Smithfield Foods, Inc. Common Stock 2026 Q3 Earnings Call

Please go ahead. Thank you, operator, and good morning, everyone.

Welcome to Smithfield's third quarter 2026 earnings call. Earlier this morning, we announced our results. A copy of the release, along with today's presentation, is available on our investor relations website. Today's presentation contains projections and other forward-looking statements that are being provided pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all comments reflecting our expectations, assumptions, or beliefs about future events or performance that do not relate solely to historical periods. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, the factors identified in the release in our annual report on Form 10-K, our quarterly reports on Form 10-Q, and our other filings with the Securities and Exchange Commission.

The company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Please refer to our legal disclaimer on slide 2 of the presentation for additional information. Today's presentation will also include certain non-GAAP measures, including but not limited to adjusted operating profit and margin, adjusted net income, adjusted earnings per share, and adjusted EBITDA. For a reconciliation of these and other non-GAAP measures to the corresponding GAAP measures, please refer to our earnings press release and our slide presentation on our website. Finally, all references to retail volume and market share are based on Circana MULO+ data. With me this morning are Shane Smith, President and CEO; Mark Hall, CFO; Steve France, President of Packaged Meats; and Donovan Owens, President of North America Pork. During today's call, Shane will begin with high-level opening remarks.

Mark will then review our third quarter financial results and full-year outlook, and Shane will return to discuss our growth strategies. Following our prepared remarks, all four executives will be available for the Q&A session. I will now turn the discussion over to Shane.

Shane? Thank you, Julie. Good morning, everyone.

Today, we report a total company third-quarter adjusted operating profit of $145 million, which is within the range we provided in September, but down from $310 million in the prior year quarter. The decrease in the year-over-year performance was driven by a sharp decline in the pork value chain due to softer domestic demand and a global oversupply of pork. U.S. consumers remain pressured due to persistent inflation and high gas prices, as well as reduced SNAP benefits, which has negatively impacted consumption levels. At the same time, there has been an erosion of export opportunities due to increasing pork supply in key markets such as Mexico and China, as well as ongoing tariffs. This has resulted in a rapid deterioration in the pork value chain.

Additionally, transportation costs remain high due to carrier supply constraints, while diesel and resin costs have been elevated since the Iran conflict began and even accelerated during the third quarter. While these commodity market-driven challenges primarily impacted our upstream fresh pork and hog production segments, which reset our full-year outlook, our packaged meat segment demonstrated its resilience with year-over-year volume, profit, and margin expansion. In the face of these market challenges, I want to highlight progress on multiple strategies as well as our strong financial position. First, we increased volume and operating profit in packaged meats, and this segment is on track to deliver its fifth consecutive year of above $1 billion in operating profit. Second, we completed the acquisition of Nathan's Famous, bolstering our packaged meats portfolio, expanding our opportunities to grow this brand domestically and internationally.

Third, while our upstream segments remain challenged, we entered into a new long-term supply agreement with an existing joint venture partner, which will reduce the number of hogs that we produce internally by roughly 900,000 per year. Fourth, we have a strong balance sheet and financial position that provides significant financial flexibility to support growth and create shareholder value. Fifth, we are on track to return value to shareholders through an anticipated annual dividend of $1.25 in fiscal 2026. With that, I will turn it over to Mark to review our financials in more detail.

Mark? Thanks, Shane, and good morning to everyone joining the call.

Turning now to our third quarter results. Consolidated sales in the third quarter were $3.4 billion, which was an 8.3% decrease compared to the prior year, reflecting lower pork complex values as Shane discussed. We delivered adjusted operating profit of $145 million at a 4.2% margin, which compared to $310 million and an 8.3% margin in the third quarter of 2025. Adjusted net income was $103 million, compared to $230 million in the third quarter of 2025, and adjusted diluted EPS was $0.26 per share, compared to $0.58 per share in the third quarter of 2025. Our consolidated results reflect very different dynamics across the portfolio. Packaged meats grew volume, profit, and margin, while weaker pork and hog values weighed on our upstream businesses. Now I'll walk through those drivers, starting with packaged meats.

Packaged meats sales were $2 billion, down 5.2%, as a 5.3% decline in average sales price more than offset 0.2% volume growth. The lower average sales price primarily reflected lower pork complex values, partially offset by favorable mix. Operating profit increased $4 million to $230 million, and margin expanded 80 basis points to 11.6%. The year-over-year improvement reflected disciplined pricing, lower raw material costs, volume growth, and favorable mix. These benefits more than offset higher inflationary input costs and increased marketing investment. All in, packaged meats delivered its second highest third quarter operating profit on record, demonstrating the earnings resilience of the segment in a challenging consumer environment. Turning to fresh pork. Sales were $1.8 billion, down 17% year-over-year, reflecting an 11.4% decrease in average selling price and a 6.3% decline in volume.

The segment reported an operating loss of $89 million, compared with an operating profit of $10 million in the third quarter of 2025. Market conditions weakened further from the second quarter, putting pressure on both our processing spread and the margins we realize across our sales channels. On a sequential basis, the industry processing spread narrowed approximately 28%, and it was down approximately 35% below last year. This is well below the level needed to cover processing costs. Additionally, increased global pork availability created a more competitive environment for U.S. pork exports, particularly in Mexico and Asia, which adversely impacted volume and sales margins. Turning to hog production. Weaker pork values also flowed through to hog prices. This pressured hog production profitability at the same time fresh pork faced narrower processing spreads. Sales of $691 million decreased $122 million or 15% versus the third quarter of last year.

This was driven primarily by $74 million in lower sales to joint venture partners and a 5.2% decline in average selling price, inclusive of the effects of hedging. Operating profit was $34 million compared with $89 million in the prior year quarter, reflecting lower realized hog prices and lower sales to joint venture partners. Although current commodity conditions are masking some of the benefit, the structural improvements we've made on our retained farms have strengthened the business and improved performance across the cycle. Taken together, packaged meats profit growth was not enough to offset the pressure in fresh pork and hog production, which drove the consolidated results lower. This brings me to the balance sheet and cash flow. We continue to generate strong cash flow while maintaining a very healthy financial position.