's a per unit protein and a digestibility conversion. I mean, you've already answered most of your question there. You're seeing what's going on around world. You're seeing though the other side of it. You're seeing moderately increased fishing quotas put in place to offset that. But near term here, it sure feels that the aquaculture market is going to come back to the low-ash poultry meals here pretty sharply this summer.

Tyson L. Bauer - Kansas City Capital Associates

And last question. Any update on Florida and your technology developments there?

Randall C. Stuewe

Still, we've got some modifications. The plants have been running on and off on doing test commissioning here. Late-summer, mid-summer, June, July here, we expect to have it commissioned and running continues with the installation of some additional equipment. So we'll keep you posted there.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Stuewe for any closing remarks.

Randall C. Stuewe

All right. I want to thank everybody for joining us today. I think we're off to a pretty good start in the second quarter here, and we'll obviously talk to you in August with the results of second quarter and keep you updated if we need to relative to the commissioning of Diamond Green Diesel. With that, thank you so much, and we'll talk to you later.

Operator

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

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