SMITHFIELD FOODS INC Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Packaged Meats: Driving volume and profitability by improving product mix, offering value, building brand awareness and delivering on product innovation. For example, Prime Fresh packaged lunchmeat volume increased double digits, Smithfield Anytime Favorites quarter hams increased volume share by 5.7 points, and launched innovative products like Smithfield Mike's Hot Honey Bacon.
• Fresh Pork: Focused on growing operating profit by maximizing the net realizable value of each hog and driving operating efficiency. Achieved 5% volume growth in the U.S. retail channel and increased profitability in pet food and pharmaceutical channels.
• Hog Production: Proud of the team's work to achieve a best-in-class cost structure on retained farms. Expect to produce under 11.5 million hogs in 2025, representing about 40% of Fresh Pork segment's processing needs, with a medium-term goal to reduce self-produced hogs to approximately 30%.
• Operations Optimization: Seeking cost savings in manufacturing, supply chain, distribution, procurement and SG&A. Enabled automation to redeploy labor and optimize transportation and logistics.
• M&A: Evaluating complementary and synergistic M&A opportunities in North America to support growth strategies.

Segment Performance

• Packaged Meats: Delivered third quarter adjusted operating profit of $226 million, the second highest third quarter profit on record, with an adjusted operating profit margin of 10.8%. Third quarter packaged meat sales were up $2.1 billion, an increase of 9.1% compared to the third quarter of 2024, driven by a 9.2% increase in the average selling price with flat sales volumes.
• Fresh Pork: Delivered adjusted operating profit of $10 million and an adjusted operating profit margin of 0.5% for the third quarter of 2025. Fresh Pork segment sales of $2.2 billion increased 12% year-over-year, primarily driven by a 12% increase in average selling price and flat volume.
• Hog Production: Reported adjusted operating profit of $89 million for the third quarter of 2025 versus a profit of $40 million in the third quarter of 2024. Third quarter 2025 Hog Production segment sales of $813 million increased by 10.1% year-over-year, despite a 25% reduction in the number of hogs produced.
• Other segment: Including Mexico and Bioscience operations, adjusted operating profit was $10 million in the third quarter, down $10 million compared to the third quarter of last year, primarily due to lower bioscience sales volumes.

Guidance

• Raised the outlook for fiscal 2025 adjusted operating profit, with the midpoint increased by $25 million to a range of $1.225 billion to $1.325 billion.
• For Packaged Meats segment, anticipate adjusted operating profit in the range of $1.06 billion to $1.11 billion.
• For Fresh Pork segment, anticipate adjusted operating profit between $150 million to $200 million.
• For Hog Production segment, raised anticipated adjusted operating profit range to $125 million to $150 million.
• Expect total company sales to increase in the low to mid-single-digit percent range compared to fiscal 2024, excluding the impact of Hog Production segment sales to new joint venture partners.

Risks

• Cautious consumer spending environment: May impact sales.
• Raw material cost fluctuations: Such as changes in hog prices, beef prices, etc., may affect profits.
• Industry market spread compression: Affects Fresh Pork segment profit.
• Trade tariff environment: Impacts Fresh Pork segment.
• Disease and other factors: May affect hog production.

Question and Answer

Q: About packaged meats in the fourth quarter and the timeline for profit recovery in 2026?

A: Feel confident about the packaged meats business. Q3 sales grew, margin was 10.8%. Raw material costs were high, but through various initiatives to offset costs, will adjust pricing and strategy based on market.

Q: About the 30% reduction target for hog production and the competitive advantage of vertical integration?

A: Reduced hog production from 17.6 million in 2019 to expected 11.5 million in 2025. Removed high-cost farms. Vertical integration helps reduce commodity market volatility and ensures pork supply.

Q: Outlook for beef trim markets in the next 12 months?

A: Beef recovery expected in late 2027. Argentina's export of beef has limited impact on U.S. market. Short-term relief not expected for beef trim markets.

Q: Changes in Packaged Meats profit outlook for the fourth quarter and reasons?

A: Affected by pricing timing, category differences and market conditions. Optimize product mix, pricing strategy and operational efficiency to cope.

Q: How the cautious consumer spending environment affects the outlook for the next few months?

A: Consumers are cautious, seeking value. High-income consumers are more resilient, lower-income households are more selective. But pork products perform well due to affordability and versatility, and brand and private label portfolio can cover consumers across different price spectrums.