Smithfield Foods, Inc. Common Stock 2026 Q2 Earnings Call

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

Welcome to Smithfield's second 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. I will now turn the discussion over to Shane.

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

I want to start my remarks today by emphasizing the strength of our performance and the resilience of our business. In a cautious consumer and volatile commodity environment, our team delivered record second quarter adjusted operating profit of $300 million, and we expanded adjusted operating profit margin to 8.1% from 7.9%. Through the first half, we set a record for adjusted operating profit of $638 million, up 2% from the prior year. This is a tremendous accomplishment and a clear reflection of the strength, focus, and execution of our teams. I attribute the ability to execute our long-term strategies on two key strengths. One, the advantage of our vertically integrated model, and two, the longevity of experience and cohesiveness of our talented team, resulting in disciplined execution.

Our vertically integrated model is built on our packaged meats, providing brands, innovation, and resilience through pricing diversity. Fresh pork, creating value by turning every pound into its highest and best use domestically and globally. Hog production, which establishes the foundation through an assured supply of quality raw material and cost control that no non-integrated peer can match. Smithfield is celebrating its 90th anniversary this year. Our company was built through acquisitions and organic growth and has succeeded by executing our proven strategies despite hard-fought challenges. Coincidentally, the people on this call today, Mark, Steve, Donovan, and I, have 90 years of combined experience, and we are supported by teams who execute with urgency and discipline every day.

No matter what the challenge or disruption in the macroeconomic environment, it is embedded in the culture of Smithfield and the DNA of our people to always look for ways to drive efficiency, optimize our business, and execute with discipline and urgency. Looking at each segment for the second quarter, Packaged Meats delivered strong adjusted operating profit margin of 13.1%. We defended our market share in a difficult retail environment. We delivered meaningful volume share gains in our largest product categories, outperformed category trends in both brick and mortar and e-commerce, expanded distribution, and continued to see strong results from our mix shift strategies. Fresh Pork operating profit reflected significant industry gross market spread compression versus the second quarter of 2025. Importantly, our team continued to create value by growing sales in our higher margin value-added retail, pharmaceutical, and pet food channels.

Hog production delivered higher operating profit, driven by higher hog selling prices, as well as savings and improved operating efficiency on our retained farms. This marked the sixth consecutive quarter of hog production segment profitability and underscores the ongoing benefits from our transformational strategy. In summary, we delivered record second quarter and first half adjusted operating profit despite a challenging macroeconomic environment. Our record results continued to bolster our already rock-solid financial position. Having a healthy balance sheet has long been a priority for Smithfield because it insulates us from the challenging market conditions and gives us significant flexibility to support our growth strategies and deliver shareholder value over the long term. Our first half results demonstrate the strength of our team, the resilience of our model, and the durability of our strategy. Consumers continue to face pressure from persistent inflation across a variety of household spending categories.

As a result, value-seeking behaviors have remained elevated, contributing to softer demand trends. As we look to the remainder of 2026, we are focused on managing through a consumer spending environment that continues to pressure volumes across the industry while using our brand strength, portfolio breadth, and execution capabilities to keep winning with consumers. We are also navigating softer meat and hog markets in our upstream businesses with the benefit of our integrated model, disciplined risk management, and continued focus on operational efficiency. On the call side, we are expecting continued volatility and inflationary inputs such as fuel and freight throughout 2026. Based on what we know today, we believe it is appropriate to update our 2026 outlook to reflect the current macroeconomic backdrop while continuing to invest in the strategies that position Smithfield for long-term growth. Mark will share more detail of our outlook by segment during his remarks.

I'll spend the rest of my remarks talking about our strategies to win in the second half and over the long term. First, our strategies and competitive advantages remain the same. In packaged meats, we will improve profitability through mix, volume growth, and innovation, leveraging our branded and private label pricing portfolio. In fresh pork, we will maximize the net realizable value of every hog across channels at a best-in-class cost structure. In hog production, we will achieve best-in-class cost structure through genetic transformation, herd health improvements, and procurement and nutrition savings. In operations, we will drive efficiencies across manufacturing, supply chain, distribution, procurement, and SG&A. In M&A, we will continue to evaluate synergistic opportunities. In packaged meats, we gained volume share in five of our $1 billion-plus categories: cooked dinner sausage, dry sausage, hot dogs, packaged lunch meat, and smoked ham.

A key contributor to our volume share growth in the second quarter was winning during grilling season. We won with new innovative flavors like Smithfield Pabst Blue Ribbon Beer Brats, Nathan's Famous Grass-Fed Beef Franks, and Eckrich Andouille Smoked Sausage. During the second quarter, our Eckrich brand, which markets popular grilling items such as dinner sausages, grew households by 1.7% and gained 0.7 points of volume share, reflecting strong advertising support and new flavor innovation. We continue to improve our mix of higher margin, higher velocity items. For example, instead of just reaching one household with a large spiral ham during the holidays, we are converting that single ham and dining occasion into the equivalent of up to 14 everyday products with higher profitability, increasing frequency, velocity, and profitability.

For example, with packaged lunch meat, we are bringing consumers back to the category through premium quality offerings that elevate the traditional lunch meat experience. By delivering differentiated products that meet consumers' growing expectations for quality and freshness, we are helping drive traffic back to a high-volume area of the store while creating a compelling trade-up opportunity. This is a win for both retailers and consumers, and it is fueling growth while expanding our distribution footprint. A key contributor to this momentum is our Smithfield Prime Fresh brand. In the second quarter, Smithfield Prime Fresh volume increased 18.4%, supported by a 24.3% increase in our points of distribution. Beyond expanding distribution, we are increasing our presence within stores by adding new SKUs, including our Smithfield Prime Fresh pepperoni and salami.

In addition to Smithfield Prime Fresh, we offer branded packaged lunch meat across the value spectrum, starting with value brands like Gwaltney, Armour, and John Morrell to mainstream brands Smithfield, Eckrich, Farmer John, and Krakus, delivering more affordable options for consumers. As a result, during the second quarter, we grew branded packaged lunch meat volume by 9.5% and gained 1.1 points of volume share. We have a strong private label business should customers choose that option. Innovation and how we bring products to market is where our brand strategy is evolving most. I want to spend a moment here because it speaks to how we are building the next generation of Smithfield consumers. On May 1st, Nathan's Famous successfully expanded its iconic 100% beef portfolio with the launch of Nathan's Famous Grass-Fed Beef Franks, bringing a compelling premium offering to the category.