SMITHFIELD FOODS INC (SFD) Earnings

Management highlights

• Record first quarter adjusted operating profit of $339 million and adjusted operating profit margin of 8.9%. • Packaged Meats segment had strong performance with $2.1 billion sales growth 6%, operating profit $275 million up 4%. • Fresh Pork reduced internally produced hogs, optimized cost structure. • Five key strategies: continue growth in packaged meats via product mix, volume, innovation; grow fresh pork profitability; optimize hog production; drive culture of continuous improvement; evaluate M&A (e.g., acquisition of Nathan's Famous).

Guidance

• Continue to navigate challenging external environment with Middle East conflict adding macro volatility. • Experienced team managing through cycles with pricing, spending, productivity, hedging, procurement actions. • Reaffirm guidance provided on March 24, balancing demand and macro challenges. • Expect solid second quarter results with packaged meats expected to be broadly similar to first quarter from underlying performance, fresh pork and hog production also expected to perform solidly.

Segment performance

Packaged Meats delivered operating profit of $275 million, up 4% versus the first quarter of 2025. Packaged meat sales of $2.1 billion increased by 6% compared to the first quarter of 2025. Volume growth of 3.5% was driven by earlier Easter holiday, excluding which volume was up 1.3%, and average sales price up 2.6%. Operating profit margin was 12.8%. Fresh Pork reported operating profit of $78 million, with an operating profit margin of 3.9%. Hog production delivered $4 million of profit for the first quarter of 2026, up from $1 million in the first quarter of 2025. Segment sales of $769 million decreased by 17% year-over-year.

Risks & headwinds

• Middle East conflict leading to higher freight, packaging and agricultural input costs. • Disease issues in the industry affecting pork production and exports. • Volatility in diesel and transportation costs impacting the business.

Analyst Q&A

• Q: Maybe to begin, Mark, I know you don't like to give kind of quarterly guidance, but obviously, you had a nice first quarter. reiterated the guide today. Maybe you can just help us a little bit with some of the phasing elements over the remainder of the year? Anything just to be kind of mindful of as we move into Q2 and over the balance of the year?

  A: Peter, thanks for the question. As I said at the outset, we feel very good about the momentum that we're carrying forward from a record '25 and a strong start to '26. So it's all about execution. And really, we see a number of opportunities to build on the performance as the year progresses. But looking specifically at the second quarter, the macro environment and the consumer remain pressured, but we expect to deliver solid second quarter results. If you look at the segments individually, for packaged meats, we're looking for packaged meats to be broadly similar to the first quarter from an underlying performance standpoint. Year-over-year, I'd say that the comparison is tougher because of the holiday ham timing benefited the first quarter of this year. So that pull forward reduces the second quarter year-over-year profit cadence. On the cost side, we're seeing higher-than-expected input inflation versus last year, most notably for pitch meats in beef and Turkey, and that pressure in supply chain costs that is talked about. So as we discussed at the outset, freight and packaging are areas of focus with diesel volatility really pressuring transportation costs and lagging effect in terms of resin-based packaging, but we're actively mitigating that through price and mix productivity and yield gains and really [indiscernible] part of our DNA in terms of year-over-year cost savings. So I'd say separately on Packaged Meat, we're going to continue to invest in brand and marketing. So year-over-year, we'll be up in brand marketing. It's a targeted approach, and it's ROI driven because it really supports our value-add strategy and our long-term share in these competitive categories that we're in. So I'd say the packaged meats just continues to be resilient and again reaffirm the outlook for the full year based on the performance that we're seeing. In terms of fresh pork, and continue to see strong execution, although we're managing that volatile cost and market environment. But just as a reminder, seasonally, -- the second and third quarter are typically softer than the first and fourth quarters for fresh pork profitability. But I'd say, even with those dynamics and cost pressures, we still expect to export to be modestly up year-over-year, and it's really supported by continued strength in our domestic value-added business. So good performance from Dona and the team as we started the year and expect it to flow through. In terms of hog production, seasonally hog production is strongest in the second and third quarters. working for a strong second quarter, driven by favorable market fundamentals. So we're seeing higher hog prices and comparatively moderate draining costs. But it's also along with the improvements that we've made in our cost structure on the retained farm. So overall, we expect to deliver a solid second quarter and full year results and a number of levers we can pull to manage that volatility as the year progresses.

• Q: Just following up on that discussion, seeing if you could comment on the competitive environment you're seeing for packaged meats. How are you thinking about pricing and promotions as we go through the year given the consumer remains value focused. And I guess, at the end of the day, how much does being vertically integrated impact your ability to remain competitive within packaged meats as well?

  A: [indiscernible], I'll start out by taking that question. So this is Steve Franch. So First, I'll make a few comments as far as Q1, and then I'll get into some of the promotional strategy for the question that you just asked. But when I thought how we started out Q1, our brands are certainly performing well. So in Q1, our branded business was up 1.6% versus last year, and that's compared to the industry that it was actually down 0.2%. So demand has been steady, and it's really coming from consumers who are choosing us because they know the high quality and consistency that they're going to get really every time they buy our product. So we're not trying to manufacture volume through heavy promotions. We've stayed focused on how we -- how our business continues to evolve, and we keep moving away from lower value commodity items and putting more emphasis on to value-added products, so things that we continue to talk about. So Prime fresh, any time favors effort smoked sausage and some of the items that Shane had mentioned in his opening comments. Now that shift didn't happen overnight, but it's been very consistent, and it really continues to show up in our results. So when we think about promotional strategies we're very focused on the quality merchandising. So really going into the quality versus unprobable quantity. So we do see some competitors increasing promoted volume through reduced price points, but that typically a short list, and it doesn't support the long-term health of a brand. So we continue to see improvement with our promoted volume really sold as feature and display, which is for us and for most people, it's really the most impactable promotional vehicle. So when I look at some of the performance from Q1, so our quality merchandising was actually up 2.3 points in Q1, and our promoted volume was up 2.5 points. So when I think about the category in total, the one thing that I think is worth mentioning is on the private label side. So from the industry standpoint, we are seeing an increase in private label share, but it's only in certain categories as retailers invest in their brands. Although I will point out that in Q1, private label volume for the industry declined in 13 categories versus last year. So we're starting to see a little bit of a shift when it comes to private label. It's also worth repeating that our branded volume was up 1.6%, surpassing the industry private label that was actually only up 1% in Q1. And I'll also add that our private label business remains very healthy with our volume up over 5% in Q1, and that's in our total business. So we know our private label business really provides us a key competitive advantage since many of our retailer partners are upscaling their private label offerings. And our participation in both branded and private label really helps us attract and the gain consumers as they move up and down that value spectrum. And that's where we can really manage the promotional strategy between working directly with our retail partners on the private label side of the business while also making sure we get the appropriate promotions to support our brand inside of the business. I would say that strategy is working because we saw share and volume increases, not only on the branded side but also on the private label side of our business in Q1.

• Q: Maybe continuing on [indiscernible] following up on Mark's commentary to Peter's question earlier, in terms of if we're looking for a similar outlook, performance in terms of packaging in the second quarter. It does put a bit more weight on the second half in terms of the embedded profit improvement in the Packaged Meats segment outlook, and understand we'll start to lap some of the higher raw material costs from last year, which should be helpful on the margin line. But at the same time, some of these newer cost pressures related to the Middle East could put in theory be building into the second half, and it does sound like you're confident in managing these costs. But just taking a step back, has anything changed versus go as it relates to kind of your confidence level and where comes in particular, could fall within the guidance range you outlined.

  A: I would just follow -- I'll start and I'll kick it over to Steve. Again, you're spot on in terms of the near-term impacts. And so there's going to be a little bit of a lag and a little bit of pressure in the second quarter, and that's why the guide for the second quarter was what it is. But again, I think that the mitigation efforts and the levers that we are able to pull will turn us back to that growth trajectory that we're looking for in the second half of the year. We have strong strong volume growth, as Steve had pointed out. And again, with the cost containment ends that we have, we feel very good at the second half of the year for packaged meats.

• Q: Following up on just the last comment a little bit on the outlook, grain cost and it kind of like [indiscernible] this is going flow through hot production, et cetera, but also the need to potentially invest more in working capital. So we've seen a better improvement versus last year in terms of investments in working capital. So I just want to understand, within your hedging strategies and a little bit of that uptick on the feed cost, how we should think of, a, managing that cost? And then, b, would it potentially does to your cash from operations, just given what it might do to working capital.

  A: Yes, Ben, you can look at the future strip and see how both corn and soybean mill are moving throughout the year, and you can see that they would change. For us, and as you know, we've talked about this before. Some of the initiatives we've taken around feed and grain procurement and haul production from using alternative ingredients, [indiscernible] by products, looking at ways we can use grain elevators across the country grain here really or get grant our hard production operations at a really affordable rate. But it also goes back to the overall and optimization we've done. So we're moving those inefficient farms. We're moving some underperforming geographies and really making sure that the KPIs, we have coming out of our atoms and things like [indiscernible] and PMS [indiscernible] are really at levels that help us absorb some of these changes as we see coming through. And again, you put all those things together, Ben, and it really, again, goes to our ability to look at the guidance that we've given in our production for the year and feel good about that guidance.

• Q: Related to the package needs raw material outlook -- raw material cost outlook. I was just wanted to talk about your confidence level related to those being lower year-on-year on the pork side. And I'm asking because there's been a lot of reports of disease in the industry, but also some underlying expansion. So just wondering how much visibility you have and if your confidence level as for the magnitude of year-on-year relief has changed any since, say, a month or so ago when you reported Q4?

  A: Yes. Thank you for the question, Heather. So I would say for packaged meats on the cost side, the biggest concern that we have is really not on the pork side of the business. So it's easier for us to manage that. We have good visibility of where we're heading on the work side. But when you look at the beef side of the market and also poultry, I mean, that makes up a sizable piece of our business on packaged meats when you consider some of the products that we make that do have beef when you think about Nathan's hot dogs, smoke sausage and then some on the poultry side, when you think about some of the lunch leads we have and also the growth that we've seen in some of our launches like Prime Fresh. So we're doing certain things on those areas to be able to mitigate some of those costs as far as locking into certain contracts or partnering with certain suppliers. But on the pork side, I'll probably pass it over to Shane he can addrss that.

• Q: So how sustainable is the current outperformance in packaged meats versus fresh pork? Are you seeing more structural share gains or a cyclical trade down behavior?

  A: [indiscernible], is your question about do we see trade down between packaged meats and fresh pork?

• Q: Yes. Yes.

  A: This is Steve. So I'll start and then I'll pass it over to Donovan. But I would say in total, we don't see a trade down at all. It's typically different consumers and somebody is going to buy fresh pork. They're going to buy fresh poks, they're going to buy a package. They're going to buy package. So a lot of consumers buy both. But they're not typically going to trade down from buying a fresh item and then buying certainly a package segment. So we don't see a lot of trade down. But as far as growth that we're seeing, I would say that sustained growth. So when you think about the overall performance that we saw in Q1, it was a solid performance from a branded standpoint. But also when we look at the strong private label business we have, we also grew the private label business, which both of those outperformed the rest of the industry. So the good thing is, and Donovan can talk a little bit about this, but the strength that we've seen in a package. There's a lot of collaboration between what we do on the package side of the business and also the fresh side of the business. So when you look at some of the categories on fresh, I think marinated is a great example where we participate in those sales calls are working together to promote those items. So a great example would be for -- if we do a family add of packaged items, we're going to incorporate some of those more value-added profitable fresh items some of the marinated strips that are new in the marketplace or marinated core, that's going to be incorporated in that same ad. So when you think about the strength and the success we've had on packaged meats, Fresh Pork is participating in that with a lot of the growth that they're seeing on some of the value-added products, and I'll pass it over to Donovan.