Smithfield Foods Stock

Well, good afternoon, and thanks for joining us just after lunch. So next on stage, we have Smithfield Foods, a leading packaged meats company and the largest pork processor in the United States with a very large integrated operation. With us today are Shane Smith, President and CEO; as well as Mark Hall, the company's CFO.

Well, Shane, first of all, great to have you here for first conversation in a couple of years after you re-IPO-ed earlier last year. And good to have you back. And maybe just to begin with, I'll hand it over to you for just some general opening remarks, and then we go into questions as it relates to the recent announcements.

Yes. Well, thanks, Ben, and thank you all for being here. I was wondering what it would look like if we scheduled this over lunch. And so I think I now have my answer. But it is great to be here, Ben. This has been a great conference. So a little bit about Smithfield. For those of you who don't know us very well, we've been in business -- actually, last week was our 90th anniversary. So we've been in business for a long time. But I would tell you, we are a very different company today than we have ever been in our history. What we've been -- what we have built pre coming back to the U.S. IPO market was a much more durable earnings model, and it's really been built around 3 priorities. So grow our packaged meats business, improve whole hog utilization in our fresh pork business and then rightsize our hog production segment. And so we've been executing on those 3 strategies for a number of years now.

And the second quarter and first half of the year was really a good example of how that strategy is working for us. We did deliver record-setting second quarter and first half operating profit, and that was despite a consumer environment that, quite frankly, remains very challenged and commodity markets on the input side of our business that have remained much more or become much more volatile.

Earlier this week, I'm sure you saw we did announce that our upstream segments, particularly in our fresh pork business, have been unfavorably impacted by some of those market pressures I was just talking about. The USDA pork cutout, particularly the ham primal within that cutout has declined significantly since we gave that outlook back in early August. That's resulted in an overall lower outlook for that part of our business.

And to a lesser extent, we did lower our Q3 outlook for hog production. Hog prices have come down in correlation to the cutout that we were just talking about. And so while we're seeing pressure in these 2 parts of our business, we are still extremely encouraged by the momentum that we're continuing to see in our packaged meats business. We are expanding our distribution. We've gained share in key categories. We're seeing returns on innovation across our portfolio. And we're also attracting younger consumers. And so we're seeing a younger consumer base buying our product. And so we're really excited about how the business is continuing to evolve.

And most importantly, I would tell you what's different today than at any other time in our history is the strength of our balance sheet. We have an extremely strong balance sheet. And that gives us a lot of financial flexibility as we continue to think about growth and continue to think about investing for the long-term health of the business as well as creating value for our shareholders. So overall, while the operating environment is very dynamic, Ben, we feel really good about where we're positioned in this environment and on our ability to execute. So we can open up to questions if you have them.

Well, maybe just picking up on that and some of the details you've explained. So how was that change over the last 4 weeks? Because you obviously had earnings just about 4 weeks ago, reiterated guidance there. We made some adjustments to guidance, but nothing of that magnitude. You did the pre-announcement with more details on Q3. So maybe what were the drivers of those changes? And how should we think about path forward?

Yes. I would -- again, I would lead off with the guidance, we reaffirmed our packaged meats guidance. So we're still really excited and see a lot of momentum carrying into the second half of the year for our packaged meats business. The call down was really isolated to the commodity inputs on the fresh pork and hog production side of the business. So first, one of the main things that changed since our August report is in the USDA cutout. So that cutout declined a lot further than our expectations, and it really compressed the overall industry spread.

Specifically, again, inside of that cutout, when you look at the ham component of the cutout, ham values have declined materially. So they're down about 25% or came down about 25% down in the low 70s. And that's with a number of reasons where you can point to the ham market, you can point to recovery in Mexico, for example, of some of their herd. You can look at international, total international markets, it just has created a lot of short-term pressure on the ham complex, which in turn drove that spread compression.

When you look at the spread altogether, the spread was down about 50% compared to July, so August compared to July, and it was down 50% compared to August of 2025. So a lot of short-term volatility compressing that spread on the fresh pork side. And then on the hog production side, the way hogs are priced in the U.S. through the CME index, a large part of that is tied to the meat values. And so as we have seen meat values come down, we've seen a corresponding decrease in the revenue side in our hog production operations.

Bottom line, what I would tell you is this isn't anything structural. We're still executing our strategies. We're still investing in our businesses. This is really what I think is some short-term volatility that we're seeing in the commodity markets.

Okay. So talking a little bit more detail on fresh pork maybe first. So yes, the spreads have obviously been softer year-over-year, but you kind of like still potentially looking for some recovery into 4Q. Is that supply-demand driven? What would you say is the driver behind that?

Yes. I would tell you that we'll provide our outlook for the full year, fourth quarter when we do our earnings call a little bit later. What I can tell you today is that fresh pork in general, is a spread business. The industry gross market spread is the largest single variable in profitability and performance in fresh pork. Q3, again, the spreads have been more challenged than we anticipated back when we issued our original guidance in early August. The fourth quarter is typically seasonally the strongest quarter for fresh pork.

And historically, we would be seeing that -- or we would be seeing that historical rotation between hog profitability and meat profitability due to holidays, cooler temperatures. Typically, we would see fresh pork showing profitability or their strength in Q1 and Q4 for hogs is more Q2, Q3. So some normal seasonality would come back. But to investors, we would advise you to look at and monitor the USDA cutout and specifically inside of that cutout, how hams and bellies are trading. Right now, that is having the biggest impact on the overall spread component.

Okay. Now on the execution side, obviously, a couple of specific actions that you've taken to offset that spread compression. What else could you do to really maximize dollars per head in your whole-hog utilization program?

Yes, you're right. Historically, we have been successful in offsetting a large part of the spread when we see compression. And I think if you look at our results for the second quarter, I think that's the biggest proof point of how that's working. We saw our industry spread compression in Q2 of unfavorability of about $37 million. Now from the things we're executing inside of fresh pork, we were able to offset about $21 million of that $37 million. And that's a combination of things from our next best sales strategy. So that's kind of talking about how we look at the channels, how we sell our meat and the offal product, whether that's through export markets, through pharmaceutical, our pharmaceutical chain, through pet food, which is something we've really been leaning into the past few years.

So we're looking at every pound and where it goes in every channel and what has the highest net realizable value. So how do we create the most revenue out of that hog? Some of the things we've been doing in fresh pork to offset some of the spread compression is also in value-added. So we've taken a lot of the lessons that we've learned as a company in packaged meats, and think about how we apply that on the fresh pork side from branding fresh pork from creating value-added fresh pork. So you can think of case-ready and marinated and things like that. And we've been pretty successful there.

So in Q2, our case-ready or our value-added part of our fresh pork business was up about 4%. In Foodservice, we've really leaned into the fresh pork going into Foodservice chain. So our fresh pork on a sales basis in Q2 was up about 12%. Our volume in Foodservice was up about 8%. And again, looking at how do we get more of the pieces and parts of the pigs that we don't eat into things like pharmaceuticals. So you can think of things like the pancreas, pituitary gland, mucosa coming out that we make heparin with, so looking at how we continue to do those.

And then internally, a lot of what we've been focused on the last, I would say, 5 years or so is really about how do we invest in automation so that we lessen our reliance on labor, we become more efficient, we take cost out of the system, and we've really been focused on that to bring down that cost structure so that on the commodity side of the business, we're really lessening that exposure to volatility like we've seen in the last few weeks on the spread.

Okay. Got it. Now you've talked about some of the export stuff, et cetera. And obviously, the fresh pork business is very international. So how is currently demand in some of the key markets, especially with the fairly high Chinese demand?

Yes. So for China, I think it's important to level set what we sell to China. So on a consolidated Smithfield basis, our sales to China represent less than about 2% of our total company sales. And what we sell to China is offal product. So we're not exporting meat to China. We haven't exported meat to China in many years now. So we're selling the pieces and parts of the pig that people typically don't eat here in the domestic market. So you can think of things like ears and stomach and kidneys and those type of things that are going to that export market. And China is an important market for that product. And we don't expect to see much change in the China market given their domestic surplus.

China has really recovered very strongly from ASF. So we don't expect to see meats begin to move. We do still think there's a little bit of a deficit on the offal side. There's a higher level of demand. And one thing that I think gives us a competitive advantage is we've been there a long time. We have a sister company there where we're actually selling with boots on the ground that gives us some type of advantage in that. You look to other Asian markets in the export arena, so Japan, for example, we're seeing good growth in Japan. We've been experiencing really solid growth in Japan.

Mexico is a very important trading partner for U.S. pork. It's an important trading partner for Smithfield. Demand there does remain strong. But again, if you go back to my opening statements on the ham complex, we are seeing some pressure on the ham markets coming out of Mexico. And I do think that's a little more near term than not. Key point in exports, the way we think about exports in international markets. We have access to over 30 different export markets around the globe.

We look at each of those markets to fulfill a specific piece of the whole-hog balance. So one market may be really good for offal product. Japan may be really good for butts. Korea may be really good for loins. Mexico, really good for hams. So we look at the export markets as a way to, again, go back to that net realizable value model for fresh pork to make sure we're getting all the dollars that we can for that whole carcass or that whole pig as we harvest it.

So moving further on the integration side, hog production, obviously, another thing that's been touched on, on the guidance. And we've seen that the pork cutout just trended lower despite drop in slaughter. So what do you think has driven this? And do you see any upside potential? And then also what reports, data points are you looking at as you evaluate supply-demand for like just the coming couple of months?

Yes. This year, again, the biggest issue with the cutout has been the demand and mix that exists within the cutout, particularly hams. Now again, I go back to that global supply and export market competition have really weighed on those ham values. And again, that's led us to an extremely challenging third quarter when we think about it in the context of the market spread. And at the same time, USDA has lower cutout prices, again, just pressuring the CME market to go much lower. We look at a number of reports, Ben. So we're looking at everything from the USDA with their outlook on hog production, farrowing intentions, all of the things that go into building up through that commodity chain.

But I do think as we move seasonally into a stronger fourth quarter, we'll see some upside, and that would come from greater demand as well as seeing some of the supply tightening. And if a hole in production develops later in the year, then that will also create some upside both in meat values and in hog prices. I do think that pork today remains very strong relative to beef, but consumers are still price sensitive right now. And I don't think it's a surprise to anyone in the room, some of the pressure that the consumer is facing.

And when we talk about hog production, if you look at the June hogs and pigs report, they're reporting that the breeding herd is down about 1.2%. That's being offset by some productivity gains across the industry. And then you look at the cash market, the cash hog market, it's remained, I would say, relatively strong so far this year. I don't know if there's any other specific reports that we may look at. It's really an accumulation of a lot of different data points.

Okay. Got it. Within hog production, I remember when you did the IPO process, it was all about the medium-term goal to actually further reduce internal headcount target, I think, it was around 30%. Where do you stand right now on that journey? What's kind of like the missing pieces? And is 30% the right number? Should it be lower? How should we think about this?

Yes. When we started our hog production optimization strategy 4 or 5 years ago, at that time, we were killing or we were producing about 17.5 million hogs across the U.S. We looked at that strategy and all the changes that have taken place since it was implemented and said, you know what, we don't need to be 50% vertically integrated. Let's find the right number. And so when we arrived at a number and a goal of reducing our herd to 10 million, it was really a function of math. So we looked at each of our 7 harvest facilities across the U.S. and we looked at what is available in that area. So is there an independent hog producer base that we can pull hogs from? Or is this an area to support the plant that we need to grow our own hogs?

And to give you an example of how different that calculation can be, our Sioux Falls, South Dakota plant, which is our second largest facility, we're probably less than 2% vertically integrated, meaning 98% of the hogs that we buy to supply that plant are coming from independent hog producers. You contrast that to an East Coast plant where that model was built more on contract grower relationships, we're probably 75% to 80% vertically integrated. And so if you do the math across all 7 harvest facilities, what's available, what's reasonable, how do we continue to support fresh pork so they can continue to support packaged meats? The number we come to is about 10 million hogs sort of 30% you alluded to.

So -- but I think it's important, 10 million for us, it's not a written in stone. And so we'll get to 10 million, and we'll further evaluate what other opportunities do we have to maybe go lower. So in general, I would say the strategy is only grow the number of hogs that you have to, to support, again, the fresh pork business and the -- ultimately, the packaged meats business.

That makes sense. Now what -- is there anything you can do? We saw the guidance was down a little bit, but are there things within hog production that are actually under control that you can potentially do operationally to outperform industry margin? Because one thing is the industry is at and so on. But given the size, any opportunity to outperform here?

Yes. We use a number of tools, and we've done a number of things inside for the -- I would say, for the 10 million hogs out of that initial 17.5 million that will remain in Smithfield, they're in a much better cost structure today. And in many cases, I would tell you, they're in the top 5% or 10% of cost structures in the U.S. We have completed what was a 5-year genetic changeover. We've invested in feed initiatives, so how we buy grain and then how we mill that grain and feed it. We've invested in health and biosecurity initiatives, and we've seen that cost structure come down where today, you look at some of the external public models that are out there to show you how a good farm is performing, we're exceeding that model now. So we've done a lot of work there.

At a higher level, we do have a really robust hedging program. And so we've been hedging, whether it's corn and soybean meal on the input side or whether it's hog prices on the output side. And even on fresh pork, where we're buying that other 20 million hogs now, we're maybe buying some hogs using hedging instruments to protect the purchase side of that equation as well. So there's a lot of things we do to help lock in or pick points of entry and points of exit in our hedging program. And it's a really good program run by some really smart people.

Okay. And then you touched on cost a little bit. Obviously, grain is one at the very beginning, but then the subsequent butts, onies, et cetera. It's been very volatile and actually on the up as well to a degree. So as things normalize, how should we think about that flowing that into results? I mean, all this disruption right now.

Mark, do you want to take?

Yes, sure. We expect in the back half of the year that we'll see lower pork raw materials flowing through the packaged meats business, which will create a tailwind, particularly in the second half for bacon and other formula-priced product categories. So we -- as a point of reference, we flip 100% of our internally produced bellies over the wall, so to speak, from our fresh business to packaged meats for further processing. So that lower belly price is going to be a direct benefit to our packaged meats [ benefit ]. But that benefit does lag from a timing perspective in terms of inventory timing and how that flows through as well as the contract structure that we have with our customers.

But I would say that, that's only one part of the bridge for the second half. It's not the whole story. I'd say freight and diesel and resin for that matter, continue to be headwinds alongside our deliberate step-up in our investment in brand marketing. So it's going to counterbalance a little bit of that favorability on the raw material side. But as Shane stated, we have reaffirmed our guidance on packaged meats, and we're looking forward to a very solid second half.

I'd say the larger fourth quarter drivers for packaged meat are really around the expanded distribution, the gains that we made in the first half of the year, the increase in marketing spend that we've put forward. And it's our continued innovation and mix improvements across the categories, along with the normal seasonality in that fresh pork business, [Audio Gap] seasonally very strong for us with the [Technical Difficulty] holidays. So we're looking very solid for the back half of the year in packaged meats.

And then you previously also talked a lot about volatility like fuel, logistics, everything that's kind of like related to the Middle East, now even grain costs, et cetera. So as you look at some of these cost headwinds, how is that going to impact you? And is there anything else that's kind of like a watch item on the horizon as it relates to cost?

Yes. As I mentioned, freight and diesel and resin-based packaging remain elevated. And our outlook assumes that, that continues throughout the second half of the year. And diesel and freight really hit in the second quarter and resin, that impact is beginning to flow through in the second half of the year. So it will be more meaningful as the contracts reset. But freight is as much a capacity story as anything. It's about the driver eligibility enforcement that has tightened supply, about 200,000 CDL licenses came out across the network, and we're not looking for a real improvement in that until perhaps the back half of 2027.

But we have a well-established playbook that we've been executing in terms of network optimization and lane consolidation. We've successfully taken out over 1 million miles driven year after year for the past 2 years. We're doing some selective mode shifting in terms of our private fleet, our dedicated and then also an increase in intermodal transport, also executing our procurement strategies along with hedging and value engineering where possible. So the last resort is kind of through price increases across the portfolio. I would say, in terms of other headwinds, we're watching beef and turkey, those costs have remained elevated. But again, we're looking for overall improvement in the raw material profile in the back half of the year.

Okay. Now taking that all then back to the packaged meats business. I mean, we've heard there's a lot here at the conference with the consumer being cautious. There's obviously a little bit of an imbalance where to spend money. How have you guys adapted to that more cautious environment? And how can you defend market share?

Yes. I would say the consumer is undoubtedly more cautious or more deliberate today as they look for value. But I do think that protein is staying a priority. And when you look at the proteins, I think pork offers a really compelling value story versus the other proteins. For our business, we play the full value spectrum. So we have premium brands, we have mainstream brands, and we have value brands. And then if you move out of brands altogether, about 40% of our business at retail is in private label. So as that consumer moves up and down the value spectrum wherever they choose to spend their money, we have something to offer.

And you see that in the results that we had, like at the end of the first half, our packaged meats volume was relatively flat, while the 25 categories that we operate in, the volumes were down over 4%. So we were able to maintain our volumes and take some market share. We've also leaned really heavily into innovation, and we're seeing some quick returns on some of the products that we've come out with. And one of those is the Nathan's Grass-Fed hot dog that we just launched about a quarter ago, which already has a 40% ACV. So we're seeing just tremendous trajectory in that product as it's going to market.

And then you look at some of the other things that we're doing as a company coming out with meal ready cuts, looking at how do we provide a more convenient product, different flavor profiles, kind of look forward to meal solutions. Some of those we launched back in April, and they're all doing really well. And again, if you look at kind of the results of some of those things that we've been doing, our overall volume share, we gained share in 5 of our $1 billion-plus categories, meaning $1 billion of total category opportunity. Our points of distribution were up 6.2% in the first half of the year.

If you look, we've really been leaning heavily into e-commerce and being in front of that consumer. We've seen our e-commerce volume growth up almost 22%, outpacing the normal e-commerce growth for the industry. So we've really been leaning into these things. And I think that's -- as we go into the second half of the year, that's the momentum that we're carrying forward out of our packaged meats business.

Okay. You've talked about it like the portfolio within packaged meats, I think you have branded, higher value, but you also go down all the way to private label. So as consumption changes and moves along, does that have any impact as it relates to your segment profitability? Or is that all more or less the same?

Mark, you want to talk to that?

Sure. Yes. As Shane mentioned, we compete across the price spectrum. So we have Nathan's and Prime Fresh at the high end, the premium side of the business. We also have a presence with a branded product in the mid-tier and the value side. But as Shane indicated, we also do participate about 40% of our business at retail is in private label. So as that consumer trades down across the branded portfolio, if they were to trade out of branded and into private label, we're able to have a [indiscernible] with customer retention. So they're not trading out of a product that wasn't ultimately produced by Smithfield.

So we've also done a lot of work on improving that what was a more vast margin discrepancy between branded and private label products. We went through a significant SKU rationalization process. We also went and reformulated a lot of our contracts so that the underlying margin differential has been eradicated. So -- and I think the proof is in our results. We still had a relatively stout second quarter print in terms of our segment profit in packaged meats of 13.1%. And we continue to keep that balance of private label and branded around that 60/40 mark. So it's really about driving that customer relationship and really managing the category versus a volume and price discussion, and we've been very successful with that.

And is that then also fair to say because of that portfolio, despite what's been happening, as you said about a month ago, implied the fourth quarter has to be strong. I mean there's a seasonal effect you talked about this. But that gives you additional confidence to actually deliver on the Q4.

Yes. I would say our confidence comes from the factors that I mentioned that are already in motion. And as a reminder, the fourth quarter, if you're thinking about packaged meats, seasonally, that's our strongest quarter. But again, I go back to some of the things I said earlier, from a distribution standpoint, in the first half of the year, we increased those points of distribution over 6%. We have continued to invest in our marketing. So we've increased our marketing investment. We've launched a number of new products and all of those products are gaining traction at retail. I mentioned the Nathan's Grass-Fed. Mark talked about the Prime Fresh, and those are 2 great examples of programs that are going to contribute more fully as we work through the back half of this year.

We're also benefiting, quite frankly, from some timing and seasonality of the business. The fourth quarter in packaged meats is a really important selling season for us. And 2026, this year, because of our accounting calendar, will include a 53rd week. And so that will provide also some incremental contribution, although it's not a major driver of what will be our total overall outlook. But the confidence that we feel is the things that we execute against every day. It's those things that we did in the first half of the year that we have done across 2025 to set us up as we go forward, not only in the back half of this year, but as we go into 2027 as well. So I'm very excited and very optimistic about our packaged meats business and the things that we're going to continue to see coming down the pike.

Now wrapping it up, obviously, you have a very strong balance sheet. So as we look at just priorities, CapEx versus M&A, a few things pending. Leverage sits at like 0.4x, I think what's probably called ideal. You have very strong liquidity as of the second quarter, where you were $3.5 billion. So what's your plan to deploy that cash? And how should we kind of like look into potential shareholder return investments? What's out there?

Sure. I'd say our capital allocation priorities are unchanged. It's really about first, reinvesting in the business. So about $350 million to $450 million annual capital expenditures with roughly a 50-50 mix between maintenance type projects and growth capital projects. So quick return on investments, either capacity expansions, efficiency and yield gains within our plants.

Second, it's a focus on a reliable and sustainable and growing dividend currently at $1.25 a share on an annual basis. And we'll look at disciplined and synergistic M&A as we've done in the past with the Nathan's announcement and also with the acquisition of dry sausage capacity in Nashville, Tennessee. And we're going to focus on maintaining that strong balance sheet. And really, it's about having flexibility through the cycle for us. We generated more than $1.1 billion of operating cash flows for the last 12 months. So we have the capacity to do all 4 of those priorities at once.

So you talked about investing in the business. So you're building a new plant in Sioux Falls. You mentioned that earlier on. How do you expect this project to actually reshape your portfolio because it's in replacement of one. So how is that going to implement margin enhancement? How should we think about that?

Yes. I would tell you, I am very excited about the opportunity to rebuild Sioux Falls. Sioux Falls is one of our -- it's our second largest plant, but it is one of the oldest plants in the industry. It's over 100 years old. And so when we look at technology, we look at automation, quite frankly, in many cases, it can't fit into the footprint. And so as we rebuild Sioux Falls, this will take this plant not just to one of the best performing plants in our footprint, it will be the best performing plant in the country. We're continuing to make good progress. We're working through the permitting process. The anticipation is that we'll break ground in early 2027. Construction will end at the end of 2028, and we will be running the lines in very early 2029.

We still do have some regulatory hurdles and approval processes to go through. But strategically, if you think about Sioux Falls and its location, we're looking at it as an opportunity to build not only a fresh pork plant but a packaged meats facility attached. So a combo plant, it's going to allow us to optimize a lot of our overall footprint. We're going to have some of the highest levels of automation. So we're going to see opportunities coming out of both yields and labor efficiency. It's going to really tighten that link we have between fresh pork and packaged meats. And at the end of the day, this is going to be the best-in-class cost structure of all facilities in the U.S. So I'm extremely excited about the opportunity to not just change the Sioux Falls facility, but change the whole footprint.

Got it. And then one -- last one real quick on M&A. Nathan's, I think, is still pending. Any update that you have here? And how you expect -- do you expect that to be accretive? And then is there anything else that you kind of like maybe have an eye on?

Yes. Again, Nathan's is still subject to the CFIUS review and the customary closing conditions, but we expect to close in the second half of this year. So it kind of limits what we can discuss at this time. But strategically, what it does for us is it secures our long-term rights to the Nathan's Famous brand that we really have helped grow over the last 12 years. It strengthens one of our fastest-growing packaged meats platform [Audio Gap]. I think we can expand that platform in both retail and Foodservice.

In terms of future M&A, again, continue -- we continue to evaluate synergistic opportunities, but we're going to be very disciplined in our approach. Again, as we've always stated, we don't believe that we need to pay up for brands. We have a very solid stable of brands as they exist today. So it's about reinvesting in those brands. It's about adding capacity and capabilities and continuing to grow that value-added side of our business, whether it's in fresh pork or packaged meats.

Okay. Perfect. Well, Shane, Mark, thanks so much for coming back on stage. And hope to have you next year again. Thank you very much.

Thank you, everybody.

Good day, and welcome to the Smithfield Foods Second Quarter 2026 Earnings Call.

[Operator Instructions]

Please note this event is being recorded. I would now like to turn the conference over to Julie MacMedan, Vice President of Investor Relations. 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, Steven 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 the execution of our teams.

I attribute the ability to execute our long-term strategies on the 2 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 and Hog Production which establishes the foundation through an assured supply of quality raw material and cost control that no nonintegrated 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 fall challenges. Coincidentally, the people on this call today, Mark, Steve, Donavan and I had 90 years of combined experience, and we are supported by teams to 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 continue 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.

Our 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 continue 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're 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 cost 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 strategy that position Smithfield for long-term growth. Mark will share more details 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 and in M&A, we will continue to evaluate synergistic opportunities. In Packaged Meats, we gained volume share in 5 of our $1 billion-plus categories, cooked dinner sausage, dry sausage, hot dogs, packaged lunch meat and smoked [indiscernible].

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 PBR Brotz, Nathan's Grass Fed hotdogs and Eckrich and [indiscernible] flavored dinner sausages. 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 on household with a large spiral hand during the holidays, we are converting that single ham and [indiscernible] 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 were 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 Prime Fresh brand. In the second quarter, 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 Prime Fresh Pepperoni and Salame. In addition to Prime Fresh, we offer branded package lunch meat across the value spectrum, starting with value brands like Walden, Armor and Joe [indiscernible] to mainstream brands, Smithfield, Eckrich, Farmer John and Cracas, delivering more affordable options for consumers.

As a result, during the second quarter, we grew branded packaged launch meat volume by 9.5% and gained 1.1 points of volume share. And 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 1, Nathan's famous successfully expanded its iconic 100% beef portfolio with the launch of Nathan's Grass Fed beef hotdogs, bringing a compelling premium offering to the category. Nathan's Grass Fed hot dogs finished the quarter as the #1 grass-fed hot dog in the country already above 40% ACV, a very strong distribution build for a new item and still expanding. More than half of younger consumers now follow a high-protein diet, and they are demanding cleaner, premium-sourced options. Grass Fed is directly on that trend. It's a premium protein for product built for today's consumer.

Our go-to-market strategy for Nathan's Grass Fed is different than in the past. To reach that younger consumer, we are allocating brand dollars toward digital platforms rather than toward traditional media alone, including a social media activation featuring 4 of the Savannah Bananas players, our Nathan's grassfed lunch campaign generated nearly 2 billion earned media impressions demonstrating Nathan's ability to generate outsized attention and amplify marketing investment.

This is representative of a broader shift in how we build brands lead with entertainment and organic engagement to earn attention, then convert that attention into trial, velocity and share. And it is working. We grew Gen Z dollars 15.2% over the last 52 weeks. We are quite deliberately building the consumer franchise of the next decade, not just defending the shelf today.

This marketing investment to support the launch of Nathan's Grass Fed hot dogs as part of our overall increased investment behind our brands this year. And I want to be explicit about that investment because it is central to our second half story. We are increasing advertising and promotion spend this year, and we are waiting it toward the second half. This is a deliberate shift toward long-term brand building alongside near-term traffic driving activity. In a market where consumers are scrutinizing every dollar relevance as what earns the branded purchase over private label and relevance as what we are buying.

For the Smithfield brand, since the launch of our We Speak For campaign late last year, we have seen under 40 consumer-based growth by 3% versus the prior year. We have also grown household penetration with younger millennials by 0.4 points and with Gen X under 55 by 1.3 points.

As part of our promotional strategy, we are stepping up our investment in e-commerce to help consumers more easily discover our products as they shop online. Today's grocery shopper moves seamlessly between online discovery and the physical shelf and the brand that wins the digital shelf increasingly wins the [indiscernible].

Our efforts are generating return. During the second quarter, we grew our e-commerce volume share in 22 of our 25 categories, increasing our total e-commerce volume by 21.7% and outpacing the industry. The point to take away is digital discovery drives trial, trial drives velocity and Velocity earns us distribution, which is why our points of distribution were up 6.2% this quarter compared to the second quarter of 2025. That is the engine, and we are investing to accelerate it in the second half with more omnichannel promotion and advertising behind our national brands, Smithfield, Eckrich and Nathan's Famous.

Foodservice is also an important channel for Packaged Meats and roughly 30% of our sales. Our commitment to quality, innovation and versatility positions us as a leader in food service. For example, during the first half, we helped our customers drive traffic with the introduction of 31 new limited time offers. Several of these have been added to permanent menus.

Live grocery, food service consumer spending has been challenged this year, but we outperformed the category with first half food service channel sales increasing by 1%. As we look at the second half, we feel good about our Packaged Meats momentum and our market strategies. We are increasing distribution. We are growing e-commerce share. We are launching new premium items and our marketing programs are working.

Moving on to our second core growth strategy, growing Fresh Pork profitability. We are focused on maximizing the net realizable value of each hog across channels and continuing to improve operating efficiencies and optimize our harvest. This strategy served us well during the second quarter in the face of difficult market conditions with unfavorable industry market spread compression year-over-year. We were able to offset more than half of that headwind through better sales margins, driven by maximizing the net realizable value across channels and through continued operating efficiencies in our plants.

During the second quarter, we grew value-added case-ready and marinated volume by 4%. Contributing to that growth was our April launch of Smithfield meal ready cuts, which are sliced, marinated and premium pork cuts that deliver globally inspired flavor in minutes. Foodservice was another bright spot for Fresh port.

During the second quarter, we grew Fresh Pork food service channel sales by 12% and volumes by 8% with strong sale of ribs, which are a great alternative to more expensive beef. Our fresh pork team also executed our next best sales strategy with strong sales to the higher-margin pharmaceutical, pet food and export channels.

Looking forward, we remain focused on growing higher-margin value-added case-ready and marinated offerings, meeting strong demand for nutritious protein at a great value relative to beef and expanding pork's relevance across multiple cuisines and usage occasions. The team continues to drive automation, yield optimization, SG&A and supply chain savings towards a best-in-class cost structure.

Now to our strategy to optimize Hog Production. Second quarter 2026 Hog Production profit of $64 million marked a $42 million increase from a year ago due to favorable Hog sales prices and continued operating discipline. As we look to the second half, we are pleased with our team's execution on operating at a best-in-class cost structure.

Our segment results will be largely driven by market prices for hogs. Over the medium term, we continue to progress toward our goal of producing approximately 30% of our fresh pork needs internally. We believe this will provide an optimal balance of assured supply and cost risk management and we'll continue to improve earnings durability across the cycle. In today's challenging environment has never been more important to have a culture of continuous improvement. Across the organization, we are securing yield improvement and operational and supply chain savings that are helping us to offset some of the inflationary headwinds impacting our business.

We are deploying technology to improve efficiency, lower cost and redeploy talent to higher-value activities. Our continued investment in improving supply chain operations and simplifying our transportation strategy is helping us navigate some of the near-term inflation in transportation costs. And we are investing in our future with our new [indiscernible] processing plant. This plant will be the most modern, efficient and largest combined fresh pork and packaged meat processing plant in our network. While final approval is still pending, we are taking the necessary steps to prepare for the new build.

Finally, we continue to evaluate opportunistic M&A to support our growth strategies. We continue to anticipate closing the Nathan's Famous transaction in the second half of 2026, subject to CFIUS review and other customary closing conditions. Successfully closing the acquisition, we'll secure our rights to the brand for the long term, and we are looking forward to maximizing Nathan's Famous brand growth across retail and food service. As I noted earlier, our strong financial position provides us the flexibility to support our growth strategies.

In summary, we delivered record second quarter and first half results despite a challenging environment. Our performance demonstrates the strength and resilience of our vertically integrated model and disciplined execution across our organization. While persistent inflationary pressures continue to influence consumer demand and input costs, we are approaching the balance of the year with disciplined confidence and a clear plan.

We remain focused on executing our strategies, driving operational efficiencies, investing in our brands and delivering long-term value for shareholders. Supported by our strong balance sheet, we believe we are well positioned to navigate the current environment and drive growth over the long term.

With that, I will turn it over to Mark to review our financials in more detail and walk you through our second half outlook.

Thanks, Shane, and good morning to everyone joining the call. I want to reiterate Shane's comments about the disciplined execution by our experienced team that drove record second quarter and first half adjusted operating profit. Our balance sheet is strong, and we're generating solid cash flow. That gives us the flexibility to manage through today's environment, invest in organic growth, M&A and return value to shareholders.

Turning now to our second quarter results. Consolidated sales in the second quarter were $3.7 billion, which was a 2.3% decrease compared to the prior year. However, excluding non-recurring sales to establish the hog production joint ventures last year, total company sales would have been essentially flat versus a year ago. We delivered adjusted operating profit of $300 million, which set a new second quarter record. Adjusted operating profit margin expanded by 20 basis points to 8.1% from 7.9% last year. Adjusted net income was also a record $245 million, up 13% from $217 million in the second quarter of 2025.

Adjusted diluted EPS of $0.62 per share increased 13% compared to $0.55 per share in the second quarter of 2025.

Next, looking at our second quarter segment results, starting with Packaged Meats. Packaged Meats sales of $2 billion decreased by 2.7%. Volumes were down 5.5%, primarily reflecting the earlier Easter timing this year and were partially offset by a 2.9% increase in the average sales price.

For the first 6 months of 2026, despite the challenging external environment, Packaged Meats volumes were down just 1%. Our Packaged Meats segment delivered operating profit of $265 million, which was down $31 million from adjusted operating profit last year. Our operating profit margin was strong at 13.1%, but was down 110 basis points versus the prior year. We are able to more than offset our raw material cost through pricing and mix. However, our margins were unfavorably impacted by higher freight and diesel costs as well as our increased investment in marketing which is an important strategic driver for our brands over the long term.

Switching to Fresh pork, segment sales of $2 billion decreased 3.5% year-over-year. This was driven by volume down 2% on fewer hogs processed as well as lower average sales prices of 1.5%, which compared favorably to the 5.3% decline in the USDA cutout as a result of our next best sales strategy. Fresh port delivered operating profit of $14 million at a 0.7% margin. This was down from adjusted operating profit of $30 million and an adjusted operating profit margin of 1.4% in the second quarter of 2025. The year-over-year decline was primarily driven by $37 million of industry market spread compression.

We offset $21 million of that pressure through our next best sales strategy and continued operating efficiencies. Looking at Hog Production. Segment sales of $772 million decreased 8.2% year-over-year. Excluding the onetime initial sale of inventory to our Hog Production joint ventures last year, sales would have increased due to a 9% increase in the average selling price for hogs, inclusive of the effects of hedging.

Hog Production delivered an operating profit of $64 million, up from $22 million last year, driven by higher hog selling prices, savings on our nutritional plan and improved operating efficiency on our retained farms. Taking these segment results together, the broader point is that we continue to generate strong earnings and cash flow, while maintaining a very healthy financial position. At the end of the second quarter, our net debt to adjusted EBITDA ratio was 0.4x, well below our policy of less than 2x. We also ended the quarter with very strong liquidity of $3.6 billion, including $1.4 billion in cash and cash equivalents, comfortably above our $1 billion policy threshold.

We generated $204 million of operating cash flow in the first half, nearly double the $108 million generated in the same period last year. On a trailing 12-month basis, operating cash flow exceeded $1.1 billion, underscoring the strong cash conversion of the business. That cash generation gives us the flexibility to continue funding our growth priorities, invest behind the business and return capital to shareholders while maintaining a strong financial position.

Capital expenditures were $165 million in the first half compared to $158 million in the same period last year, with more than half of our planned capital investments focused on projects designed to support both top and bottom line growth. At the same time, we continue to return value to shareholders. We recently declared our third dividend this year and subject to the Board's discretion, we expect to pay $1.25 per share in annual dividends.

As Shane said, we delivered a record first half supported by strong execution, a resilient business model and a very healthy financial position. At the same time, the external environment has become more challenging as we look across the balance of the year. That is why we're updating our 2026 outlook primarily to reflect softer commodity market assumptions, especially in Hog Production and to a lesser extent, fresh pork.

In Packaged Meats, we're also planning around a cautious consumer and continued inflationary pressure on both demand and input costs. Given those dynamics, we believe it's prudent to moderate our outlook across each of our 3 main segments. But importantly, this is not a change in how we view the strength of our brands, our strategy or the long-term trajectory of the business.

We know how to manage through this environment, and we have a clear plan and Packaged Meats or brands including Smithfield, Eckrich and Nathan's continuing to connect consumers. We'll build on that momentum in the second half by increasing brand advertising and omnichannel marketing continuing to innovate expanding distribution and using our strong private label position to meet the needs of today's value-seeking shopper.

Across Fresh Pork, Hog Production and our corporate functions, we'll stay focused on what we can control, driving efficiency, managing costs and executing with discipline.

Turning now to the directional cadence for the third and fourth quarters. For the third quarter, which historically is our softest from a profit standpoint, we're planning with discipline around the persistent external factors I just mentioned, while continuing to execute the initiatives that are gaining traction across the business. Importantly, even with a more challenging commodity backdrop, we expect Packaged Meats to remain highly profitable and continue to be the primary earnings engine of the company. We expect third quarter Packaged Meats adjusted operating profit to be up slightly year-over-year, but that increase will be more than offset by lower Fresh Pork and Hog Production profitability due to softer markets.

This will result in third quarter profitability down sequentially from the second quarter. We do, however, expect to deliver solid year-over-year growth in our seasonally strong fourth quarter, led by growth in Packaged Meats. Packaged Meats adjusted operating profit growth will be driven by 4 specific factors: first, increasing benefits from expanded distribution at retail into our seasonally largest quarter. Second, the velocity impact of our stepped-up second half marketing behind e-commerce as well as Nathan's, Eckrick and Smithfield. Third, continued mix shift into higher margin, higher velocity items and fourth, a benefit from the 53rd week.

For Fresh pork, we anticipate continued pressure from the industry gross market spread in the third quarter, but we expect a strong fourth quarter growth, driven by seasonal profitability rotation to fresh pork from Hog Production and continued execution on our next best scale and cost optimization strategies.

For Hog Production, based on lower hog prices, we now expect a sequential deceleration from the second quarter to the third quarter. We also anticipate a return to more seasonal norms in the fourth quarter with an expected loss for this segment. Putting that together, updated full year 2026 adjusted operating profit outlook is as follows: Total company adjusted operating profit is now expected to be in the range of $1.225 billion to $1.375 billion, Packaged Meats is now expected to be in the range of $1.075 billion to $1.15 billion. Fresh Pork is now expected to be in the range of $180 million to $240 million, and Hog Production is now expected to be in the range of $75 million to $125 million. Importantly, this outlook does not change how we view the strength of our brands, the direction of our strategy or the long-term earnings power of the business. We're also updating our total company sales outlook to roughly flat versus our prior expectation of low single-digit growth, reflecting the more cautious consumer spending environment.

At the same time, we have a clear action plan. We're focused on execution, operational excellence, supply chain discipline and cost control across the company, emerging from this environment stronger, more efficient and even more relevant to consumers.

Looking beyond the near term, we remain confident in our long-term value creation algorithm. Our strong balance sheet, liquidity and cash flow give us the flexibility to keep investing behind our strategy strengthen the business and returned value to shareholders in line with our capital allocation framework.

Taken together, we're confident in our ability to execute through the current environment protect margins and deliver on our updated outlook for 2026 while continuing to build momentum for the long term. Now I'll ask the operator to open the call for Q&A. Operator?

[Operator Instructions]

The first question comes from Leah Jordan with Goldman Sachs.

Shane and Mark, and thanks for the update today. Maybe I'll just start out on the top line, given the lower sales outlook and the comments around softer demand trends, just seeing if you could provide more detail on how we should think about price versus volume as top line drivers for both Packaged Meats and fresh pork in the back half? And then really just tying into that, just more color on what you're seeing on the demand side. I know you have a range of price points across your portfolio. So what are you seeing in terms of trade in and out across your brands?

Leah, thanks for the question. Steve, do you want to take that?

Sure. And again, thank you for the question. So first of all, I'll start out really talking about the consumer. So I would say that what we're seeing is really pretty consistent with what you're hearing across the broader food industry. So as you know, the consumer is still showing some pressure. Obviously, gas prices have moved up again and household budget certainly remained tight and lower-income consumers, of course, are being very intentional about how they spend their money. I would say, frankly, even higher income households are acting a little bit more carefully than they did a few years ago, which is a change that we're dealing with this year. But the reality is consumers haven't stopped buying food. And even though they've become a lot more selective, obviously, they're looking for value and they're looking for versatility. But for us, that's actually where we feel pretty good about our position. The key part is protein remains a priority for not only the families. And our job is to make sure that we're giving consumers options that really fit that budget. So whether it's branded or value or private label, and you've heard us talk about that them several times, our job is to make sure we have the right product to fit that consumer need.

We've also been very focused on leaning into innovation that delivers on value, especially in today's environment. So when you think about some of the new products that we've recently introduced, so you think about the [indiscernible] lunch maker items. So we introduced the loaded nachos. We also have a zoo animal chicken nuggets. Those are all good examples because the key about those products is they're on trend, they're fun, but they're also affordable solutions for families, which is really the key part.

So when you think about that line of products that we have within launch makers, the key difference is that we're offering a product at roughly half and again, half the average price point of the broader category. And to me, that's a very compelling value proposition, certainly in today's environment.

So at the end, I'd say as you know, consumers are certainly cautious. But the key part is they're still spending money and they're still buying protein, which is key for our business. And they're still looking for convenient meal solutions, which is a big focus not only have some of the current items we've rolled out, but also some of the future innovation that we're going to be bringing really to the market.

And I would say that we're winning with the consumer. And that's why if you look at some of the category data, we've increased percent of households buying our products in 11 of our brands. So it's not that we're just winning 1 or 2 brands or 1 or 2 categories. That's 11 of our brands. We're increasing the household penetration. So the reality is we feel that we're well positioned long term because of the breadth of our portfolio. And again, it's not just one category or one brand that's winning, we see that across the board.

Okay. That's helpful. And then following up to Mark's comments in the prepared remarks around Package Meats profitability. It sounds like we'll get a little bit of recovery here in the third quarter and even more in the fourth quarter. And I know you highlighted a bunch of drivers there. But maybe just some more detail around the puts and takes as we move through the year. I understand freight will be higher, but maybe some more detail around some of the other input costs in that segment as well and the timing of flow-through given inventory turns there.

Yes. Leah, I would say relative to the call down that we had in guidance for Packaged Meats, it's really reflective of what we had in the first half in terms of the input costs. So we faced elevated input costs relative to raw materials, fuel, freight, and resin-based packaging, and there's a little bit of spillover of that into the second half. So those factors alone with our investment and our brands really drove segment profit in the first half down by almost $30 million. So it takes time for pricing and other mitigation efforts for us to catch up. So as we talked about, we're looking for a strong second half in Packaged Meats and particularly in the fourth quarter. I think raw materials, particularly in pork should be an expected tailwind in the second half. We're going to continue to invest in our brands and expect that we'll continue to see elevated fuel, freight and packaging costs, but we're going to continue with our mitigation strategies.

So we expect that volume price and mix improvements will be strong. And as I mentioned, Q3 is seasonally the low watermark for Packaged Meats profitability, but we expect a really solid fourth quarter and year-over-year improvements in Packaged Meats profitability and margins.

The next question comes from Peter Galbo with Bank of America.

Mark, if I could pick up on that, please, on Packaged Meats. I think the call down is somewhere between $35 million and $40 million at the midpoint. And I think the first half kind of came in, I don't know, more or less in line from a profit standpoint with your expectations. And so I'm just -- I'm trying to reconcile again, if pork is going to be a tailwind in the second half, just given what we can see in the cutout, I know you have all the other spend items, but like what's the tailwind on pork, I guess, in dollar terms for the back half relative to the inflation in the marketing spend? Because again, it's -- I think it's really hard to reconcile where the $40 million-ish call down in the back half would be given what we can kind of see in the third-party data. So just any helping pieces on the bridge there would be appreciated.

Yes. Peter, I would say, if you look year-over-year in the first half with Packaged Meats, we were down roughly $30 million. So we started off the year a little bit behind the [indiscernible] in terms of catching up on the higher input costs. Again, it takes time for the pricing actions to take effect whether it's raw materials or what we're seeing in the transportation arena. So that kind of shifted that profit profile increase into the second half of the year. And again, the third quarter is typically the softest for Packaged Meats, but we're expecting to have solid performance in the fourth quarter with some of those tailwinds that you mentioned in terms of the raw material side of the business, but we're going to continue to be chasing to a certain extent, the higher transportation costs that are across the industry. So on balance, that's really the reason for the call down.

I can throw it over to Steve for...

Sorry, go ahead. Go ahead, Steve. Sorry, I didn't mean to interrupt.

Yes. So Peter, again, thank you for the question. And I will just add to what Mark is saying is I mean, to me, we're looking for a very strong back half of the year, and Mark's kind of walked through the quarters between Q3 and Q4. And I think what's important to think about is that at a really high level, we feel good about where the business is coming out after the first half. It certainly has been an easy environment. Obviously, I already walked through what we're seeing from the consumer and how they're dealing with some of these cost pressures, but also some of the additional cost pressures from a supply chain standpoint that Mark was referencing.

I would say the biggest thing to really think about for the back half of this year is distribution. So we expanded our points of distribution by that 6.2% during the quarter, and that's really broad-based again. So it's not just one brand or one category, it's broad-based across our categories. And when you think about some of the items that we've highlighted several times. So Prime Fresh we continue to grow that business and grow that distribution. So that's because of some of the innovation that we have. So it's growing the base business that we have, but the innovation on Prime Fresh, it's new items that we brought to the category and also new packaging options that will be coming out. And then the other key one is you think about some of the consumers ever reaching out to with some of the new consumers and some of the new products like the Nathan's grass fed that Shane was talking about, that product came to market in May. And in a very short amount of time, that became the #1 grass-fed beef hotdog in the whole category. And then, of course, dry sausage continues to be a big item for us. So really, when you think about your question for the back half, we are well positioned for the back half. And I would say a lot of that is tied to the distribution that we picked up because if you think about Q2, we picked up this volume in Q2.

So even though we saw a little bit of the benefit of the new distribution in Q2, where we really start to see that is going to be in the back half of the year, and that's why we're confident in what we're looking at for the back half of the year.

Okay. Mark, on Hog Production, I think you gave some color just on the cadence for the back half of the year. Again, I think in -- some of the data would suggest, again, July was probably looked similar in 3Q, maybe, is a little bit of a step down, but on the whole, it seems okay. Maybe you can just talk a little bit about just how you're hedged for the rest of the year on Hog Production.

And then anything you can do just kind of put some guardrails around the magnitude of the loss we might expect in Q4, again, given it's seasonal, but just kind of how negative we can potentially think about that being.

Yes. So again, the reduction is really driven by commodity pricing assumptions rather than anything operationally related within hog production. Last year, Hog Production benefited from unusually strong prices in the third and fourth quarter. And taking a look at the current lean hog futures curve implies prices that are going to be 3% to 8% below 2025 levels. And actually, the fourth quarter right now is about 13% below the prior year. So again, if you take a look at the -- just the basic crush model based on the USDA -- or excuse me, the CME and the Iowa state model, you're looking at losses of about $20 ahead in the fourth quarter. And again, we'll we'll continue to outperform that. But directionally, we're returning to more of those seasonal norms that we've seen with losses in the first quarter and then in the fourth quarter. But I would say, operationally, we're very pleased with the performance on our farms. And we've generated 6 consecutive profitable quarters, and we continue to improve heart health, feed conversion and overall cost structure. So we're happy with how the firms are performing on the underlying basis.

The next question comes from Brian Lavin with Barclays.

This is Brian on for Ben today. So first, going back to Packaged Meats a little bit and digging a little bit more into pricing. The big emphasis is the softer consumer. So how are you as a team feeling about pricing and potentially leading into more trade downs potentially trying to -- really the balance of keeping market share while also trying to price out some of your inputs as those price increases come online. And then a quick follow-up after that.

Sure. This is Steve. So I'll take a stab at that question. So -- when we look at the competitive environment today, I would say the biggest change versus a year ago is that most of the industry has actually become less promotional. So what we're seeing is fewer features, fewer displays and really less aggressive activity across many of the categories where we compete. What's also become clear to us is that consumers are not responding to discounts alone. So promotional velocity has softened across much of the industry, which tells us spending more trade hours and running deeper deals really is not just -- it's really not the answer.

So we do think that, that really plays into our strength. So rather than chasing volume through incremental discounting, we remain focused on quality merchandising. So strong innovation and brand for it. So when you think about quality merchandising, that's where we believe is the most effective way to really connect with consumers in store. More importantly, I think retailers are responding. And I say that because, as I mentioned, when I was talking to Peter that they're responding because we picked up new distribution. So they see that our brands and the promotional strategy and the support, the marketing support that we're putting behind our brands is working. And that's why we're being rewarded with additional distribution. And I would say that distribution that we're gaining, it's not because of lower pricing. It's really being earned through the innovation and also the investments that we're making. Obviously, we talk about the Nathan's and the grass fed and Prime Fresh, but we also have some of our core brands and established brands like Acreage, where we're not only gaining on our base business that we have, but we've also added innovation to the Eckrich brand that we're picking up new distribution.

So I would say the second half, our confidence is really -- it really comes less from a promotional environment, and it's more about the fact that we've already put the growth drivers in place. So we have more distribution, more shelf presence, stronger marketing and innovation that continues to gain traction with both consumers and retailers. So when we look at that promotional environment, we feel that we're in a really good place with the brands that we have and the new distribution that we've picked up.

That's good color. And then a quick follow-up on Hog Production. Is there any risk that all the headwinds you talked about with the softer commodity pricing the input cost changes, farmer decisions across the space and shift the supply-demand balance?

Yes, Brian, I think when you look at Hog Production, I think it's always important to start with [indiscernible], right? So you look at the July USDA forecast to be up 1.4%. Now that's down from the 2.5% that they had previously reported. And then you look at things like the breeding herd down 1.2%. The [indiscernible] intention is down 2% and then you couple that with things that we see, for example industries slaughter being down over the last several weeks. And the cash market staying strong.

So you couple those things together, and it points to what could be a hole in the production or in the supply of hogs coming to market, which would lead to higher prices in the third and fourth quarter. As Mark said, when we look at our guidance and our range as we use the future market has come that foundational piece to come up with those. But I do believe, personally, as we think about those things, there is some upside that could come into the third and the fourth quarters.

The next question comes from Thomas Henry with Heather Jones Research.

This is Thomas on for Heather. Could you speak to any potential drivers of the weakness in hand. We've been seeing down 20-or-so percent in the just past 2 weeks or so, perhaps you're some labor issues there?

Yes. Donovan, do you want to talk to the ham markets?

Yes. Yes, Thomas. Thanks. We have seen a value deflation in the ham recently. I think there's a lot of rumors out in the industry. You just mentioned one of them. We certainly don't have any labor issues within our company. So we're fully converting I think there might be a couple of things in the industry in the Midwest that could be driving it, but it would be pure speculation. So I think the foundation what you need to look at is really Mexico is going to drive our valuation on hands in the U.S. Demand is very good in Mexico. But I think worldwide, there's a demand deflation, if you will, or there's increased supply that's cash causes some issues with the HAM market in general. It's allowing Mexico to pick up some hands on the world stage, a little bit cheaper than than last year where we had the hand market out in the U.S.

So albeit demand, I think, is very strong. Yes, we're seeing a little bit of deflation, but I do think that, that will rebound here as we continue towards the holidays.

Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to President and CEO, Shane Smith, for closing remarks.

Thank you, and thanks to everyone who joined the call today. Our experienced team is executing our strategies that position us well in the dynamic external environment. We're making disciplined investments to support our long-term growth and increase our value for our shareholders at the time. And we look forward to updating you on our strong risk following the third quarter results. Thank you all for joining.

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

Good morning. I'm Leah Jordan, the packaged food and food retail analyst at Goldman. And it is my pleasure to introduce Shane Smith, the President and CEO of Smithfield Foods. Thank you for joining us today.

Thank you, Leah.

So as a quick reminder, Smithfield is a vertically integrated pork producer and processor and is the leading supplier of packaged meat and fresh pork products across U.S. retail and foodservice channels. The company also exports fresh pork products to more than 30 markets around the world. Now let's get into our chat.

All right.

I just want to start off here. Smithfield returned to being a public company about 1.5 years ago. You reemerged as this more streamlined company under a one Smithfield model. You've improved your cost structure across your 3 different segments, ultimately supporting the strong packaged meats business. So maybe we could start out at a high level, just an overview of the transformation that you've been on over the last couple of years? And how does this position Smithfield better for the longer term?

Yes. Thank you, Leah. And I think you touched on a couple of key words there. So reemerged and transformation. So when we went essentially private back in 2013, we have been public for a number of years. During that time frame, leading up to 2013, we have been a highly acquisitive company. And the way we ran the operations was through the independent operating company model or the IOC model. And so what we started embarking on after coming off of the U.S. markets was really how do we unlock the synergies that existed through all of those acquisitions. And that's where we came up with this idea of One Smithfield. At one point in our history, we were supporting 40 different brands. We had multiple management teams, multiple distribution networks.

So we've really been on this path of transforming the company into what we are today, which is a much leaner, much more agile, one company doing the right things. And what we've seen emerge from that is the business we have today. Prior to 2013, I think investors thought of us as a commodity-based investment. Today, we're really about our packaged meats business and the consumer-facing side of the company. We've repositioned all of the segments of the business from the very beginning of the supply chain and hog production through fresh pork to really support the packaged meats growth that we're seeing, both in a volume perspective and in an earnings perspective. And I would tell you today, we're a completely different company than we were back in 2013.

Yes. And we've seen really strong results over the past 1.5 years, which is great. And so we've talked about the 3 segments you have. Maybe we'll just start at the beginning of the supply chain with hogs production. In that business specifically, we've seen a really nice recovery over the past year. I think when we look out at the commodities, forward curves continue to suggest a very constructive backdrop for you. So maybe as you sit here today, what's your updated view on profitability for that business? How are you managing things like feed costs and any visibility there as well as on the supply side? And how do you think about the industry dynamic there as we head into the back half? And any optimization efforts as well that you've done?

Yes. So in our Hog Production segment, like you said, it's the first phase of our vertically integrated model. At our high point, we were raising close to 18 million hogs a year, so about 17.5 million. And that was a function of an old strategy, which was to be 50% vertically integrated. As we reevaluated that strategy and asked the question, how big do we really need to be to ensure that we have that steadier supply of pigs going into our fresh pork plant and then that meat going into our packaged meats business. And so we came up -- we looked at the total footprint of the business, and we came up with about 30%. We believe 30% is the right number for us, and that's really a function of math based on the different areas of the country.

So we looked at the number we had, which was about 17.5 million and said, okay, where do we start taking hogs out? So we looked at areas that were what I would call geographically displaced, meaning they had high cost to get feed and other grain materials to the hogs and then they also had a high cost of transportation to get those hogs back to the plant. So we started there and we started thinking about places like Arizona and Utah. Then we started looking at our most productive farms and our least productive farms.

And so we went through this process of lowering our numbers. And I think by 2024, we had gone from 17.5 million to about 14 million. Today, 2025, we finished at around 11 million. And that's been through, again, those rationalization efforts, and it's also been through converting some of our larger contract growers into independent hog producers. And that's been really successful for us, too. We still have a goal to get to about 10 million. Again, today, we're about 11 million, a little over 11 million, but we're still working toward that goal of that 30% level of vertical integration.

That's great. Maybe we'll just shift then into fresh pork. Obviously, an interplay with the hog production business as well. And so we saw some spread compression last year given the commodity backdrop. But the outlook you have for this year suggests an improvement. And I think a lot of that is more being driven by execution on your side. So any more color there, how you're thinking about the fresh pork business, the puts and takes we should keep in mind for this year? And how much of that really is in your control?

Yes. So our fresh pork team has really done a great job, and you used the right word, execution. Fresh pork is really about cost and can be the low-cost, most efficient producer out there. So we've gone through a number of things in our fresh pork business to create that best-in-class cost structure. We've invested in automation. We've invested in technology. We've closed some plants and rationalized some killing plants. We've created flexibility. One of the things that historically had hindered us was we had a system that was built to run at over 100% of capacity. Now the problem with that is when you have a problem, you can't just make that back up. You're running overtime, extended hours. So creating flexibility in our fresh pork business. And we've seen that really pay off. As we kind of look at the business today, what we see is a model where we talk about the net realizable value of each part of the pig, do we have a channel for each part of the pig, whether that's an export market.

We've really grown our pharmaceutical channel. We've grown in things like pet food to make sure we're using all of those. But even on the meat cuts, we've really focused on the domestic markets. We had lost a lot of share in the domestic markets. So we've brought that back. We've added value-added case-ready, marinated, so trying to add value to the fresh pork complex. And we've seen that really pay off for us as well. And we've also moved back into some channels that I would say historically, we had neglected and foodservice is a great example of that. We've moved really strong back into the fresh pork food service channel. In our quarter 1, we were up about 27% in volume. So really looking at every angle in fresh pork. Our first and best sale is always to our packaged meats business. And so when you think about that as a component, the different components of the pig, the bellies, we're using nearly all of our bellies in our bacon business.

We're using nearly all of our hams and our trim. So it's really about those retail cuts now. Where do we sell the loins, and is that domestic? Is that export, but complex. But I would say the team today, the fresh pork team is doing an outstanding job. And we actually brought over several years ago, we brought over some of the -- we started cross-pollinating, if you will, and bringing in some of our really good people in packaged meats into the fresh pork business to help us think about that as more than just a commodity business. And so we're -- again, we're seeing the benefits of that today. The fresh pork team is doing well. You mentioned the spread compression last year. We were able to offset a tremendous amount of that spread last year. So really excited about where we're going to go in fresh pork and viewing it more than a commodity side of our business, and the team is doing a really nice job.

Yes, we've seen that execution and the distribution gains across those other customers, but that's really coming through. And I think a lot of this, right, you talked about how the right level of hogs goes into ultimately supporting the packaged meats business. And so maybe as we talk a little bit more about that, I think as this is a consumer backdrop, ultimately the end consumer demand, maybe we'll start there. Just what are you seeing on the demand side? I think protein continues to be an area of strength, but the macro dynamic has been pretty dynamic at least. So what are you seeing maybe shift between retail and foodservice or shift across your brands and portfolio giving you have such a wide range of price points?

From a consumer standpoint, protein is still in very high demand, and it's a part of the overall basket. So we're still seeing good demand from the protein complex. And pork specifically, as it's positioned now with beef. So we're seeing consumers, they're still picking up the product. They're still buying protein. We are seeing some cautious behavior, but I think that plays into part of our pricing strategy. Our pricing strategy and brand strategy has been to be present across the entirety of the pricing spectrum. So from the high end all the way to the value side. And then 40% of our retail business is in private label. And we did a lot of work over the past few years rightsizing those contracts to where now the margin differential between a private label and a branded product really isn't that extreme.

Now what's interesting in this environment, what we've seen in some of our categories, and I'll use packaged lunch meat, for example. We launched a Prime Fresh product several years ago, and that product is priced at the upper end of the spectrum. We saw a 25% increase in volume and an 18% increase in points of distribution just in the first quarter. So you're still seeing consumers pick up the high level. You're seeing them move through the brands. Overall, I would say consumers right now are looking for value for their money. Are they getting what they're paying for? And I think with our brand strategy, our pricing strategy, our access to private label, working with our customers on what's coming next, and we can do that because of our scale and our redundancy, we're seeing that in our business.

If you look at branded and private label, our branded retail business was actually up about 1.6% in the first quarter. So we're still seeing brands coming off the shelf. And I think that's a combination of our brand loyalty. We've been around for 90 years. Customers know our brands. But it's also -- when you think about it in the context of private label, there's been over the past several years, there's been a premiumization of private label as well. So it's not just that entry-level price point anymore. And so for us, and again, the way we've positioned our portfolio across the categories, the 25 categories that we operate in, I think we're in a good position.

I think, again, consumers are still looking for protein as a part of their overall diet. I think with pork specifically, as it relates to some of the other proteins, there's a versatility to pork that you don't see in other areas. It's present at every day part. So whether you're having breakfast, lunch, dinner or snacks, you can find some type of pork offering there and the price points of it. And so when we look at the outlook for the year, we think we're in a really good position.

That's great to hear and definitely see the range of price points you offer. And I think ultimately, what we're seeing with the consumer, right, the dynamic backdrop is mixed, but value kind of means something different to everybody, and you're giving that range of the portfolio. But I think just on that point of value added, and you talked about it with the fresh pork a little bit, and we're seeing it here in packaged meat is that you're adding more value-added options to your portfolio. We've seen that be a tailwind to the top line and margins. But maybe we could dig in further. What have you done on the value-added side? How much more opportunity do you see there? And ultimately, if we see more macro pressure on the consumer, how do you think about the puts and takes to continued shift to value-added going forward?

When we talk about mix shift, and that's been something we've really been focused on the last, I'd say, the last 5 years. When you look at -- and it's specific to each category. So every category is nuanced a little bit differently. So I'll use the holiday ham category. That's a big volume category, but we know that category is declining at a rate of 5% to 6% a year. And so consumers just aren't buying those 20-pound hams for Easter and Christmas. So then it comes on us, how do we use innovation, how do we use mix shift to change that 25 or 20-pound ham into something they can use every day. And that's where the Prime Fresh is coming out of that complex. So when we see volume in certain categories falling, we're relying on that continuing evolution of mix, where is the consumer going? What do they want? We've come out with some really nice products just this year that are meeting that consumer where they are from a purchasing standpoint, from a flavor profile.

Sometimes it's something as simple as a slightly smaller package that fits their household. And so our innovation team has done a really nice job staying in front of that. We are looking as we change our mix to continue to move to that higher margin, more value-added. I'll go back again to the Prime Fresh example. That's a product we created through innovation that solved the problem for our customer. The customer was having a problem staffing the deli counters. And so we said, let us bring that in-house. And we created a fantastic product that is just growing at light speed to the point where we're investing to stay ahead of that.

And it's a much higher margin than what we would have seen in the holiday ham, and it's in a growing category. Another area is in our dry sausage category. That's an area that we're growing really fast growing for us. We just added capacity in Nashville through an acquisition that we did through Cargill. So those are the things we're talking about, how do you stay in front of the consumer. Sometimes it's subtle. It's a packaging size, it's a flavor profile. And sometimes it can be a little more complex like creating a whole different category or something within a subcategory to continue to meet that customer and keep them picking up your product.

Yes, absolutely. So that innovation, right, that's kind of led to a lot of share gains, especially for lunch meat, dry sausage, as you mentioned. I think we're seeing it in other categories as well. Maybe you could just talk more about the share gains. How do you think about that turning as we go to the back half? It sounded like with lunch meat, right, you gained a lot of shelf space by providing an incremental service that was saving the retailer. So how do you think about velocity versus distribution gains as tailwind with gaining share as we head to the back half? How much is innovation still going to be a factor going forward?

Yes. I think it's a combination of a number of things. And so if you look across the 25 categories, we had points of distribution gain just in the first quarter of over 5.5%. Our Nathan's products, those points of distribution were up more than 21%. So increasing the points of distribution is really the leading indicator of where we're going to see volume growth. Innovation helped drive volume growth across our portfolio. We saw a 12% volume increase in our Armour dry sausage and again, 26% volume increase in Prime Fresh, and that's just in the first quarter.

So when we think about innovation in Smithfield, it's really a pillar of our packaged meats business. And we're intent on keeping a really robust pipeline of new products coming out, and they're not all going to succeed. And so we want to keep rolling out new products, meeting that customer where they are, making sure we have the product that they want to pick up. And so innovation is really what's going to drive this next phase of Smithfield.

Yes. We've seen a lot of that innovation come through. And I know we always want to know what's the next thing, but they won't tell us until we have to wait and see like everybody else. And then maybe just kind of rounding out this discussion just on the competitive environment. I think protein is selling well, but there's still a mixed consumer backdrop and you're competing with different people at different price points. So maybe just the competitive environment for packaged meats overall, anything by category and maybe how you're thinking about how that could evolve as we go into the back half?

Yes. We are seeing competitors increasing their promoted volume. For us, when we think about some of the promoted volume we see, we think that's really a short list. We don't think that's something that's going to be sustainable, nor do we think it's really healthy for the long-term health of the brand. So when we think about and talk about promotional, we're really focused on quality merchandise. And then looking at what we're doing and what is that overall return on investment. We've seen improvement with our promoted volume, the things that we're selling on feature and display. And that's been for us, that feature and display model has been our most impactful median to get into the -- stay with that consumer.

And again, as I mentioned in the first quarter of this year, our branded volume was up about 1.6%. We gained share of volume growth of about 4/10 of a percent. And that kind of tells us the customers are still looking at our products, still picking up our branded products, and we'll continue to invest in brands. We've increased our marketing spend this year to kind of build on a lot of the momentum that we saw coming out of 2025. But it's still -- it's not a peanut butter spread. It's a very surgical approach to where we want to promote, where do we want to -- how do we want to support the brands, with the brand strategy that we have now, we've bucketed our 12 core brands into our national brands, so the things we'll support at a national level.

Our regional brands, which we still, through acquisitions, historical acquisitions, we still have a lot of really strong regional brands. So we'll continue to support those. The value brands, again, to stay all the way on that pricing spectrum and then some specialty brands like you see in our dry sausage categories or meat ball categories.

Okay. That's great color. And I think you said you planned for more marketing spend this year. I think something if we think about that was unplanned for this year is maybe global conflict that's causing some changes around the cost structure for different folks. So I think you have a benefit of being vertically integrated, but there is always the discussion we have with investors around what does the rising input cost mean for the packaged meat business. So maybe you could just talk about what you're seeing on the raw material side. How do you expect that to evolve in the back half? And I think ultimately, what are mitigation strategies you have to address that?

Yes. So in 2025, we saw the strong protein demand really kept raw material costs high. We did see some of that alleviate in the first quarter in many of the things outside of trim. I'm talking about pork specifically, but we're still seeing higher cost in beef and turkey. For the pork complex, this year, USDA is expecting about a 1.4% increase in overall pork production. But for Smithfield, a lot of the -- and as I mentioned before, a lot of the material coming out of our pork segment is going into our packaged meat segment. So we have the benefit of being present along the whole value chain. And so if you -- again, you think about the complexes, the belly complex, we're going to use nearly all of those. The ham complex, the vast majority of that. And the way we move our transfer pricing, we stay at market. So we move hogs into the fresh pork segment at a market-based rate and we move fresh pork into packaged meats at a market-based rate.

And that gives us the ability to really see the signals that are coming across the industry. So -- but for raw material this year, with the increases that we're seeing, again, trim is staying high. The belly complex in the first quarter has been low. And we'll kind of see how that plays out for the year. But we feel like somewhere along our chain. So that's the beauty of the vertically integrated model. If we see profit migration in fresh pork, we're able to capture that. If we see it in hog production, we're able to capture that. And then ultimately, in packaged meats, where we have the majority of our pricing ability is located in the packaged meat segment.

And so again, our pricing strategies, I talked about that being on the spectrum. So we'll see people move up and down. We'll see some move to private label. But ultimately, we're keeping them in our overall portfolio. And so yes, the consumer is under pressure. They're very cautious, and we see that and we hear that. And what we're doing to stay in front of that, again, is to continue to meet that customer or that consumer where they are with a product that fits their budget profile.

Yes. That's very helpful color. And I know we'll all have to be watching the commodities move, but you guys have been very resilient given the challenges over the last couple of years. But maybe just more specifically on the freight side as well. We've heard some others talk about capacity issues. So any color on your capacity there, maybe how your contracts work and just how you're thinking about that cost pressure or anything on diesel going forward?

Yes. The nearest-term watchout is clearly diesel and freight. I mean that's caused the most discussion across all industries over the -- really over the month of April and now coming out of March. And that higher fuel volatility is having an impact on transportation costs. Now we started a network optimization probably 3 years ago. So we actually -- '25 compared to '24, we had taken about 1 million miles out of our distribution and had that same plan for '26 compared to '25. So we're really focused on the cost side -- of taking cost out of the system. We've also been changing our overall footprint in freight to where we're using dedicated, our own internal fleet. We've also added in some intermodal where it makes some financial sense. And those things have driven some really meaningful gains for us.

And then ultimately, at the end of the day, you have to look to your pricing strategies and how much of this can be passed on, when can it be passed on. And that's a very real conversation that you have to have with fuel costs staying up at the levels that we see on that today. But for us, whether you're talking about freight or just overall efficiencies, really comes down to cost improvement, cost execution. Every year, as we kind of go into the budgeting process and thinking about the next year, we always go into that process with the idea of how do we offset inflation. How do we add automation? How do we add technology? And we've been really successful in that. And I think in many cases, been a first mover in some of the automation and technology to continue to find ways to offset cost increases.

This is my fifth year as CEO. And every year, I think next year, there's not going to be an emergency next year. It's going to be normal. So these things, no matter what the disruption is, it's kind of woven through our DNA right now. We're always looking to be more efficient. We're always looking at better ways to optimize. We're always looking at better ways to invest. And this year, it's on the transportation side. So how do we continue to evolve from the ways we used to go to market? How do we continue to evolve that today? And that's what the team is really focused on. And I think they're doing an excellent job. And I think as we move through this year, as we continue to talk about these things as there's more and more clarity, it will become clear to the investor groups that we're doing a good job of managing the overall cost index.

Yes. We've seen it so far, all the more resilient margin profile, for sure. Maybe as we put together this discussion, we've talked about some headwinds with mix on the consumer, maybe some near-term cost pressures. Ultimately, these get passed on, but other tailwinds with share gains and better cost structure. Maybe at a high level, just talk through the puts and takes we should think about for your FY '26 outlook. What are the biggest swing factors you're watching or the risk to get to the high end or the low end?

Yes. I would say, as we look at 2026, we feel really good. We came off of 2025, which was a record year for us. And what's interesting in that, it wasn't a record year for any individual segment. And so we see that vertically integrated model working the way it's supposed to. We followed that up in Q1 with another record quarter. I mean, so we've got a lot of momentum coming in as we kind of go through 2026. I would say our teams, whether they're in the hog production team, the fresh pork team or packaged meats or transportation, they're executing really well, and they're really focused on being efficient, taking cost out of our overall system. So I feel really good from the input and the cost side of our business as well.

And I still see a strong demand for protein. Consumers are still looking for protein. Pork is really well positioned in the overall protein complex. Again, we've talked about the versatility of that. So I feel really good about as we sit and look at the back half of the year about the positioning of pork. We touched on just a few of the gains that we've seen in our packaged meats business, but we're seeing that across 25 categories. We just touched on a few of them, but we see strength in the categories as well.

In fresh pork, foodservice is really a category that's going to be really strong for us, the value-added component that we're adding to fresh pork, the lessons that we've learned over history from packaged meats and how we can market that to the consumer is really paying off. And so when we think about our outlook for the year, we feel really good about where we're sitting today and what we see and how we're positioned to deal with that. If you think about some of the volatility that we see, it's playing into the strategies that we've had in place for several years now. So we feel really good about where we are.

That's great to hear. I mean we saw the momentum in the first quarter, and good to hear that that's still holding through the year. Maybe we'll just switch over to capital allocation. I mean I think one thing that seems to be still underappreciated is just your strong cash generation, your very low leverage, well below your target. So maybe that leads us to how are you thinking about capital allocation today? Any updated views on how you think about payout ratio or M&A in this environment?

Yes. We have a really strong balance sheet, and the team has done a great job. Our Treasurer, Jenifer Byrd and I were here many years ago back in -- gosh, all the way back in '08 and '09, and it's just incredibly different than what it was then. So our leverage right now, when we ended Q1, it was 0.4x, really strong liquidity. So from a capital allocation standpoint, we'll continue to invest $350 million to $450 million per year in our U.S. infrastructure. You can think about that -- probably 50% of that will go to capacity to automation, to technology and the other 50% will go to more infrastructure type items.

Shareholder return, we're talking about and have disclosed that we'll be doing a dividend of $1.25. So a strong return to our shareholders through the form of a dividend. From an M&A perspective, I would tell you, our approach to M&A is disciplined. So we don't believe that we need to go chase brands and pay high multiples. We look for M&A to potentially fix the problem. And so when you look at the -- one of the acquisitions we did in Nashville, we bought a dry sausage facility from Cargill. The problem that fix for us is that's a category for us. It is a high-margin category and growing. And we knew we would be out of capacity in 2026. So we were able to buy that at a very attractive rate per pound of capacity and add that to our overall network and allowed us to really optimize our whole dry sausage network.

Nathan's is the most recent one that we've talked about. That's the one that is out there right now. With Nathan's, the problem that fixes for us -- we have on owned and manufactured Nathan's and owned the licensing rights at retail for over 10 years now. So we've been making Nathan's products. That agreement comes up in about 6 years. And so this was an opportunity to really own those rights into perpetuity. And so that was the idea behind Nathan's. Other M&A we think about is potentially in Mexico.

In Mexico, we have the fresh pork business. We have the hog production business. We don't have the packaged meats business yet. And we have customers who are based in the U.S., who are expanding their operations in Mexico, who are asking us to have packaged meats capacity. That could be through a greenfield. It could be through M&A. But what I would say, just in general, from a philosophical standpoint, our approach to M&A is going to be very disciplined. We're not going to go out and chase things. They've got to make sense. They've got to fit our overall investment thesis. And that's how we'll think about growing through M&A in the future.

That's very helpful. This has been a very informative chat, a lot of great momentum in the business and strong execution on your end. Maybe we just -- we have to wrap up here. I mean, as we close this session, anything else you would like the audience to take away on Smithfield?

For the audience, I would love for you to take away a few things. So one, all of the commitments that we made through the IPO process, we're delivering on those commitments. I would challenge you to go back and look at the company that has evolved into what we see today. We're a 90-year-old company, but we're relatively new. And that's kind of the way we think about ourselves. We're not the same Smithfield that we were back in 2013. Our business today is focused on that consumer-facing part through our packaged meats business. But for the other parts of our business, hog production and fresh pork, it's a different philosophy the way we think about those today.

Everything we do is to support our packaged meats business, whether that's in the hogs that we raised to assure the supply, whether that's in the fresh pork business to make sure that packaged meats always has what they need to grow. And so a completely different philosophy than the one we had when we were last public. So I would tell you, continue to watch us. We're going to continue to deliver on the things we tell you we're going to. We're excited about 2026. We think we're extremely well positioned, especially in this environment. And we look forward to reporting back more over the coming quarters.

Thank you, Shane. I think we will leave it there. That was a great color. Thank you.

Good day, and welcome to the Smithfield Foods First Quarter 2026 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Julie MacMedan, Vice President, Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to Smithfield's First 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 [indiscernible] data. With me this morning are Shane Smith, President and CEO; Mark Hall, CFO; Steve France, President of Packaged Meats and Donavan Owens, President of North America Pork.

With that, I will now turn the discussion over to Shane. Shane?

Thank you, Julie. Good morning, everyone. I am pleased to report record first quarter adjusted operating profit of $339 million and adjusted operating profit margin of 8.9%. Our outstanding results reflect disciplined execution of our long-term strategies, particularly in packaged meats, reinforcing the benefits of our vertically integrated model in a dynamic operating environment.

Looking at profit by segment. 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. This was driven by volume growth of 3.5%, primarily reflecting the earlier Easter holiday. Excluding the impact of the earlier Easter timing, our volume was still up 1.3%. We also saw a 2.6% increase in average sales price related to higher raw material market prices and disciplined pricing across our portfolio.

We reported Package meat segment operating profit margin of 12.8%, which was down modestly from last year driven primarily by the earlier Easter increase in the mix of holiday hams higher raw material input cost and continued consumer caution in the quarter.

Fresh Pork reported operating profit of $78 million, with an operating profit margin of 3.9% [indiscernible] strategy. We have reduced the number of internally produced hogs, closed and exited underperforming farms and geographies and successfully lowered our cost structure through improved genetics, heart health and procurement and nutrition savings.

Finally, our culture of continuous improvement drove meaningful cost savings during the first quarter. In addition to efficiencies within our segments, corporate expenses were down 11% versus last year. In short, we delivered record first quarter profit led by strong packaged meat segment performance and solid execution across the organization. Our financial position continues to be rock solid. We ended the quarter with liquidity of $3.7 billion and leverage of just 0.4x, providing significant flexibility to support our growth strategies and deliver shareholder value over the long term.

Now turning to our outlook for fiscal 2026. We continue to navigate a challenging external environment with the Middle East conflict adding another layer of macro volatility. For us, that flows through higher freight packaging and agricultural input cost. Our experienced team is managing through the same way we have in past cycles. Pricing and mix disciplined spending, productivity initiatives, hedging and contract and procurement actions. The U.S. consumer continues to be cautious, and we are focused on delivering how you add new trend for families.

As households make a dollar count, our portfolio of trusted brands provides affordable protein solutions without compromising on quality. Protein continues to resonate with consumers, given its nutritional benefits and versatility. And within the protein complex, port remains competitively positioned. Core Smithfield categories, including lunch meat, bacon, sausage and hot dogs offer accessible everyday protein options that [indiscernible] well with current value-oriented purchasing behavior. Against this backdrop, we believe staying focused on our 5 key strategies will help us grow sales and profitability in 2026 and over the long term. First, in packaged meats. We plan to continue to grow operating profit through ongoing product mix improvements, volume growth and innovation.

Improving product mix remains a core margin expansion strategy. We are increasing the mix of higher margin value-added product categories and expanding unit velocity while reducing volume of lower-margin commodity type from categories. A great example of this is converting large holiday hams into products like our Prime Brush launch, which increases units and purchase occasions while expanding margins.

[indiscernible] out to 2025, we saw strong momentum in these value-added categories, and that carried over into the first quarter of 2026. During the first quarter, we grew units and market share in our core higher-margin focus areas. For example, we grew units sold of cook dinner sausage by 9% in the quarter, gaining 0.8 points of unit share growth and drive sausage by 10%, gaining 1.1 points of unit share growth. We expect these higher margin categories to continue to deliver strong unit growth throughout 2026. We are capitalizing on the significant opportunity to drive volume growth and gain share across our portfolio. We participate in 25 key packaged meat subcategories in retail, 20 of which are valued over $1 billion. We are focused on driving volume growth through increased distribution and disciplined brand investment.

During the first quarter, we increased branded volume share for the 25 categories in total by 16% and gained branded volume share growth of 0.4 points. A key contributor to growth was increased points of distribution, which was up a strong 5.5% versus last year. We also continue to invest in marketing and trade promotion for our brands. One of the top-performing categories was Package [indiscernible] Meat, which grew volume by 11.1%, while the industry was down 6.5%. This led to a more than 1 point increase in our packaged lunchmeat volume share.

Smithfield Prime Fresh is one of our most important Packaged lunchmeat brands. We grew Prime Fresh volume by 26% with an 18% increase in points of distribution in the first quarter. Looking ahead, we see continued white space opportunities to grow volume and increase market share in our top 25 categories. As part of our broader growth strategy and in addition to trade promotions, we are increasing investment in television and digital advertising to build awareness and support the long-term growth of our national brands.

,Smithfield, Acreage and Nathan's [indiscernible]. We are also growing volume by delivering what consumers want. A key competitive advantage for Smithfield is our ability to offer a broad portfolio of quality branded products this spans multiple categories and price points.

This portfolio strategy allows us to retain consumers within our brands as they trade up and down the value spectrum. Additionally, roughly 40% of our packaged meats retail site privately, which allows us to capture sales if consumers trade out of brands and [indiscernible] private label. Overall, the completion of branded and private label offerings enables us to forge multiyear strategic partnerships with our customers, supporting volume growth across our portfolio.

That brings us to product innovation. We focus on introducing new flavors, convenient and easily prepared mills and pack sizes that range from snack sizes to family value offerings. Our new product pipeline for 2026 is robust with losses scheduled throughout the year. For example, in the first quarter, product innovation drove 12% year-over-year volume growth in Armour Dry sausage and more than 22% volume growth in Curl's refrigerated barbecue meats, supported by new snacking formats and globally inspired flavors. Our latest introduction in April was a new Smithfield premium for [indiscernible] lineup featuring 3 bold flavors, including the limited time [indiscernible] Beer broad.

We look forward to sharing more new product innovations throughout the year. We've talked a lot about retail, the food service is also an important channel for packaged meats, representing roughly 30% of sales. During the first quarter, we increased food service channel sales by 4% with volume up 1%. Foodservice customers view us as a scaled, trusted provider of high-quality products that can deliver value-added solutions saving time and money. Innovation is a key advantage for us in the food service channel as evidenced by the introduction of 12 new limited time offers in the first quarter alone.

Even as food away from home inflation remains elevated, our scale, innovation and value-added solutions are resonating with operators focused on driving traffic and margin. Moving to our second core growth strategy, growing fresh pork profitability. We are focused on maximizing the net realizable value across channels and continuing to improve operating efficiencies. We were executing our strategies to increase fresh pork operating profit in 2026 as follows: growing volume in the retail channel, emphasizing higher-margin value-added case-ready and marinated offerings, expanding adjacent channel opportunities such as pharmaceuticals and pet food. Increasing automation and driving plant efficiency, yield optimization and supply chain savings and optimizing harvest levels across our network, all while remaining agile in export markets. During the first quarter, we grew sales in the retail channel by 3%, with a 6% increase in sales of value-added case-ready and marinated items.

We are driving growth in value-added pork through innovation like our February launch of Smithfield Half Longes, featuring several bold flavors while also delivering convenient package size for today's smaller households. In April, we launched our new Smithfield mill ready cuts platform. These slice marinated and premium forecasts delivered globally inspired flavors in minutes and are perfect for today's consumers who want convenience without compromising taste.

In short, our new value-added offerings are helping drive mix and margin improvements by meeting the strong demand for nutritious protein at a great value relative to beef and by expanding pork's relevance across multiple cuisines and usage occasions. Like our packaged meat segment, our fresh pork segment is also focused on driving growth in the food service channel, and we can leverage synergies across these 2 segments to optimize our go-to-market strategy. During the first quarter, we grew fresh pork food service channel sales by 27%. This reflects increased sales of value-added categories as well as strong sales of reps, which are a great alternative to more expensive beef.

From an adjacent channel standpoint, we are seeing continued interest in the pharmaceutical and pet food channels, and we are capitalizing on that interest. Across our fresh pork segment, our team has been nimble employing the next best sales strategy, maximizing net realizable value and seizing the opportunity of the relative value of pork. Now to our strategy to optimize hog production. We continue to progress toward a best-in-class cost structure in on production and have made great strides. During the first quarter of 2026, we delivered improved operating efficiency on our retained farms. That, coupled with favorable hog and seed markets helped increase operating profit to $4 million from $1 million a year ago. Going forward, our team remains dedicated to realizing additional efficiencies. Over the medium term, we continue to progress toward our goal of producing approximately 30% of Fresh [indiscernible] needs internally. We believe this will provide an optimal balance of assured supply and cost risk management, and we'll continue to improve earnings durability across the site. Across the whole company, we drive a culture of continuous improvement.

We have a no stone left unturned approach each year looking for new ways to improve operating efficiency and reduce cost. We expect efficiency savings to again contribute to enhanced profitability in 2026. In our Packaged Meats and fresh pork processing plants, we see further opportunities to employ automation and improve process to increase yields and drive efficiency. For example, we continue to optimize our network by moving dry sausage production from smaller and older East Coast plants to our most technologically advanced and efficient facilities such as Nashville. Our new Sioux Falls processing plant will be the most modern, efficient and largest combined Fresh Pork and Packaged Meat processing plant in our network.

We look forward to sharing more information once we have secured final approvals. Across the organization, we are deploying technology to improve efficiency, lower cost and redeploy talent to higher-value activities. And our continued investment in improving supply chain operations is helping us navigate some of the near-term inflation in transportation costs. Finally, we continue to evaluate opportunistic M&A to support our growth strategies. In January, we entered into an agreement to acquire one of our top national packaged meats brands, Nathan's Famous. Our anticipated time line to close the transaction is now in the second half of 2026 due to the impact of the partial government shutdown on statutory deadlines for the CFIUS review process. successfully closing the acquisition will secure our rights to the brand for the long term and we are looking forward to maximizing Nathan's Famous brand growth across the retail and food service channels.

We will remain disciplined in evaluating additional complementary and synergistic M&A opportunities to bolster our organic growth. In summary, we delivered record first quarter results led by strength in packaged meats and consistent execution across our vertically integrated model. By continuing to execute our 5 growth strategies, we are successfully navigating a dynamic consumer and geopolitical environment to drive growth in 2026 and over the long term.

With that, I will turn it over to Mark to review our financials in more detail.

Thank you, Shane, and good morning to everyone joining the call. As Shane stated, we're off to a strong start in 2026, building on a record year in 2025, and our strong balance sheet and cash flow give us the financial flexibility to invest in growth and competitive dividend and ultimately create value for our shareholders. Turning to the details of our first quarter results, starting with the consolidated results and then a review of our performance by segment.

Consolidated sales in the first quarter were $3.8 billion, which was a 1% increase compared to the prior year. The increase was primarily driven by higher packaged meats and Mexico sales driven by strong volume growth which more than offset a $155 million headwind from nonrecurring hog production sales to our joint venture partners in the prior year. Excluding these onetime sales, consolidated sales increased 5% versus a year ago. We delivered record operating profit of $339 million, which was up 4% compared to adjusted operating profit of $326 million in the first quarter of 2025. Adjusted operating profit margin expanded by 30 basis points to 8.9% from 8.6% last year. First quarter 2026 adjusted net income was also a record $251 million, up 11% from $227 million in the first quarter of 2025.

Adjusted diluted EPS of $0.64 per share increased 10% compared to $0.58 per share in the first quarter of 2025. Next, our first quarter segment results. Our Packaged Meats segment delivered first quarter operating profit of $275 million, up $9 million from last year and operating profit margin of 12.8%, this was down 30 basis points from last year, driven primarily by the earlier Easter this year, which increased the mix of holiday hams as well as higher raw material input costs and continued consumer caution during the quarter. First quarter packaged meat sales of $2.1 billion increased by 6% compared to the first quarter of 2025.

Sales were driven by a volume growth of 3.5%, reflecting the earlier Easter holiday combined with a 2.6% increase in average sales price related to higher raw material market prices and disciplined pricing across our brand portfolio. Excluding seasonal holiday hand sales, packaged meats grew volume 1.3%, underscoring our ability to win in a challenged consumer spending environment.

Turning to frac work. For the first quarter of we delivered operating profit of $78 million and an operating profit margin of 3.9%. This was down slightly from $82 million and 4% in the first quarter of 2025. In the first quarter, the industry market spread was favorable, up 7% versus the first quarter of 2025 with the CME lean hog price up 0.6% year-over-year and a 1.1% increase in the USDA cutoff. However, this favorable market spread was offset by lower production volume due to a temporary winter storm disruptions in our East Coast operations as well as lower gross margins driven by lower China export volumes year-over-year. We were able to partially offset these headwinds with our next best sales strategy, including more higher-margin value-added sales in the U.S. retail channel. Fresh Pork segment sales of $2 billion decreased 1% year-over-year.

This was driven by volume down 2.6% due to the factors I mentioned, which was somewhat offset by an average sales price increase of 1.5%. Our average sales price increase was above the increase in the USDA cutout, reflecting the benefits of our next best sales strategy. Next, in hog production, we're pleased to report $4 million of profit for the first quarter of 2026, up from $1 million in the first quarter of 2025. This is down sequentially from the fourth quarter of last year, but in line with seasonal norms for hog production. Improved hog production segment profitability was driven by improved commodity dynamics including higher selling prices and lower feed costs and improved operating efficiency on our retained farms. First quarter 2026 hog production segment sales of $769 million decreased by 17% year-over-year, primarily reflecting the onetime initial sale of inventory to our external joint ventures last year in the amount of $155 million.

While the average selling price for hogs increased 1%, we saw a 4% or 125,000 head decrease in the number of hogs marketed. Taking a look at our other segment, which includes our Mexico and Bioscience operations. Operating profit of 12 was down $3 million versus the prior year due primarily to softer sales and related losses in bioscience that were partially offset by increases in Mexico. Our corporate expenses came in $3 million or 11% below the prior year reflecting ongoing continuous improvement efforts. And that brings me to our strong balance sheet and financial position. At the end of the first quarter, our net debt to adjusted EBITDA ratio was 0.4x, well below our policy of less than 2x. Our liquidity at quarter end was $3.7 billion, including $1.4 billion in cash and cash equivalents. This is well above our policy threshold of $1 billion despite the first quarter historically being a high working capital period. Due to seasonality, operating cash flows in the first quarter of 2026 were a net outflow of $65 million compared to an outflow of $166 million last year.

For the trailing 12 months, cash flows exceeded $1.1 billion. Capital expenditures in the quarter were $88 million compared to $79 million in the first quarter of 2025. More than 50% of our planned capital investments this year are to fund projects that will drive both top and bottom line growth. This consists primarily of various plant expansions automation and improvement projects as we continue to lower our manufacturing cost structure and better utilize labor.

On April 21 of this year, we paid a quarterly dividend of $0.3125 per share reinforcing our commitment to return value to shareholders. We expect to pay $1.25 per share in annual dividends this year, subject to the Board's discretion. As we look to the remainder of 2026, we feel very good about the momentum we're carrying forward from a record 2025 and a strong start to 2026. Our teams are executing with discipline and urgency and we see clear opportunities to build on that performance as the year progresses. We're reaffirming the guidance we provided on March 24 and balancing our current view of demand and the macroeconomic challenges stemming from the conflict in the Middle East. There are clearly moving pieces, but our strategies are proven. Our team is resilient, and we've demonstrated time and again that we can navigate challenging market conditions. To do that, we'll stay focused on what we can control, which is operational discipline, strong commercial execution and rigorous cost management. We're proactively managing inflation and volatility across energy, freight, packaging and other key inputs. And importantly, we have multiple levers we can pull in the near term, including pricing mix, disciplined spending, productivity initiatives, hedging and contract and procurement actions to protect performance and keep us agile.

Looking beyond the near term, our long-term value creation algorithm remains intact, and our strong balance sheet and liquidity position give us meaningful flexibility. We'll continue to prioritize investments that advance our strategy and will keep returning values to shareholders in line with our capital allocation framework. Taken together, we're confident in our ability to navigate uncertainty protect margins and deliver profit growth through the remainder of 2026.

Now I'll ask the operator to open the call for Q&A. Operator?

[Operator Instructions] The first question comes from Peter Galbo with Bank of America.

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?

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.

The next question comes from the line of [indiscernible] Jordan with Goldman Sachs.

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?

[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.

And Lee, I think your last question was about vertical integration. Was that correct?

Yes. And how it overall supports the packaged meats business?

Yes. I can't emphasize enough the importance of the vertically integrated model now that it's working correctly. And I think you can just look to the past few quarters where, in total, we recorded record profit after record profit while not 1 segment within that has been an individual record. And I think that shows you that the model is working well. When we think about things that we see in volatile environments being profit migration across the different segments, what the model provides us is really a consistency in cash flows and earnings. Now I do think we still are a little overweight in hot production. We still have a goal to get down to 30% that we're working on now. But I think when you look at the hogs that feed into our fresh pork business and then the fresh port raw material that is feeding into the packaged meats business. The way the mall is working today, I think is -- I don't think you can overemphasize enough the importance of having all 3 legs of that stool.

The next question comes from Megan Clap with Morgan Stanley.

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.

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.

Megan, this is Steve. So I'll add on a little bit to what Mark is saying. So I'll start off by saying really at a high level, nothing has changed as far as how we feel about the long-term outlook of our Packaged Meat business. Now in the near term, as Mark had already kind of talked through, the environment is still somewhat challenging from a consumer standpoint. So we are seeing households are being certainly cautious with their spending, and we continue to see value seeking behavior really across grocery and also the foodservice channel. So on the cost side, we do expect some really improvement versus last year in raw materials, as we've mentioned before, but we're not assuming a return to historical norms. Now in Q1, raw material costs were higher than last year by $94 million with was certainly a significant increase. So while we're now starting to move in the right direction on some of the raw material costs, the backdrop remains challenging, especially in the beef and also Turkey categories that Mark has mentioned. Our brand certainly had a solid performance in Q1, growing our volume and also share. And really, we plan to continue driving this growth and to support some of the exciting new items that you're going to see on retailer shelves and also the partnerships we have with some of our food service operators, but we do plan on increasing our A&P spend.

And in Q1, that spend was up 23% year-over-year. And from a cost standpoint, it's worth noting, obviously, the recent CPI data has showed a meaningful move in energy what certainly matters for us, as Mark has talked about, because of the large impact on diesel and also the resins with packaging certainly has a big impact on the packaged meats business. Now with all that said, I would say given that backdrop and the geopolitical uncertainty, we are planning the business with an appropriate level of conservatism around packaging and also distribution costs. But despite those headwinds, we feel good about how we're positioned. Our portfolio is strong with the brands that we have and also the categories that we participate in. And we also have a meaningful private label business.

And we believe that, that really gives us the ability to serve not only our customers but also consumers across all price points. And that flexibility certainly matters in an environment like we're in today, as shoppers move up and down that value spectrum, we're also able to really keep them within our portfolio. Now taking all that into consideration, as Mark had talked about, when you take into account the shift of Easter from where it fell last year in Q2 to Q1, we really look to have Q2 and Q1 look very similar from an overall profit standpoint. And based on a lot of things that Mark had talked about as far as cost mitigations and some of the levers that we have at our disposal, at this point, we're maintaining the call that we have for the outlook for the rest of the year, the $1.1 billion to $1.2 billion.

Okay. That's super helpful. And if I could just follow up more explicitly on transportation. You talked about near-term inflation and transportation costs. Steve, you just mentioned diesel and freight, in particular, our understanding was that you did own some of your own fleet. So could you just give us a little bit more color just in terms of your exposure, direct exposure to diesel and that your freight and how the contracts work in -- just in the context of, obviously, this is an ongoing and dynamic situation. So any color just kind of think about the next couple of months as things progress and what we should be watching and how that impacts your cost would be helpful.

Megan, this is Shane. I'll talk to that for a minute. So you're right, diesel cost is the biggest near-term impact for us. And we do use a variety of methods from percentage is our own company feet. We use outside fleet dedicated fleet, but we also have been working on Intermodal as well. The only thing I would tell you, as we think about the impact this year is we actually started the transportation network optimization actually back in 2024. And when you look at the miles we drive, we took about 1 million miles off the road between '25 versus '24. We also plan and have line of sight to another 1 million miles that we'll take off the road in '26 compared to '25. Now that was reactionary. It goes really to one of Mark's earlier point. So optimization across all of our network is really embedded in our DNA. So these were things that we were already working on prior to being here today.

But again, we've done lane consolidation, adding intermodal. We still look at hedging opportunities for diesel where we can, driving fewer model. And then you couple that with the ability to increase volumes and decrease cost, we feel like we're going to be in a good position as we go through the remainder of this year are in a relatively good position as we go through the remainder of the year. And again, that's the medium-term impact. You look at the long short-term impacts, the medium term, and Mark talked to this is really on things like our resin-based packaging, where we have procurement strategies value engineering processes taking place right now.

And then in the longer term, it's going to come down to corn and agricultural inputs and how that hits our production operations later in the year, which, as you know, and we've talked about on earlier calls, we have hedging strategies in place surrounding those input costs as well. So all those things combined, we've taken a really hard look at the guidance that we've given. And we really feel confident in our ability to execute against that this year.

The next question comes from the line of Ben Theurer of Barclays.

Shane, Mark, 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.

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.

I would just add from a cash flow perspective, 2025 cash flows exceeded $1 billion. It was the second highest in our history. And it would have been by far the highest excluding the repayment of our $230 million AR securitization -- or excuse me, monetization. And the business continues to have strong cash flow generation, and it's really attributable to the changes that we've made in our business and the reform in the hog production side of the business and the stability of our cash flow from packaged meats. First quarter is seasonally a cash outflow period for us, and the first quarter of '26 outflows were about $65 million. That was down from an outflow of $66 million in the prior year, and that primarily reflects the earlier Easter this year. But again, as far as cash flow generation, we feel very good about where we're at, even with the potential enough of green costs made in the year.

The next question comes from the line of Heather Jones with Heather Jones Research.

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?

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.

Yes, Heather. So you mentioned disease. We're hearing the same thing you are of higher disease [indiscernible] trade across the industry. The biggest piece of external information that we look at is the reports that come out of the University of Minnesota. Those most recent reports showed a higher incident rate of both PERS and PDP. But when you contrast that with what the USDA has put out, I think they were calling full production up about 1.4% for 2026, but it is down from about 2.5% in their previous report.

So it's -- again, it's hard at this time of the year to have really clear visibility into what's out there. But we are hearing and seeing some of the same things that you're referring to.

Okay. And then on my follow-up was just -- so I wanted to talk about the opportunity for the U.S. with the ASF outbreak in Spain. And so far, we haven't seen really that big pickup in -- all right. I haven't seen it pickup in U.S. exports that would seem to have benefited from that. And I know there's been a big increase in exports out of Brazil. So I don't know if most of that increase is going there. So just how are you all thinking about that and the outlook for the rest of the year? And any help the U.S. might get from that?

This is Donovan Owens. You're right. there has been some disruption with the ASF aspect coming out of Europe, but it has been largely thus far a nonevent in terms of seeing assess demand on domestic U.S. pork anyway. So I do agree. I think Brazil playing in that market quite somewhat and able to fill in the need there. But there's also, I would say, other areas that are seeing some expected pickups in pork, some capacity and supply that are able to fill in the need in primarily Asia. So right now, I would agree with your comments. I mean, it's not really impactful for the U.S. pork market at this point.

The next question comes from the line of Max Gumport with BNP Pariba.

I was hoping with rising inflation, if you could discuss your view on consumer sentiment in the U.S. and then how that fits into your outlook for the year? And if you factor than any changes from what you were just expecting a over a month ago for the remainder of the year?

Max, it's Mark. Thanks for the question. Yes, from a consumer standpoint, protein remains a core part of the basket. And we manage, as you know, our portfolio to offer value across price points. So I mentioned our brand and marketing investments, they're really targeted and ROI driven. So it's about supporting loyalty and mix and our value-added strategy while pork continues to be a strong value proposition across the protein space. So at this point, we're not seeing a change that would require a material reset of our demand assumptions.

But we obviously continue to watch that consumer behavior closely. Again, our portfolio is built to serve consumers across tiers. We have answers whether it's a mainstream stable all the way up to premium offerings. So we can adjust our mix as households trade within categories. So I think based on prior geopolitical disruptions and driving inflation, it's about the duration of it and the breadth of any such impact that's going to continue to drive inflation up. And that matters more than the short-term spot move. So we're planning for volatility and staying agile.

Great. And then just as a follow-up, there's been a lot of questions earlier on the call about various forms of inflation, whether it's hitting beef, turkey, whether it's your freight costs or diesel resin packaging, which you gave plenty of color on. I just wanted to make sure is the messaging that you are going to see these higher costs in 2016, your outlook for cost inflation in 2016 has gone up. But you're able to reaffirm the guide because you're also leveraging some of these mitigants that you've talked about as well. Just trying to get more clarity on your outlook for cost inflation for '26 has gone up over the last month or so since you reported 4Q?

Yes. As we discussed at the outset, we have a number of different levers that we can pull. So operationally, we're manning the exposure in the same way we do any volatile input environment. It's about disciplined pricing and mix. hedging where appropriate, as Shane mentioned, it's about procurement timing and contract management and really our ongoing productivity and cost savings initiatives to to help mitigate the impact of inflation. So I'd say, net-net, the situation as near-term input and logistics cost uncertainty, but it doesn't change how we run the business. And again, we have multiple levers to mitigate the impact. In the meantime, our focus remains on execution. It's about service to our customers, cost discipline and delivering against our commitments.

So again, we feel good about where we're at with those mitigation strategies and our outlook for the year.

The next question comes from the line of Saumya Jain with UBS.

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?

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

Yes. Yes.

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.

Yes. Thanks, Steve, and I appreciate the question. But Steve is 100% right as our focus and our most important piece of the Fresh Pork strategy is to continue to grow our value-added footprint within our domestic retail channel. And we're leveraging that strong brand recognition and presence of our packaged meats portfolio that Steve just mentioned, to grow the share in our marinated and case-ready pork product lines. So just a few stats and Steve that Mitch talked about marinated there. In Q1, Marinated Pork volume was up 3.2%, while the industry was down 3.8%. And our case ready pork volume was up in the high single digits, increase year-over-year in Q1. And last but not least, as Shane mentioned in his opening about the success of our food service growth of 27%. All of that is tied together with our package strategy, go-to-market strategy for the Smithfield brand. So I don't think it's a trade necessarily but we're trying to leverage both of our segments here, so it's an and on. So you pick up fresh pork, you pick up Smithfield Fresh Pork along with the Smithfield Bacon. So that's kind of our strategy.

Got it. And then how are you seeing retailers pushing for future private label penetration? And how would that affect your pricing power more in the long run?

So I'll touch briefly on that. So obviously, it's -- private label is very important for the retailers, not only on the retail side business, but also on the food service side of the business, so they continue to look at different categories to get involved. So where they see growth in certain packaged categories, they're going to explore that as a potential to put in private label. At the same time, they're also looking at more premium type private label categories to get into them. When they do that, we actually see that as a benefit to us because of the capabilities that we have and our ability to produce high-level, high-quality private label products, and we can do it and provide them the volume that they're going to be needed for some of these categories. So as they get into these categories, we do see some success in private label. But as I mentioned in some of my earlier comments, this Q1 was pretty interesting because they were down in, I believe, it was like 13 categories they were down year-over-year in volume.

So I would say that even though private label is very important, it doesn't always work in every category. And obviously, if it doesn't work in those categories, we certainly have our brands, but we've also shown our ability to participate with private label and drive success not only in our branded business, but also in our private label business in the exact same category.

All right. So thanks to everyone who joined our call today. We are off to a great start in 2026, and we believe we're well positioned to deliver long-term growth and increased value for our shareholders. And we look forward to updating you on our progress following our Q2 results. Thank you.

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

Good day, and welcome to the Smithfield Foods Fourth Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please note, today's event is being recorded.

I would now like to turn the conference over to Julie MacMedan, Vice President of Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to Smithfield's Fourth Quarter and Full Year 2025 Earnings Call. Earlier this morning, we announced our results. A copy of the release as well as today's presentation are available on our IR website. investors.smithfieldfoods.com. 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 publicly any forward-looking statements, whether because of new information, future events or other factors.

Please refer to our legal disclaimer on Slide 2 of the presentation for more 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. 2025 was an outstanding year. solid execution on our strategies drove record profits, expanded margins and increased cash flow. We set the foundation for multiyear growth while maintaining a very strong financial position. investing in our business and returning value to our shareholders. Last January, we returned to the U.S. equity markets through an IPO that reintroduced us as the new Smithfield. While our history spans 90 years, the transformation underway over the past decade has fundamentally reshaped Smithfield into a leaner, more profitable and strategically focused company.

We streamlined our packaged meats portfolio exited noncore and high-cost operations, accelerated automation and built an accountable culture focused on profitable growth. This hard work prepared us for the in 2025, first year as a public company, we delivered on our commitments, record operating profit, record net income, strengthen margins and disciplined execution across all segments. Importantly, these results were broad-based, reflecting the power of our diversified product portfolio, our vertically integrated model and our relentless focus on operational excellence. The advantages of our model were clear in 2025, and we see further opportunities for coordination across the value chain.

I'm pleased to announce that we have named Donovan Owens, President of North America Pork. Under Donovan's leadership, the fresh pork segment adjusted operating profit increased $209 million in 2025 from $30 million in 2022. This performance demonstrates our improved agility, channel mix and disciplined operating focus. Under the new structure, fresh port of production and commodity risk management will report to Donovan. Donovan will also oversee our Mexico operations, which are an integral part of our North America growth strategy. We are excited about the opportunity to unlock additional synergies across our upstream businesses in this new structure.

Now I'd like to review our fiscal 2025 accomplishments in more detail. On a consolidated basis, adjusted operating profit increased 30% to $1.3 billion with profit margin expanding to 8.6%, up from 7.2% in 2024. Each segment executed effectively. Packaged Meats delivered its fourth consecutive year of operating profit above $1 billion and its second highest prompt year despite higher raw material cost and the cautious consumer spending environment. Fresh pork demonstrated strong execution amid a compressed industry market spread and trade disruptions due to tariffs. And hog production achieved its highest profit year since 2014 and reflecting improved operations and market conditions.

Across the company, continuous improvement and productivity initiatives delivered meaningful cost savings. Our rock solid balance sheet with net debt to adjusted EBITDA of just 0.3x at the end of the year provides us with the financial flexibility to support our growth strategies and return value to our shareholders. In 2025, we returned value to shareholders through dividend payments of $1 per share. Today, we announced a quarterly dividend of [ $0.3125 ] per share and we anticipate paying annual ends of $1.25 per share in 2026. In January, we entered into a definitive agreement to acquire Nathan Famous for $102 per share, successfully closing this acquisition will be immediately accretive and will secure a core national brand and create meaningful growth and synergy opportunities.

In February, we announced that we have initiated the approval process to invest up to an estimated $1.3 billion over the next 3 years to build a new state-of-the-art packaged meats and fresh pork processing facility in [indiscernible], South Dakota. Building this innovative new plant from the ground up will represent one of the largest investments in [indiscernible] agriculture and will modernize our mainline footprint and unlock long-term costs and efficiency benefits.

Now let's turn to our growth outlook for fiscal 2026. The Protein demand is strong and growing across consumer demographics, value for its nutrition and health benefits, for, which is not our only protein, but is our primary offering is well positioned within the protein complex. Port presents a strong relative value to beef and its nutritional profile with lean cuts like pork tender loin offers a superior nutritional alternative to chicken breast. Pork is also central to Asian and Latin cuisines, which are popular with U.S. consumers, particularly among Gen Z and millennials. We believe all these factors serve as a long-term tailwind report, and we expect to be another year of increased profitability driven by margin expansion, disciplined cost management and continued execution of our 4 strategies.

Our 5 strategic priorities remain unchanged. Increased packaged meats profit through mix, volume growth and innovation, grow fresh profit by maximizing the net realizable value across channels in a best-in-class cost structure, achieve a best-in-class production cost structure, drive operating efficiencies in manufacturing, supply chain, distribution, procurement and SG&A and evaluate synergistic M&A opportunities. First, in Packaged Meats, which is our largest and most profitable segment, we are meeting the demand for protein with convenience, flavor and value through our strong brand portfolio as well as our private label offerings. Our strategy to grow package meets operating profit centers on 3 levels: mix improvement, volume growth and innovation.

So first, product mix. We remain focused on accelerating the shift toward higher-margin value-added product categories and expanding unit velocity while reducing volume of lower-margin commodity type product categories. Coming out of 2025, we saw strong momentum in these value-added categories. In the fourth quarter, we grew units and market share in our 4 higher-margin focus areas of lunch meat and cook dinner sausage, among others, and we expect these higher margin categories to again achieve strong volume growth in 2026. Second, volume growth. We participate in key packaged meat subcategories and retail, 10 of which are valued at over $1 billion.

In 2025, we grew branded volume share in 6 of these billion-dollar-plus categories. This volume growth reflected strong increases in our points of distribution led by our national brands. Looking ahead, we see continued white space opportunities to grow volume and increase market share in each of these categories. We are driving volume in today's economy by delivering quality protein at a good value. Our portfolio of quality branded product expense in multiple categories and price points and is an important competitive advantage for Smithfield. A great example is [indiscernible]. We are attracting and retaining consumers within our branded portfolio, even as they trade up and down the value structure. If they choose for the label, we benefit as well.

Over the past several years, we have improved private profitability, which represents just under 40% of our retail channel sales. We are also supporting our brands by investing in direct-to-consumer advertising and effective trade promotion. In 2025, we increased Foods urban sales by 10% driving higher sales volumes with both new and existing customers. Our success in foodservice reflects our position as a scale, trusted provider of high-quality products as well as our ability to deliver value-added solutions to save our food service customers time and money. We are also very agile in helping food service customers launch limited time offers, which helped drive traffic.

In 2025, we introduced 57 new limited time offers, which gave consumers reasons to keep coming back. Despite food away from home, inflation nearly double that of food at home, we successfully grew foodservice volume 2% in 2025. In 2025, we expect the increased packaged meats volume across the retail and food service channels, driven by product innovation, strong marketing, advertising and trade investment. Next, product innovation. Innovation is an important pillar of our packaged meats growth strategy. We focus on introducing new flavors convenient and easily prepared offerings and premium offers. We have numerous innovative product offerings planned for 2026 in the retail channel for our 3 national brands, [indiscernible]

So in summary, we expect to grow Packaged Meats profitable focus in all 3 levels: mix improvement, volume and innovation. Now let's talk about our second core growth strategy, increasing fresh profitability. We are focused on maximizing eligible value across channels and continuing to improve operating efficiencies. 2025 was a dynamic year for Fresh pork due to both compressed market spreads and trade disruptions. Historically, compressed market spreads, the price between hogs and meat significantly reduced profitability. However, our fresh pork team demonstrated agility and delivered strong profitability even in tighter markets due to our improved cost structure and diversified channel strategy.

In 2025, fresh pork profitability was strengthened by sales and volume growth in the U.S. retail channel with profit enhanced by value-added case-ready items. We also grew volume and profitability in our pet food and pharmaceutical channels, executing well on our next best sales strategy. In addition, we continue to deliver operating efficiencies and cost savings, which help mitigate the impact of the compressed market spread on segment profitability. In 2026, our priorities include growing volume in the U.S. retail channel, emphasizing higher-margin value-add in case-ready and marinated offerings, expanding adjacent channel opportunities such as pet food and pharmaceuticals, increasing automation, plant efficiency, yield optimization and supply chain savings and optimizing harvest levels across our network. By focusing on these priorities, we will continue to outperform the market.

Now to our strategy to optimize hog production. We continue to progress toward a best-in-class cost structure in high production. In 2025, we outperformed the Iowa State benchmark for high grower profitability reflecting improved genetics, feed management and [indiscernible]. In 2026, we will continue to focus on improving our operations, including [indiscernible] and feed conversion. We're also excited about unlocking more opportunities across our hog production and fresh pork segments under Donovan's leadership. With respect to the number of hogs internally produced, in 2025, we produced 11.1 million hogs, which is down from $17.6 million at the [indiscernible] in 2019 and from $14.6 million in 2024.

This reduction reflects the transfer of 3.8 million hogs or our external joint ventures, which was consistent with our rightsizing strategy. Over the medium term, we continue to target producing approximately 30% of Fresh Pork's needs internally. We believe this will provide an optimal balance of assured supply and cost risk management. Next, our strategy to optimize operations and deliver operating efficiencies in manufacturing, supply chain, distribution, procurement and SG&A was a meaningful contributor to our improved profitability in 2025. In 2026, we are looking to accelerate the use of innovative technologies across all aspects of our business. We are increasingly leveraging advanced technology to become a more efficient business and to further strengthen our competitive position.

We deployed this technology to drive innovation, productivity and optimize performance on our farms in our processing facilities and across our corporate functions. For example, we recently formed a co-sourcing partnership with a third-party technology provider that will provide the benefits of artificial intelligence and robotic process automation for administrative and transactional work in our finance operations. This partnership gives us immediate access to the latest technology and provides flexibility as technology change continues to accelerate.

Finally, we continue to evaluate opportunistic M&A to support our growth strategies. In January, we entered into an agreement to acquire one of our top national packaged meat brands, Nathan's Famous. Successfully closing the acquisition will secure our rights to this iconic brand into opportunity and enable us to maximize Nathan's Famous brand growth across the retail and food service channels. With this acquisition, we will own all our major package be spreads. We will remain disciplined in evaluating additional complementary and synergistic M&A opportunities.

In summary, we have returned to the U.S. equity market well positioned to deliver reliable, repeatable earnings and cash flow growth. Our business model has never been stronger. Our high-performing vertically integrated model led by packaged meats provides a competitive advantage and support sustainable margin expansion over the long term. We are investing capital in a disciplined manner to support our growth strategies to generate attractive returns and to build sustainable long-term value for our shareholders.

With that, I will turn it over to Mark to review our financials in more detail.

Thanks, Shane, and good morning to everyone joining the call. Our strong 2025 results reflect the consistent execution and resilience of our teams. We closed the year with an outstanding fourth quarter. Total company sales increased 7% for the fourth quarter and 10% for the year, with growth across all segments, reflecting higher market prices across the pork value chain and packaged meats ability to maintain pricing discipline through innovation and brand power. Record fourth quarter adjusted operating profit of $402 million fueled our record full year 2025 adjusted operating profit of $1.3 billion. Full year adjusted operating profit margin increased an impressive 140 basis points to 8.6%.

Fourth quarter adjusted net income from continuing operations attributable to Smithfield was $329 million, which was our second highest on record. This helped us deliver a record $1 billion for the full year. Adjusted diluted EPS for the fourth quarter was $0.83 per share, up from $0.52 per share in 2024 and for the full year, it was $2.55 per share, representing a 36% increase from 2024. Now on to our fiscal year 2025 segment results. Packaged Meats delivered fiscal year 2025 adjusted operating profit of $1.1 billion, which was the second highest profit on record and an adjusted operating profit margin of 12.4%.

This strong profitability in the face of raw material input cost increases of $525 million and a challenging consumer spending environment demonstrates the success of our packaged meat segment strategy. Package meets fiscal 2025 sales of $8.8 billion increased by 5.3% compared to fiscal 2024. This was driven by a 5.6% increase in average selling price with roughly flat sales volume. Industry-wide, volume growth has been challenged due to inflation and consumers type budgets. As Shane mentioned, we are able to maintain volume through the power of our strong branded portfolio complemented with private label options and our diversified product portfolio offering convenience, flavor and value.

The higher average selling price was driven primarily by higher market prices across the pork value chain with key raw materials such as bellies up 19% and trim up 19% to 35% and hamp up 9% year-over-year. Next, fresh pork. For 2025, we delivered $209 million in adjusted operating profit despite $135 million year-over-year decline in the industry market spread, truly an outstanding job by the Fresh Pork team. As Shane mentioned, Fresh Pork executed well on maximizing the net realizable value of each hog and continue to deliver operating efficiencies and cost savings, which largely mitigated the impact of the compressed market spread and export market disruption on segment profitability. Fresh Pork sales of $8.3 billion increased 6% year-over-year, primarily driven by a 5.8% increase in the average selling price and roughly flat volume. The higher average selling price was driven primarily by higher market prices across the pork value chain.

Turning now to hog production. Hog production generated $176 million in adjusted operating profit, the highest since 2014. The strong results were driven by improved commodity markets as well as the actions we've taken to optimize our operations. 2025 hog production sales of $3.4 billion increased by 13% year-over-year. This was despite a 23% or approximately 3.4 million head reduction in the number of hogs produced as part of our planned rationalization strategy. The sales increase was primarily due to higher external sales to our new joint venture partners, both from ongoing sales of grain, feed and other services as well as from the initial transfer of commercial hog inventories. Our average market hog sales price was up 8.9% year-over-year, inclusive of the effects of hedging.

Adjusted operating profit for our Other segment, which includes our Mexico and Bioscience operations of $45 million increased $10 million compared to 2024. We see the Mexico market as a big opportunity for future growth. Our corporate expenses came in $26 million below the prior year, reflecting our disciplined cost management strategies. In summary, we delivered a record 2025 operating profit and net income due to solid, consistent execution across our operations.

Next, let's review our strong financial position and cash flow generation. At the end of 2025, our net debt to adjusted EBITDA ratio was 0.3x, well below our policy of no less than 2x. Our liquidity at the end of the year was $3.8 billion, including $1.5 billion in cash and cash equivalents. This is well above our liquidity policy threshold of $1 billion. During 2025, we generated cash flows from operations of over $1 billion and it would have been a record of nearly $1.3 billion when adjusted for the repayment of an accounts receivable monetization facility. Capital expenditures for 2025 were $341 million compared to $350 million for 2024. Approximately 50% of our planned capital investments each year are to fund projects that will drive both top and bottom line growth.

This consists primarily of various plant automation and improvement projects as we continue to lower our manufacturing cost structure and better utilize labor. Reinforcing our commitment to return value to shareholders, we paid $1 per share in annual dividends in 2025. And as Shane mentioned today, we announced that our Board declared a quarterly dividend of $0.3125 per share and that we anticipate paying annual dividend to $1.25 in 2026. Our ample liquidity, including sizable cash balance and robust cash flow supports our investment in business growth and shareholder return while maintaining a strong financial position.

Now on to our outlook for fiscal 2026. First, I'd like to share our thoughts on potential market tailwinds and headwinds that could impact our 2026 results. First, tailwinds. We expect protein to remain in high demand in 2026 and for pork to be well positioned as a healthy affordable option for consumers. We also see raw material costs of the tailwind, while we expect input costs to remain elevated by historical standards, they should be slightly lower than in 2025. Our raw material assumptions are supported by the USDA outlook for pork production to be at 2.5% in 2026. That said, we're monitoring [indiscernible] as a key variable impacting the outlook for U.S. pork production and raw material costs.

Potential headwinds that we're monitoring include a continued cautious consumer spending [indiscernible] in a dynamic geopolitical environment. It's still too early to predict the full impact from the conflict in our end. But there are 3 main components of our business that this could impact. First, the direct impact of fuel costs such as diesel; second, corn prices, which are tightly correlated to the oil markets, third, the petroleum-derived supplies that we use such as resin-based packaging. Based on what we know today, we believe our outlook incorporates identified risks, but it will depend on the duration of the conflict.

With these assumptions as a backdrop, our outlook for fiscal 2026 called for continued margin expansion driven by the strategies [indiscernible] just reviewed. This includes continued innovation, improved asset utilization accelerated automation initiatives and cost savings that will help us achieve another record-setting year. First, we anticipate total company sales to be up low single digits compared to fiscal 2025. Our outlook for segment adjusted operating profit is as follows: for Packaged Meats, we anticipate adjusted operating profit in the range of $1.1 million to $1.2 million. For Fresh pork, we anticipate adjusted operating profit of between $200 million to $260 million. And for hog production, our anticipated adjusted operating profit range is $150 million to $200 million.

As a result, we anticipate total company adjusted operating profit in the range of $1.325 billion to $1.475 billion, reflecting broad-based performance. Please note that our outlook reflects 53 weeks of operations in 2026 and does not include the impact of the proposed Nathan's Famous acquisition and investment in the new processing facilities in South Falls, South Dakota. Our targeted capital then for 2026 will be in the range of $350 million to $450 million. In addition, subject to permitting and other approvals, we expect to invest up to $1.3 billion over the next 3 years to construct the new state-of-the-art packaged meats and fresh pork processing facility in 2 balls. We currently anticipate groundbreaking to commence in the first half of 2027 and for operations to commence by the end of 2028. We'll provide more updates as we progress.

In summary, 2025 demonstrated that our key strategies are working. We expect 2026 to be another year of increased profitability as we continue to execute our core strategies. Now I'll ask the operator to open up the call for Q&A. Operator?

[Operator Instructions] And today's first question comes from Megan Clapp with Morgan Stanley.

I guess maybe to pick up, Mark, where you left off there, I wanted to start with the packaged meat outlook specifically. You talked about low single-digit top line growth for the total company. I guess [Technical Difficulty]. Can you still hear me?

Yes, you cut out for a second, though, Megan.

Okay. I'll start over. So package meats outlook, I wanted to ask about that. As we think about the top line guide, you talked about low single-digit growth for the total company. Should we be thinking about packaged meats kind of in that range. And then from a margin perspective, if we just kind of take the midpoint of your profit guidance, I think it does imply some modest margin expansion. But still kind of well below where you've been historically. And Mark, you kind of talked about this a little bit in your remarks, but maybe you can just help us understand a little bit more of the puts and takes on margins as we think about the year ahead in terms of cost inflation, continued mix benefits? And then anything you're taking into account on consumer demand given some of the macro factors.

Thanks, Megan, for the question. So just on the top line, it's important to note that the low single-digit revenue growth year-over-year includes $230 million of onetime inventory sales to the joint ventures in 2025, that won't repeat. So that's about 150 basis points. And then consistent with the comments, we're looking for lower markets year-over-year. with the USDA call for pork production to be up about 2.5% year-over-year. So that's going to have a ripple effect throughout the segment. And I'll let Steve talk specifically to the top line on [indiscernible].

No, thank you for the question. So I'd start off by saying that nothing has really changed with respect to our long-term outlook for package meats margins. In the short term, as Mark had mentioned, consumers are definitely stretched. And I would say that the grocery and food service industry are seeing people spend less or trade down to less expensive items or items that deliver more value. And think about the fact that in 2025 or raw material costs were up over $525 million. So although we do expect to see lower raw material costs, as Mark had mentioned, they're still going to be elevated versus historical norms.

Now despite some of these headwinds, we do believe that we are better positioned than most companies due to the family of brands and also the extensive product portfolio that we have. And as you know, we have a very successful private label business, which does provide us the ability to capture those consumers as they move up and down those different price points. And by doing that, so when you think about the family of brands that we have, and also the private label that we have, it actually helps to minimize some of the financial exposure that we have with consumers as they do move up and down that pricing spectrum. Now we are focused on building long-term value but it's also about protecting our near-term profits. So that means we are investing in our brands. We're [indiscernible] innovation that aligns with consumer trends.

We also continue to shift as Shane mentioned during his opening comments, shift our mix from commodity items to higher-margin value-added products. And then we're also, of course, spending capital to expand on capacity where it supports our long-term growth and profitable growth. So as Shane and Mark had mentioned, for our outlook for 2026, at this point, it really reflects the best view that we have today. and it's really guiding our packaged meats profits to that $1.1 billion to $1.2 billion, which we believe represents a healthy level of profitability in the face of really cautious consumer spending higher than normal raw material markets. And of course, there's a big unknown tied to the Iranian award that's currently going on.

So at the end of the day, we are very -- we still are confident in the outlook that we have. And we'll be able to address some of these challenges as they come at us throughout the year.

Great. That's super helpful. Just a follow-up on hog production. The guide for the year, $150 million to $200 million, would suggest similar profitability to '25 at the midpoint and the futures curve at this point does seem to imply similar producer [indiscernible] levels as well. At the same time, you've talked extensively including the remarks here about the structural improvements you're seeing in your own business and even talked about perhaps monitoring the herd. How [indiscernible] is a potential tailwind? So maybe you can just help us understand a little bit more about what's embedded in the guide from an industry perspective and what you're seeing in terms of supply today and versus your own internal cost improvements?

Yes, Megan, when you look at supply, we don't see right now any material level of expansion taking place outside of productivity and improvements in health. And I think that's what the USDA is modeling it as well with their 2.5% increase. And as you know, when you look at last year, the real true impacts of the health across the U.S. industry really didn't become apparent until we were in really into the second quarter. So we're monitoring what's going on as a part of overall health and how that will impact meet in the back half of the year. We do think that the guide that we issued this morning encompasses what we see today from the grain markets, from the changes in diesel fuel that we're seeing have an impact on things like freight and animal movements.

So we feel comfortable where we are. We think it builds that we're back in somewhat of a normal cycle in that Q1, Q4 versus Q2, Q3 scenario. And of course, as you know, we have different hedging strategies that we take advantage of throughout the year. So we're really comfortable with the guidance that we've issued today in hot production. To your point, we have seen some real structural changes in our business. And the genetics that we've talked about for the last couple of years, that really helped us in 2025. We saw a lane pit cost that was down probably 8% year-over-year, better feed initiatives and livability initiatives. Our overall fee cost was down over 5%. And so we're seeing all of those things manifest in the earnings. And so again, I think we're really comfortable with the guidance with what we see today.

And our next question today comes from Ben Theurer with Barclays.

Two quick ones. So first of all, as we look into like the value chain as a whole, and we've kind of like talked a little bit about the hog production just now and before that about the packaged meat segment. So picking up on what's in the middle and the fresh pork segment. Clearly, it was a call it, probably potentially a somewhat challenging 2025 with all the trade restrictions, et cetera. But as we move into 2026 and as you can of like pointed to the puts and takes. Can you maybe elaborate a little bit more on the fresh pork business itself, what to think about, a, seasonality; and b, what are like the more fresh pork specific risks and opportunities for 2026 in contrast to 2025? That would be my first question.

Yes. So Ben, maybe I'll start and then hand over to Donovan. 2025, I'm really proud about the Fresh Pork team executed. We saw $135 million degradation in the gross market spread. But yet, our profits were only down about $17 million. And so we saw a growth in retail and sales volumes. I think that was 4% in sales and 5% in U.S. retail channel volume really leaning into the case-ready part of the business, but also looking at some of those alternative channels that we've discussed before with our pet food business and our pharmaceutical business. And so I would say the Fresh Pork team in the face of what was a really dynamic and ever-changing 2025 did an excellent job in executing that next best sales strategy. Donovan, do you want to add to that?

Yes. I think, [indiscernible], and Shane, you said well in opening -- but yes, 2026 refresh was a challenging year. I think it led off with what that might be referring to as the tariffs. So the tariffs started to have some impact it had some impact on the year. But as we look at how we rebounded in our net realizable value efforts in 2025, they paid dividends. I mean we focused on our core strategy of -- we focused on our core strategy of looking at our Fresh Pork business, as Shane mentioned earlier, growing. Our fresh pork in that arena is going to be pivotal in 2026 as [indiscernible] 2025. So we're going to focus on our case-ready value-added pork. We're going to focus on our marinate offerings.

We're also going to focus on our branded effort, branded fresh pork to tie into our packaged meats portfolio. So we want to connect the dots on all of our business. I think that's been an opportunity for Smithfield for a while and leverage our strength of our packaged meats business and start putting our name on our portfolio of Smith, not just a brand that we have to fight with our competitors in the industry. So look forward to it [indiscernible] sorry for that. I got your name [indiscernible]. But nonetheless, 2026, I feel very confident that we're going to continue our strategy on fresh pork and look forward to improved results.

Awesome. And then real quick on the capacity expansion project, Six Force. I think you said groundbreaking first half 2027. So probably within the CapEx of that $1.3 billion probably nothing yet to be contemplated for 2026. But how should we think about the CapEx needs for that project playing that into what would be '27 and '28. And how do you think about just the general time line? If you could refresh me on that one, that would be much appreciated.

Yes. So Ben, as you indicated, there is no capital included in our estimate of $350 million to $450 million for the current year. So there may be some incremental spending towards the end of the year, but the most significant portion of the spend will come in 2028 and a little bit of spillover on the '29. So I anticipate groundbreaking, as you said, in early 2027, hopefully, to have the first products running down the line at the end of 2028. And I would say that the capital spending will be paced pretty evenly throughout the construction period.

Our next question today comes from Leah Jordan at Goldman Sachs.

I wanted to follow up on Megan's question within packaged meats. Just seeing if you could provide more color on how we should think about the margin cadence in that segment as we go through the year? And any timing impacts we should keep in mind, I mean, we're going to be lapping some different input costs as we go through the year as well as potential shift in Easter and as well as the 53rd week.

Sure. Thank you for the question. So first, when you think about margin and also how that would potentially tie to promotions, what we're focused on is really -- it's on the quality merchandising side. So it's really going after the quality of it versus quantity because typically, if you go in after the quantity, you're going to run into some potential challenges from being unprofitable. But what we continue to see is improvement with our promoted volume sold as feature and display and when we do that, that by far is the most impactful promotional vehicle.

So we'll continue with our current promotional strategy, although the reality is we're not just counting on promotions to drive our volume. We're actually very fortunate because our consumers are incredibly loyal, and our brands perform because people trust us to deliver that same great quality flavor, value every time and that consistency that we built over a decade shows up in every product and our customers and consumers know that they can count on us. So the other part of your question was, I guess, consistently -- reality is when you look at the first half and second half of the year. It's -- even though we have some seasonality between different items between seasonal hands, we also have growing items during the summer.

But the reality is when you look at first half and second half, they're basically fairly equal from a profitability standpoint.

The only thing I would add there, and I think this is part of your question, we don't see [indiscernible] more this year, so there will be -- so Q1, in fact, of last year we work sale in Q2. And the 53rd week actually will follow at the end of December, which would be post Christmas for us.

Right. So to Shane's point, a segment profit margin perspective, it's a little lighter in the first and fourth quarters because of that seasonal and influence.

That's very helpful. And then just a follow-up, I wanted to ask on the feed side, given lower fee costs were such a tailwind for you in hog production last year. And now we've got maybe some potential headwinds emerging. So how are you planning for feed over the coming year? What have you locked in so far? Just any color around assumptions within the guidance range and your flexibility there. Should we see some movement?

Yes, and Leah, we don't necessarily talk specifically about our hedge positions. But we do use ore soybean mill contracts to help lock in when we think it's advantageous. So -- but I would tell you, our overall feed strategy is more than just a grain. It's being efficient in what we do. It's about the livability, the animals coming out that we've been putting grand. What I would tell you as it relates to fee for 2026, we are seeing some increases in those spikes coincide with what we see taking place in the Middle East. I think we've been very in front of that, I would say, as far as our hedging strategies and how we think about locking in those grain costs as we go forward.

So I think, again, as I mentioned earlier, I think we're in a pretty good position as we look at 2026 from where we stand on corn. And keep in mind, as we go through the year, the later in the year we get the feed cost, that Fed cost of core really would show up in the back part of the year and into 2027. So I think from a 2026 standpoint, we're pretty well positioned. And we think, again, that guidance that we issued encompasses that variability that we think we'll see in corn.

And our next question today comes from Heather Jones at Vertical Group.

I wanted just to ask a quick clarifying question on the extra week. So I think you talked about expecting a low single-digit volume increase on the packaged meat side and retail and foodservice. I'm wondering, is that adjusted for the extra week? Or is it largely due to the extra week, so we should expect most of that increase in Q4?

That includes the extra week. So the extra week is falling after the Christmas holiday this year. So it's seasonally -- it's a softer week in the year as all the loading has gone on leading up to the holiday season. So from a volume and profitability standpoint, it punches below the average weeks weight.

Okay. So you're expecting growth in the other quarters as well, not just the Q4.

Correct.

Okay. And then I just wanted to ask about the hog production outlook and just how are you all thinking about the cadence of that 2.5% growth because my understanding is that there was some expectation that there would be like an easy comparison to the PD and PERS we had in '25. But or is hit pretty hard again. I think it's in the upper Midwest. And so I was wondering, do you think the 2.5% takes that fully into effect? And how you're thinking about industry volumes year-on-year as the year progresses?

Yes. If I understood your question correctly, we are hearing that same thing that you just mentioned that PRS is really beginning to show up in the Midwest. But again, I think our guidance, as we've issued this morning takes that into account, both from what we expect to see on a seasonality basis between Q1 and Q4 and in the middle part of the year in Q2 and Q3. So we think from a disease standpoint, from a corn standpoint, transportation, we've got those things embedded. And of course, as we move through the year, things will become much clearer and we'll continue to update that guidance as we move through the year. But as it sits today, we feel really comfortable with that range that we printed this morning.

And our next question today comes from Chris Downey of Bank of America.

This is Chris on for Pete. You noted that acquiring Nathan will eliminate licensing fees and allow you to capture the full retail margin with immediate earnings growth expected. Can you quantify for us how much of the anticipated accretion comes from recapturing licensing economics versus incremental operating synergies and how quickly those benefits should scale post close?

Yes, Chris, I'll begin and maybe I'll throw it over to Steve or Mark. As we're -- we're really kind of limited on what we can say and what we can share. Once we close this transaction, once we successfully closed it, now we'll be able to share a lot more detail on both our plans and some of the inherent numbers. But as it sits today, we're really limited in what we can share until the deal actually closes. Steve, do you want to add some things on Nathan's?

Yes, I can just add a couple of things. And first and foremost, we're very excited on the packaging side of the business about Nathan's and what that represents for the future of Smithfield. So we know the Nathan's brand incredibly well. Obviously, we've been making products for years and selling it into the retail channel. So there's virtually no integration risk. And that's a really big deal from an M&A standpoint owning the brand that would let us scale with utilizing our marketing, innovation and also distribution across retail. And then ultimately, we'd have access to that foodservice channel, which, again, would be a big plus for the total Smithfield business.

I would like to share more about what we have planned. But at this point, since the deal is not finalized, I'm going to have to wait until the transaction closes. But it's a great question. We're very excited about the opportunity to purchase Nathan's.

Yes. And Chris, the only other thing I would add to that is we do believe that the transaction will be immediately accretive to our earnings. And I think you can look at Nathan's disclosures and really get to the crux of your question about what that license is the licensing fee has been.

And our next question today comes from Max Gumport with BNP Paribas.

I was hoping to turn back to [indiscernible]. Obviously, it's a very big investment for the company. I realize it's early, but any color or quantification you can provide on the benefits that you will receive. It's replacing a very old plant. I think it's over 100 years old, maybe particularly on the cost side, what this means for efficiencies, automations and cost savings.

Yes, Max. I'm really excited about this investment in [indiscernible]. And to your point, it's a large investment but it's necessary. So all is a key part of not only our fresh pork business, but also our packaged meats strategy in general. And so that facility is over 100 years old. And as you can imagine, there's a lot of upkeep on that facility. But not only that, the footprint of that facility makes it very difficult to implement some of the automation technology that we, as a company, are really rolling out across our footprint when this facility is done, it will be the largest fresh combined fresh pork and packaged meats facility in our system.

We are anticipating a best-in-class facility that will just deliver significant efficiency gains to both fresh pork and packaged meats. So I'm really excited about the investment. We're anticipating it's going to have a really strong intern investment. And we expect to see those benefits in year 1 as we move to that optimal production level. But the interesting thing about [indiscernible] for us is -- it's a key part of the country. There's a tremendous culture of hog production in that part of the country. And from a vertical integration standpoint, that plant is less than 1% vertically integrated.

So this investment is not only good for us. It's good for South Dakota agriculture to surrounding regions in American agriculture in general. And like I said in my opening comments, this investment really represents one of the largest single investments in American agriculture that I'm aware of. And so we, as a company, are extremely excited about the opportunity to do this. I think it's going to be transformative for us as a company. And I think it's going to lead the way in the industry as it relates to cost structures to competitiveness. And so I'm really looking forward to getting this project done.

Great. And then on the first quarter, I realize we're essentially through the first quarter at this point already. So I was hoping maybe for a bit more color on any initial thoughts on sales and profit realized maybe you don't typically guide by quarter, but just given that there's essentially only a week left or so there'd be a bit of color on how the first quarter is looking.

Yes. It's really about continuing execution of our strategies and continue to improve that mix within the packaged meat side of the business, appealing the consumer across that price spectrum, whether it's in our branded portfolio or in private label. And again, continuing optimization of our net realizable value within Fresh Porks. So we're seeing continued execution of our strategies, and we look forward to a solid first quarter, we'll be back in front of you in, what, about 5 weeks, I think, to report on the first quarter, but thanks for shaping up.

We have time for one more question today. And our final question comes from Saumya Jain with UBS.

A quick one with more CapEx spend as you noted in '27 and onwards. Would you see more upgrades or bolt-ons on current facilities or acquisitions of new ones and what would drive one versus the other?

Yes. So in terms of CapEx, again, the uptick in '27 to '28 is related to the 2 falls build-out. Our guide for this year is really in that $350 million to $450 million range. And what you've seen is over the recent past, we've really worked significantly to optimize our network and improve our cost structure. So most recently, we announced the closure of 2 leased facilities in Elizabeth, New Jersey and in Springfield, Massachusetts, and we're folding those into existing operations. So that along with the transfer of the $3.8 million head that Shane mentioned in hog production to our joint venture partners, it really brings reduced requirements for maintenance CapEx across the network.

So we're going to continue to invest about half of that CapEx figure on growth capital and about the other half on infrastructure, so maintenance types of projects, but we have plenty of opportunities to invest in growth capital, drive capacity expansions and cost savings projects through automation. So Again, the $350 million to $450 million is all encompassing on the base business with incremental spend related to [indiscernible] in '27, '28 and '29.

Great. And then real quick, I noticed that the market share in the hot dogs packaged meat subcategory change from third to fourth. So I guess, just wanted to understand what was driving that last quarter? And how do you view your acquisitions of Nathan's and changing the competitive dynamic in this space?

No, it's a good question. So as far as the total hot dog category, so this is for the total industry, obviously, we're seeing some historic beef markets, which is resulting in consumers seeking value gravitating down to private label or value tiers. Now keep in mind, when I say that even when they gravitate down into private label, we have the ability to capture that consumer with some of the private label products that we do produce or some of the regional brands that fit that value tier. Now if you look at the total categories, so not just where we were, but for the total hot toll category for the U.S., in Q4, the sales were down 5.2%, and for total 2025, sales were down 4.8%.

Now with all that said, despite some of the category declines and some of the consumer shifting, we were still able to grow our Nathan's volume share unit share and dollar share in Q4. So we also increased our points of distribution by over 19% and in 2025, and that's on the Nathan's brand. So that really highlights the strength of the brand and also consumer loyalty. So despite some of the category declines that we saw within the hot dog space, we're very comfortable with where we are from a Nathan's performance and also what we expect to see in 2026.

That concludes our question-and-answer session. I'd like to turn the conference back over to President and CEO, Shane Smith for closing remarks.

Thank you, and thanks to everyone who joined our call today. I want to thank all of our Smithfield Foods employees for their exceptional execution in 2025. It truly was an outstanding year, and we're proud that our strategies drove record results, but we're not stopping there. Instead, we're constantly challenging ourselves to grow our business and continuously improve our operations. I'm looking forward to speaking to you again when we report our first quarter results. Thank you.

Thank you. The conference has now concluded, and we thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.

Good afternoon, everyone. Thanks for joining. I'm Megan Clapp. I am the U.S. food analyst at Morgan Stanley. Really pleased to have Smithfield Foods here today, the CFO of the company, Mark Hall. Mark is going to kick it off with a couple of slides. Just to give a brief overview for those new to the story, and then we'll get into some Q&A.

Thanks, Megan. Thanks, everybody, for joining us this afternoon. As Megan indicated I'm Mark Hall, I'm the Chief Financial Officer for Smithfield Foods. And before we get started, I just want to mention the matters discussed today during this presentation and the fireside chat may include some forward-looking statements. Please refer to our Form 10-K and 10-Q for discussion of these factors that could lead the company's actual results to differ materially from these expectations. And I'll also speak to some non-GAAP financial information and a reconciliation of those to the nearest GAAP measure is also included within the appendix of our investor presentation on the Smithfield IR website.

So just framing up a little bit about our business for those that aren't familiar with Smithfield. Smithfield Foods is a leading American food company with over $15 billion in annual sales. We focus on driving profitable growth through our Packaged Meats business, which generates more than $1 billion annually in segment profit. So alongside the investments in our business, we've consistently returned cash to shareholders in the form of a dividend. And we have a tremendously strong balance sheet and cash flow, and that combined with our iconic brand portfolio and expanding market opportunities really position us well to continue growth, market leadership and value creation for our shareholders.

On the next page, just a few key metrics about our business. For the trailing 12 months ended September, we delivered sales of $15.3 billion, and our adjusted EBITDA for the same time period was $1.6 billion. And today, we lead with our Packaged Meats business. Packaged Meats segment sales for the trailing 12 months were $8.7 billion, which represented about 57% of our total sales with a league-leading adjusted segment profit margin of 12.7%. And now the U.S. value-added Packaged Meats market that we compete in across 25 categories represents about $46 billion of sales opportunity. And we are the #2 ranked branded market share across those 25 categories that we participate in. We have a 93% ACV and strong customer loyalty with an 81% repurchase rate. And over the past year, since 2013, with our acquisition by WH Group, we've reinvested more than $4 billion in CapEx to further strengthen our production capabilities, our differentiated supply chain and really strengthen our competitive platform.

We also take a lot of pride in our balance sheet. So with $3.1 billion of liquidity and a ratio of net debt to adjusted EBITDA of only 0.8x, we have a lot of flexibility to continue to grow the business. We returned to the public markets this January with an IPO, and we're very proud of our execution since that event. Despite a very challenging consumer and raw material inflationary environment, we've delivered record adjusted operating profit each quarter of 2025. And as a result, we've raised our full year guidance. And really, it's about the power of our vertically integrated model and that's evidenced by the fact that we had record results on a year-to-date basis, consolidated, although none of the individual segments has had a record year.

As I mentioned, our Packaged Meats business continues to grow, grew at a rate of 6% through the first 9 months of 2025, and that really reflects the power of our branded portfolio and again, an industry-leading segment profit margin of 12.7%. We also continued to deliver operating efficiency and cost savings across the enterprise, and we're on track to reduce our internal hog production by roughly 3 million head versus last year, and that will put us at under 11.5 million head internally produced by the end of the year, and this is going to lead to more stability in our cash flow and earnings. And as I mentioned, we have a rock-solid balance sheet. At September 28, that net debt to adjusted EBITDA rate of 0.8x, giving us that flexibility to fund future growth and expand shareholder value.

So in summary, before I sit down with Megan for the Q&A, we're very excited about the opportunity ahead for our Packaged Meats segment to continue to grow market share. And really, we've demonstrated that our industry-leading operational excellence and record results we've been able to deliver despite very challenging market conditions and this sets us up to continue to deliver growth in our Packaged Meats business, market leadership and continued value generation for our shareholders. So with that, I'll sit down with Megan for the Q&A.

Great. Great overview. So maybe we can start with -- this was -- you talked about it a bit. This was a record operating profit this year so far through the third quarter for Smithfield and it didn't come from any 1 segment which is impressive. So as you look ahead to 2026, how do you expect the profit mix because you are a vertically integrated company, how should investors think about the profit mix evolving across the portfolio as you benefit from that vertical integration?

Yes. So 2025, as you indicated, just an outstanding year, record results, although no single segment had a record year. And we really look to continue to build on that in 2026. So without providing any specific guidance, the outlook is very strong. For our Packaged Meats business, we're going to continue to grow volume and share through innovation. We're also going to continue to evolve our mix of high-margin value-added products and we're going to continue to take costs out of the organization looking every year to more than offset the impact of inflation through savings in our plant operations, through supply chain and also through SG&A. And we also believe that the raw material inflation, the raw material marketplace will be favorable for Packaged Meats next year with meat values coming down slightly.

Across the other parts of our vertically integrated network within Fresh Pork and hog production, the futures curve continues to look very positive for hog production, and we have a best-in-class cost structure on the farms that we've retained. And we have a best-in-class cost structure on our Fresh Pork side of our business as well, which supplies our Packaged Meats business. So the outlook for 2025 is very bright.

Great.

And for 2026.

Great. And vertical integrations, you're a bit unique in that maybe relative to food manufacturers, in particular, but maybe even some of your protein peers. So as we think about the vertical integration in your business, as you've looked over the past year or past several years, we've gone through the hog cycle. How has the vertical integration been a competitive advantage for you? And do you see structural changes in the industry that are tailwinds because you have that integration?

Yes. It's truly been a competitive advantage for us. Again, with record consolidated results this year, even though no segment had a record year, where you're really seeing the power of that vertical integration. So starting with our hog production segment producing about 11.5 million head that we transferred to our Fresh Pork segment and Fresh Pork transfers that fresh meat, oftentimes the best sale for our Fresh Pork business is to sell and we call it flipping over the wall for further processing to our Packaged Meats business. So we supply our packaged meats business with about 80% of its raw material requirements from the Fresh Pork segment. So we transfer 100% of the bellies for further processing into bacon, about 75% of our hams become packaged meats products and about 70% to 75% of our trimmings become packaged meats because that's where we can extract the most value.

So by doing so, it reduces our raw material costs. And we've also been able to have best-in-class operations across our vertically integrated network. So taking costs out of our farms so that we are best-in-class across the retained farms and our Fresh Pork operations and also in Packaged Meats.

Great. Maybe shifting to demand a little bit, and you talked about how bright the outlook is for Packaged Meats looking into 2026. The environment is a bit tough, macro uncertainty persists. There's a lot of questions around the path of the low-end consumer. In your business, hopefully, actually pricing does start to normalize a bit as we look into 2026. So when you think about Packaged Meats, what's different about your business and being able to weather through some of those headwinds on the macro side and where are the opportunities? And what gives you kind of confidence to drive volume growth in '26?

Yes. So the 25 categories that we competed in Packaged Meats represent about a $46 billion sales opportunity for us. And in 10 of those categories, individually, there are $1 billion of market opportunity. And in those 10, we have the #1 or #2 position in 6 of those categories. And we still have additional opportunity to further penetrate those categories through product innovation, increasing the number of SKUs that we're selling and really building out the breadth of our portfolio across the stores. But in 4 of those categories that are individually over $1 billion, we're not #1 or #2 today. And so we have a real opportunity to expand. And packaged lunchmeat is a great example of that. It's a $6.3 billion category where today, we hold the #5 market position and we have about a 9% share. And we've really been able to make significant headway in that category, and we'll continue to grow and develop in there in 2026.

Maybe just expanding on the category discussion a bit. Packaged Meats, as you mentioned, it's been a really great year for the category for yourself. As you think about those 25 categories that you compete in, is there another Packaged Meats when we look ahead? Is it about -- where do you see the most opportunity to continue to expand distribution and drive innovation?

So what's unique to Smithfield is the way our brand strategy is laid out in Packaged Meats is we have a branded solution wherever that consumer is in their price portfolio from the high end through the mid-tier and the low end, the value side of the equation. So as that consumer trades up or down across that pricing spectrum, we have a quality branded solution to meet their needs. And we also participate in private label, which is unique, about 40% of our business at retail is in private label. And so we're able to partner with our customers to really develop that private label business and really eradicate some of the margin differential that historically has been hung on the private label side of the business versus branded. So specifically, I think we can continue to grow in that packaged lunchmeat category, that $6.3 billion category.

We introduced a product line called Prime Fresh slice deli which solved both a customer -- a consumer problem. Customers were having trouble staffing labor counter -- the deli counters and consumers wanted to grab and go convenient product. We've been able to slice that product fresh in our factories, place it in an overwrap zip block bag. It's preweighed, prescaled, pre-priced. And so the customer can put that out in front of the bunker for convenience and we also get a secondary display in the meat case, and we're seeing double-digit growth in that production line.

Additionally, dry sausage is another category for us to continue to grow. Dry sausage. So think of things like salamis and pepperonis for serving on charcuterie boards and snacking. That's a category that's going to grow upwards of 6% through 2030 and we've been able to outpace that growth and continuing to add products that are convenient prepared solutions for consumers.

So you just shared a lot of nice examples of innovation on the retail side. You also have a big foodservice business, which is a bit unique. So can you just talk about maybe some -- give some examples of recent wins on innovation on the foodservice side because you've continued to outperform the broader industry as well on that side.

Yes, absolutely. So we have a robust innovation pipeline today in foodservice and ongoing into 2026. And it's really about meeting that consumer and customer need. And so in the foodservice space, there's a real focus on reducing labor cost, convenience and getting consistency in the product offerings in terms of when they're recounting on location. So what we've been able to do is really accentuate the precooked product side of our business. So a ready-to-eat bacon or a pulled pork product or a pulled chicken product and so the foodservice retailer is able to take that labor out of their stores and meet the cycle times. And we've been tremendously successful outpacing the industry, as you mentioned, with a 3% volume growth in foodservice, where -- and that's in an environment where food away from home inflation is upward of 4% and food at home is only 2%.

So folks have been trading down from that food service occasion to a retail occasion, we're able to capture that store traffic and continue to drive results in the food service channel. So we've completed over 50 limited time offers with our foodservice partners this year and expect that trend to continue with innovative new products in foodservice.

Maybe just a little bit on the competitive environment. It seems like retailers are amping up the focus on value, just given some of the concerns in the low-end consumer. As you think about 2026 in your categories, 2-part question. How are you thinking about balancing promotional intensity with the pricing power that you've earned? And then two, as you've taken price this year in some categories due to inflation, what have you learned about elasticity and kind of brand strength that maybe surprised you?

Yes, it's really -- it gets back to our brand strategy that we talked about. And for us, it's less about price discounting because we don't believe that's a sustainable business model. So we have that brand strategy that really resonates with the consumer wherever they are in their budgetary constraints. So we have a branded solution that meets them where they are or a private label alternative. What we've seen from competitors in 2025 is that deep discounting that you've mentioned. So promoted volume through the third quarter across the industry was upwards of 9%, and their share was actually declining. Our promoted volume, because we stayed true to our strategies was actually down about 5%, and our share was flat to growing across all of our categories. So again, it's about staying true to our pricing and brand strategies and look to continue to develop that with product offerings that are innovative across that pricing spectrum.

Great. So I wanted to ask, protein is all the rage. It's all we hear about. Smithfield is 80% pork, 20% beef. Is that -- as you think over the next 3 to 5 years, is that the right strategic identity longer term? Is there a desire to move into other proteins? Or are you -- what are the kind of the benefits of being more of a pure-play pork company?

Yes, the 80-20 split is relative to our Packaged Meats business. And really, what we found is that pork is uniquely positioned to compete in Packaged Meats because of the diversity of pork in terms of the cuts and flavor profiles. And the younger demographic, that consumer is looking for international flavors. So think of Asian or Mexican food that traditionally that the protein underlying that cuisine is pork-based. And so it's about developing flavors that are of interest to that younger demographic to keep them in the pork franchise. And so we'll continue to opportunistically look at opportunities to expand that 20% that is non-pork-based. Primarily for us, it's in the beef protein for our Nathan's hot dogs or it's in poultry for our sliced lunchmeat. But we'll look at opportunities to expand the portfolio, but it will be on the Packaged Meats side of the business. We don't have an interest in getting into the live side of the other proteins.

As we think about that, how do you manage the -- capturing the supply, getting adequate supply, beef has obviously been a challenge in terms of supply and pricing. So what's been -- what's your strategy on the beef side? And kind of how would you look to navigate that going forward if you choose to expand?

Yes. It's interesting for us. We are pricing to cover that inflation. So we went back with our private label customers specifically, and we've renegotiated our agreements such that the price to them ebbs and flows with that underlying commodity and we have effectively a fixed adder for the overheads and profitability. So we're playing catch up this year, and there's been a little bit of margin compression because the margins -- excuse me, the raw materials have continued to increase. But as those markets begin to turn, the margins will return to a more normal state.

Got it. You spoke about it a bit. But raw material volatility has been a major theme across the industry this year in protein across pork, chicken and beef, quite frankly. So you guys have -- your margins have seen a little bit of compression in Packaged Meats, but all things considered and relative to peers, you've managed it quite well. What are kind of the structural advantages that have allowed you to outperform even as you said, you're still catching up and there's opportunity for recovery.

Yes. Certainly, for us, the vertical integration has helped us on the pork side of the business. And then it's about our brand strategies again with that pricing portfolio and the underlying work that we did on renegotiating contracts on private label items. But it's also -- for us, it's about operational excellence and every year, again, we develop plans to more than offset inflation within the 4 walls of our facilities and our supply chain and in our farms, and that's really benefited us to the extent that we're able to more than offset any compression in the industry market spread on the Fresh Pork side of the business with cost savings.

And as we think about Packaged Meats margins looking ahead, cost will hopefully be a good guy, mix automation should continue to help margins as well. Is there any way to kind of rank order how to think about those drivers into 2026? And then you said 12.7% on a trailing 12-month basis for Packaged Meats. Is there a right way to think about what that margin profile looks like through a cycle?

Yes. So in prior years, so in 2024, we are upwards of 13.6% near 14% margin on Packaged Meats. And again, there's been that compression because we've been chasing commodities up that pricing curve. For us, I think it's a little bit of a pause on that long-term algorithm. We're going to continue to move Packaged Meats profitability up into the right as we call it. And it's about that mix improvement. So selling into those higher-margin categories, that oftentimes have 4 or 5x the profitability of our more commoditized product offerings. So we'll continue to expand margins and look to continue to -- that mix evolution will be ongoing and continue to improve our cost structure.

Great. Shifting more to the commodity side of the business. You've been on a journey to reduce the size of the hog herd, 10 million hogs, which is roughly 30% vertical integrations, what you've talked about getting to in the medium term, maybe closer to near term at this point. Can you just explain why you think that's the right level for the business, how you came to that decision? And how does that allow for adequate supply and flexibility within the business?

Sure. For us, it's all about a surety of that quality supply of hogs into our Fresh Pork business and ultimately for further processing into Packaged Meats. We came to that conclusion really through modeling out where there is a robust supply of external hogs to be procured. And so in the Midwest, there is an external supply that is rather robust and can meet the needs of our supply chain. On the East Coast, where we have 2 of the larger harvest facilities for our Fresh Pork operations, there really isn't a robust external network of hog suppliers. So we'll be more heavily indexed to internal supply there, but we've also had significant success in converting former contract growers into independent suppliers. And so we'll continue down that path, and we'll be very strategic and very surgical with those providers that we decide to convert from contract grower into an independent farmer.

Is there anything that would cause you to revisit the 10 million either way?

Yes. Well, it's an ongoing evaluation and we'll continue to assess effectively market by market, what's the optimal mix for us.

Great. Wanted to talk a little bit about M&A. You talked about your strong balance sheet, you return cash to shareholders. You're still going to have some -- you still have some excess cash. You invest in CapEx and back into the business. But you've also talked about M&A, you've done some bolt-on acquisitions. You did the dry sausage, bought that facility, which allowed you to expand capacity with that category. So in an instance like that as you go forward, how do you think about what's the right use of cash and evaluating those bolt-on opportunities? And what's your criteria as from a financial and operational perspective.

Sure. We have a very strong portfolio of brands, as we've discussed. So we don't feel that we need to pay up to pay a multiple to acquire brands. So we look at M&A as an opportunity for us to solve any sort of potential hole we may have in future capacity or capabilities. So you mentioned the Nashville acquisition. So that was a very cost-effective way for us to continue to acquire capacity in a very highly attractive growing category of dry sausage. So a part of our planning process was looking at a potential capacity hole in 2026 for dry sausage and this facility came on the market, and it was very cost effective as compared to a greenfield build. And the seller didn't have a branded business to support it, and we're able to come in and make that facility profitable very quickly, move some things around within our network and continue to grow dry sausage.

So we'll continue to be opportunistic when it comes to M&A. Obviously, we want to continue to grow our capacity and capability in Packaged Meats. And we're looking at opportunities to complete the vertical down in Mexico where we have a hog production and a Fresh Pork business today and our customer partners want us to have local production down there so we can produce both our Smithfield brands and their private label brands. And so whether that's a greenfield build or an M&A opportunity, we'll continue to evaluate, but that's a very attractive marketplace for us, and it's a pork-deficit nation. And as I mentioned before, pork is the primary protein consumed in Mexico. So it's an attractive opportunity for us to continue to grow.

Mexico, clearly, maybe top of the list, but are there any other obvious categories or geographies that have natural synergies that you're thinking about?

Yes. I think we'll explore across the North American footprint. But again, it's going to be -- it's going to be within the Packaged Meats value-added space, and it's towards the high end on fresh pork, whether it's case ready or marinated capacity, but that value-added space is the sweet spot for us.

Okay. Shifting gears a little bit. Investors often ask about the ownership structure of Smithfield. You were bought by WH Group back in 2013, I believe, and then spun back out into the public markets earlier this year. The WH has sold down a little bit more since the IPO. But how should investors think about kind of the long-term path for the current ownership structure?

Yes. So you mentioned WH acquisition in 2013 and then we went private and came back to the public markets in January this year. And WH has been a tremendous sponsor of the business. Together, we've reinvested over $4 billion in capital since the acquisition. And the WH model is such that local businesses are run by local management. So whether that's in their China operations, whether it's in Europe or in the U.S. They're going to continue to be a long-term shareholder. But again, the day-to-day operations are really in our control.

Great. Are there any questions in the room?

Sorry, I just wanted to clarify the divisional stuff here because is pretty much all the hog production internal? Is that right?

So today, we're decreasing from a high point that was about 50% of our need back in 2019. We'll finish this year at roughly 40% and the glide path is to get to just under 10 million head internally produced, which would be about 1/3.

Right. And then -- because I'm just looking at the margins, the Fresh Pork, I mean, it's extremely low. So it's like nearly half your sales, right, or more than half your sales?

So Fresh Pork, primarily, again, in a number of cases, Fresh Pork, the best sale of that fresh pork raw material is an internal transfer to our Packaged Meats business. So again, all of our bellies, all of our hams and all of our trimmings, we do have external sales in Fresh Pork of about $5 billion. So it's -- whether it's the domestic marketplace, that value-added space that I talked about with case ready or marinated as well as the export of off-all products to international markets. But the Fresh Pork business primarily is a spread business. So it's the value of the meat versus the cost of the hog. And we've done a tremendous job in being able to offset that market spread compression through cost savings and having a best-in-class cost structure on the Fresh Pork side of the business.

So like if I think, say, 5 years ahead, what kind of operating margin do you think you can get to as you're around 7% or something now, right, 7%, maybe 8% next year or something like that?

Yes. So again, it's really going to be driven by expansion -- continued margin expansion in our Packaged Meats business. And as we mentioned, in 2024 upwards of 14% that kind of paused this year with that cautious consumer and high inflation on raw materials. But we look to continue to expand our value-added presence skewing on that upper end of the margin structure with 4 to 5x the profitability of our commodity business.

I mean, is 10% realistic, if I take a longer-term view?

We're not providing guidance. But again, those upper end margins on the Packaged Meats side of the business.

Okay. Maybe we can just finish with 1 because I think we're almost out of time. Wrap up, where do you think the market continues to underestimate or misunderstand your business?

It's interesting. We -- I think we kind of get swept up in the general consumer malaise and the inflationary marketplace but again, we've been able to drive record results despite these market headwinds. And so I think we've been steadfast in executing our strategies and you're seeing the results. So I think it just -- it takes time for the market to appreciate that we continue to deliver on what we say we're going to deliver on. And that will come. It's just up to us to continue to execute.

Awesome. That's a great place to end. Thanks, everyone, for joining in the room and on the webcast. And thanks, Mark, for being here.

Thank you.

Good afternoon, everyone. Let me just start with a quick disclaimer. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. Any questions, you can reach out to your Morgan Stanley sales rep. So again, good afternoon. Thanks, everyone, for joining the Morgan Stanley 2025 Global Consumer & Retail Conference. I'm Megan Clapp. I'm the U.S. food analyst here at Morgan Stanley. I'm really pleased to be here today with Smithfield Foods and the company's CEO, Shane Smith. So Shane, thank you so much for joining.

Thanks for having me.

Smithfield is one of the world's largest vertically integrated pork producers and processors, major supplier of fresh and packaged meat products in the U.S. and globally. But that's just a high-level start. So Shane, maybe for those who might be newer to the Smithfield story in the room, can you start with an overview of the business today, your scale across the various segments and how the One Smithfield operating model has helped drive the performance you've delivered in this first year back in the public market?

Yes. So for those of you who don't know Smithfield Foods, we were founded in 1936 in Smithfield, Virginia. So we've been in business for almost 90 years now. From about 1936 to about 1980, I think you could classify us as a small regional player. And at that time, that's how all of the industry was set up.

Beginning in about 1980, and continuing through the early 2000s, we became very acquisitive. The industry was consolidating. We bought a number of companies. And when we came out of this period, probably about the year 2000, 2001, we were the largest vertically integrated pork producer in the United States. And that -- so what we have done over these last 20 years is now really about integrating all of those acquisitions. And so if you look at our packaged meats business today, and when we bought -- when we went through this period, a lot of what we bought was fresh pork assets, but we also bought a lot of branded assets to go along with it so that we could utilize more of our own raw material internally.

So as we kind of sit today, we are on a packaged meats business basis. We do roughly 3 billion pounds of packaged meats annually across 25 different categories, primarily here in the U.S. About 80% of that volume is pork-based. So you can think hams and bacon and that type of product. But we also have some protein diversification in this part of our business, where today, we're about 20% a combination of beef and poultry. So if you think Nathan's hot dogs, for example, that's part of our beef, deli meat and items like that, we'll have some poultry products to go along with it. So we do see some vertical integration or some protein diversification.

In our portfolio today, we really support about 14 different brands across the U.S. We have a combination of national brands, which is about roughly 52% of our sales. We have some regional brands. So think things like Farmer John out on the West Coast or Farmland or John Morrell in the Midwest. And we kept those regional because what we found is those brands still have a lot of pricing power in their local environment.

And then finally, we have some value brands and some specialty brands. So altogether, really supporting about 14 different brands across the U.S. And that's significant because that is down from what was probably about 6 or 7 years ago, we were supporting upwards of 40 different brands across the U.S. So we took a really deep look at our brand strategy, our geography strategy and how -- what brands we wanted to support across the U.S. And so we're down from about 40 brands in our portfolio down to about 14.

Now in the fresh pork side of the business, that's the 7 facilities we have across the U.S. that harvest the hogs that either we produce on our own farms or through contract growers or hogs that we buy from independent hog producers in the U.S. On an annual basis, we'll harvest about 30 million hogs. We've really been focused on a number of things in fresh pork these last few years, and that's really been around our cost structures. So as you can imagine, if you want to operate on what tends to be a little bit heavier commodity related, you have to have an excellent cost structure. So we've invested in automation and technology, in capacity expansion, a number of things to get our cost structures down to where we see today, which is, I believe, among the best-in-class across the industry.

We've also built in what we call flexibility. 1.5 years ago, we harvested about 33 million hogs per year. We took about 10% out, and that allowed -- that really gave us the flexibility to decide, for example, were we going to run weekends, were we going to run nights. And really taking that 10% out, what we found was that last 10% were typically our worst sales. And so by taking that 10% out, we improved that other 90%. So a lot of work around our fresh pork business. We have access to about 40 different export markets around the world. 30 of those were active in any given day, we'll be accessing about 30 of those markets. So really a robust system that we've built there.

And then the very beginning of our supply chain is our hog production operations. And so out of that 30 million hogs that we harvest, today, we're raising about 11 million of those. So we're roughly about 32%, 33% vertically integrated. And that's really a function of where those 7 plants are located geographically across the country. So for example, our largest plant in North Carolina will be upwards of 80% vertically integrated and our second largest plant in Sioux Falls, South Dakota would be less than 1%. So it's really a function of the availability of independent hogs surrounding our business.

At our high point, we were at about 17.5 million. We began a journey about 2 years ago of really rightsizing that level of vertical integration, realizing that we didn't need to be 50% vertically integrated to continue to support our fresh pork and our packaged meats business. So today, we'll finish about 11 million, 11.5 million. We have a goal to be down to about 10 million. We think that will occur over the, I would say, the next 2 to 3 years. But what we have done with those remaining 10 million to 11 million hogs is we've completely changed our genetic structure, which has drastically improved our cost structure.

We've invested in our health, the overall herd health of our hogs. I would tell you that 3 years ago, 4 years ago, we probably had less than 1% of our herd, was considered high health. Today, that number is in excess of 50%. So health has played a big key. And then in feed and nutrition, when you raise an animal, about 55% of that cost is from grain being corn and soybean meal. So a lot of focus on that as well.

So today, the 3 segments are really working well together, and that's what we've seen, and that's the way the vertically integrated model should work. And if you looked at our third quarter earnings, what you would have seen is it was a record year for us from a net income perspective, but there was not a record year for any of the 3 individual segments. So that means the system is now working the way it should, where when we see pressure on raw material or on hog cost, we see that profit migration, but ultimately, we keep it in our portfolio and in our net income.

You mentioned One Smithfield. So I'll go back just a little bit to talk about this acquisitive period that I talked through. The philosophy was when you bought a company, you allowed competition, okay? So what happened, what actually the result of that was, was in many cases, our 3 primary Smithfield companies, which was Smithfield Packing, Farmland Foods and John Morrell were actually competing against each other for the same business. And in most cases, we were the only 3 competitors in the room. And so we began this journey of what we call One Smithfield of -- it simply began to start with a -- bringing together the sales forces. So we had at our height, we had about -- I think it was 4 sales forces across the U.S.

Again, we had multiple brands. We had 4 ERP systems. We had redundancy in our distribution networks. So we never unlocked the synergies that existed through those acquisitions. And so that's something we've really been focused on is bringing it together to the Smithfield we are today, which is one ERP system, one sales force, one cohesive national brand strategy and the way we go to market. And so it's really changed the complexion of who we are and the overall earnings profile that we have as a company.

Great. Great overview. Thank you. Definitely a lot to unpack here...

That was a lot. I tried to cram 90 years of history into about 4 minutes.

You did a great job. Maybe we could just start with demand. This is a consumer conference. There's been a lot of discussion around consumer demand. Pork is a category that's benefited from this protein craze, if you will. The low-end consumer, there's been a lot of discussion around pressure on that segment. So as you look across retail, foodservice, exports, your main kind of demand drivers, how would you describe demand for pork and Smithfield pork overall? And how are you thinking about that evolving into 2025?

Yes. Demand for protein has remained strong in spite of some of the inflationary pressures, in spite of some of the consumer pressures that we see and we do see a consumer in 2025 that is under a tremendous amount of pressure. But I think that plays into one of our key strategies as a company in our strategy to be present with that consumer wherever they are. And so what I mean by that is we operate across 25 different categories of packaged meats. And again, those 14 brands represent different price points along that spectrum. And so we have packaged lunch meats is an example. That's about, as an industry, roughly a $6.2 billion, $6.3 billion category, where many or nearly all of our competitors play at one price point. They play at a premium price point, they play at a value price point or they may have something in the middle, but they typically don't have all 3.

The way we've positioned our portfolio is Smithfield Prime Fresh, which may sell for $9.5 to $10 at retail, all the way down to Gwaltney, which would sell at $2.50 at retail and price points all along the spectrum. So what that means is we don't have to discount or heavily promote our top-tier brands. We can allow natural substitution to take place through that category. And if that consumer decides to move out of branded altogether, about 40% of our business at retail is made up of private label. And so the relationships that we've established with our customers has really allowed us to, in many cases, become category captains.

And so working well with that customer by allowing that consumer to move in and out, whether that's up and down the branded spectrum or into the private label spectrum, we're still keeping that customer, that consumer in our portfolio. And that's been really successful for us. That's why you haven't seen big changes in overall volumes, the work that we've done behind the scenes in private label to improve the margin profile. People used to think that you couldn't make money in private label. We've kind of turned that stereotype on its head.

And one thing we've also been able to do is do formula-based pricing. So as the underlying commodity moves, the margin profile can move along with it, which has added some consistency in our earnings as well. So we don't see those big swings in our packaged meats business the way that maybe we did 5 or 6 or 7 years ago. So again, the consumer, I expect to stay under pressure. And it's really a high-income consumers are still -- you're still seeing them buy that top-tier product. And the way we're positioned allows all consumers to move wherever they happen to be in their purchasing power at that time.

Great. It's more of a macro issue that hasn't impacted your ability to deliver.

No. People are still looking for protein to your initial point. And where pork right now is positioned against specifically beef. Beef is still extremely high. And so one of the things people are seeing with pork specifically is the versatility of it. Pork is the only protein that is really present at every daypart. So you can have it for breakfast, lunch, dinner, snacking. And there's a tremendous amount of versatility, whether that's in the flavor profile, the presentation profile. And so we've been able to do a lot with it, and we're still seeing consumers picking up protein.

On SNAP specifically, there was a lapse in SNAP payments. I think when you reported 3Q, you talked about -- I don't want to put words in your mouth, maybe some prudence in the fourth quarter guide in packaged meats just around the potential and what that we didn't really know what was going to happen with SNAP payments. So now as you look back into November, any discernible impact you saw in your retail business as SNAP payments were lapsed?

No. And keep in mind, that period of time lasted for about 10 days. So there's not a tremendous amount of trend data that is out there where you can see the actual impact of SNAP.

The other thing I would tell you, if you look at the 25 categories that we operate in, only about 7.2%, 7.3% of total SNAP dollars were spent in those categories. And so I think what we'll see as more of the data comes out over the next few weeks is probably some pullback in snack spending, cookies, crackers, sugary drinks, that type of thing because, again, there was still this drive for protein even at that level. So we didn't see a material impact. And again, I think this is -- this was more of a onetime thing than something that's going to continue to happen year after year. But again, over a course of 10 days, there just wasn't -- there's not enough data to call anything a trend.

Got it. That's helpful. Maybe just turning to supply. Price -- the hog prices have eased a bit since you last reported. They've come back a little bit more recently, but they've certainly been volatile. From your standpoint, where do you think we are in the hog cycle today? What's your kind of outlook for hog prices over the next 6 months or so?

Yes. The hog cycle is interesting. You used to -- the people would think a hog cycle would last a period of about 5 years, right? I think that's changed. I think today, the industry is in balance. In 2018 and '19, we saw the equivalent of about 50,000 head of shackle space come online on a daily basis, which really put a lot of pressure on the hog complex. But since that time, we've seen that same amount of shackle space leave the industry, including with us as we close some of our higher cost facilities.

And so where I sit today, I think the industry, the pork industry between the hog producers and the amount of shackle space is pretty well balanced. We don't hear a lot of expansion taking place in the industry, a lot of material expansion taking place. We do think that, especially if you look year-over-year back to 2026 over 2025, I think we may see some productivity gains. So I think any additional head that we see will be from better disease control or productivity. But I don't see a rush to expansion at any material amount taking place across the industry. So it feels pretty well balanced.

Maybe stable prices, give or take.

I think so.

As you translate that to the cutout in your packaged meats business and the raw material side of things, what is -- how are you thinking about that for the raw material side? It's been a bit of a pressure point this year just as prices have continued to climb. So as we look to 2026, has the setup improved in your mind as you think about the profitability and the margin on that packaged meats business?

Yes. One of the things that drove hog prices up in 2025 was really about disease risk in the Midwest that we saw really start coming to fruition back in the fourth quarter of 2024. It doesn't feel like we're going to have that same issue. So when I look at 2026, I think hog prices are going to be more moderated. I think that's going to mean the cutout will be a little bit lower. And I think raw material input costs for our packaged meats business, so I think specifically bellies and hams and trim, I think they're going to be more moderated as well. I think we'll see -- overall, I think we'll see an improving complex next year.

Okay. And let's talk a little bit more about packaged meats, core driver of your business. You've said consistently since you came back to the public markets earlier this year that the strategy in that segment is to grow profit is mix, innovation and volume growth. This year, we've seen a lot of positive tailwinds from mix and innovation, a bit more pricing just given what the cutout has done. As you look ahead in packaged meats and those kind of drivers, how are you thinking about the ability to continue to grow profit? And what are the...

One of the biggest changes for us as a company has been our approach to our product mix. For those of you who have followed us for a while, you had noted a lot of our offerings even compared to 5 years ago, where a lot of it was kind of legacy heritage. So you can think things like our holiday ham, which was a low-margin category or a low-margin product compared to what we can do with that product today. And so instead of selling that product as a holiday ham, now we're looking at how we change that mix and create instead of one 15-pound product, 15 one-pound everyday use products that have a margin profile that's 5 to 6x different.

Dry sausage is another great example. That's a category that's expected to grow between 5% and 6% through 2030. We actually did an acquisition of Cargill facility in Nashville, Tennessee about 1.5 years to 2 years ago that added 50 million pounds of dry sausage capacity to our business. We continue to spend roughly half of our capital each year's spent in automation, technology and capacity to continue to improve the overall cost structures.

In the 25 categories that we operate in, 10 of those categories are over $1 billion of revenue opportunity each. In, I think, 6 of those categories, we have a #1 or #2 position. But in 4 of those categories, we're #5, #6 or #7. So that's where we really see an opportunity to really drive business in those categories like the packaged lunch meat category. That's $6.3 billion revenue category, we're #5 in with about an 8% market share. So that's something through our Prime Fresh lines. We've really been focused on taking market share there. But those other 6 also that we're already #1 or #2 in, we're not done growing there either. So we still see opportunity for geographic distribution where we can get into different areas and also more SKUs and spots on the shelf. And this is one way where we're able to use our private label business to help leverage our brand business.

So when we bid on a piece of private label business, for example, for a customer, we'll agree to do that for them, but it also includes additional slots or additional distribution points for our branded product as well. And so we're able to piggyback those 2 together and growing really nicely, and that's worked well for us.

You talked about it a bit, but this whole idea of mix shift and moving from a holiday ham to Prime Fresh, you've delivered really nice share gains in packaged meats in particular, as you've done that. I think we might have talked about this on the earnings call last quarter, but any way to describe what inning you're in? Are there more products you can turn hams into?

Yes. I think that night, there was an 18 in, in baseball the night before. We know just through natural attrition, how categories are going to change. The holiday ham category, for example, we know as an industry, that category is going to decline at a rate of about 5% to 6% per year. Many people or younger people specifically aren't buying those big holiday hams anymore. So our strategy is to, as that natural decrease takes place to offset those with these other products we're talking about, and we've been very successful in doing that. So mix is ever evolving.

Over the last 5 years, we've taken out 50% of our packaged meats SKUs so that we could simplify the business, we could have better cost structures in the business, and we could work with our customers to find out not only what works for us, but what works for them. And so I don't think mix is something that we can set a finish line on. It's something that's going to continue to happen.

Innovation, we've turned the innovation pipeline back on over the last 3 years from flavor profiles to positions in the store, how we're leveraging a Nathan's hot dog, for example, in one part of the store with a Nathan's pretzel dog in the frozen case. So there's a lot of mix taking place there as well. So it's hard to say what inning we're in, but we're nowhere near done. And that's just on the product side.

There's cost structure opportunities. We're really focused on our distribution network right now. Again, from that One Smithfield time frame, there's still a lot of -- we believe, a lot of redundancy and inefficiencies built into that, that we're focused on flushing out of our system. And so there's still a lot of work to do.

Maybe we can talk about innovation. You've had -- you just said you turned it on. You've had good success both in retail and foodservice. Can you just give some examples of how that's manifesting in your market share and maybe your ability to not have to promote as much or manage what's been a maybe challenging foodservice...

Yes. I think one of the best examples of that is in -- if you looked at third quarter data, you would see that across the landscape, there was a 9% or 10% increase in promoted volume as the industry. Actually, our promoted volume was down. And what we saw was in many of our categories, we actually increased our market share. And so a lot of what we talk about is being disciplined. It's easy to rush out and promote volume, but you have to have an end game. And so we've been very disciplined in that.

Some of the innovation, it ranges from a foodservice customer who no longer wants uncooked bacon in their facility because they don't want to handle the grease and deal with the grease. So we can roast that product and render some of that fat out of it. So that's less to deal with. Recently, in New York City here, we had an activation for Smithfield and Mike's Hot Honey Bacon. I don't know if any of you happen to be handed a cup of bacon as you were walking through down by NASDAQ, but it was a lot of fun.

We're moving a lot into flavor profiles that are more Latin and Asian, which is what a lot of consumers -- younger consumers are looking for. But it's also something that pairs really well with the pork protein in general. So a lot of things, again, across those 25 categories, each has a very distinct set of strategies and in some cases, personality that goes along with it. The trim complex, which feeds into our sausage category, dinner sausage category is growing. We're seeing it grow really nicely and taking market share there as well.

Maybe we could talk -- shift a little bit to the other segments and just start with the benefits of vertical integration. You touched on it a bit. I think that's an impressive point in terms of the record profit in the company, but not any one segment. So maybe that's the obvious answer in terms of the benefits. But what are the benefits versus competitors that aren't vertically integrated, especially as maybe there's different structural changes occurring in the market as well?

Yes. So vertical integration is always a key topic, right? I mean people want to understand it. And quite frankly, historically, I would tell you, we weren't very good at it. We -- our hog production business didn't run very well from a cost structure standpoint. And our fresh pork business was really the mindset, I think, was more about commodity trading fresh pork. So we've changed that mindset.

And so again, I told you we were at almost 17.5 million hogs. There's a recognition that we didn't need that many. But being down at about 10 million -- 10 million to 11 million gives us that surety of supply that we can continue to run our fresh pork businesses and then buy that other 20 million hogs out on the independent market. Ultimately, if you think about how product flows through our categories, it's all set up to support our packaged meats business. If you take the hog carcass, so bellies, for example, we'll use roughly 100% of our bellies internally. So we're not buying bellies on the market nor are we selling bellies on the market.

We'll use about 75%, 76% of our hams internally to convert into our ham packaged meats. We use about 76%, 77% of our trim. So I think being vertically integrated and having that a surety of supply, if we had to go out onto the market and buy 60 million bellies to support our bacon business, we wouldn't see the margin profile that we see today. And so I think it's extremely important to not be overweighted, but also to be just the right size. At the end of the day, in hog production, the strategy is to only be as big as we have to be in order to assure that supply all the way through the system.

And in fresh pork, it's about cost. Our first customer is always our packaged meats business and then go sell the rest either in the domestic or the export markets. But again, all of our thought process around investment, around growth is all centered about how do we use more of our raw material in the process of growing our packaged meats business.

On hog production specifically, it's been a nice year for the segment, higher hog prices certainly helped. The forward curve, even though prices have come down, does suggest the industry should still be slightly profitable as we look to next year. I think you mentioned you were maybe opportunistic as you look ahead to the first half on the last quarter call as well. So putting all that together and kind of what you said about the hog price outlook and what you're seeing in the industry, how are you thinking about just the hog production outlook broadly, including other structural changes you're making as well?

Yes. Like I said, hog production is really -- you have to look at where the input grain costs are, so corn and soybean meal. Today, we had as the U.S. had a record harvest this year and so that tells us that 2026 is set up for a really nice grain complex. So we expect corn to be normalized. We expect soybean meal to be more normalized. One of the things we look at in some of the USDA reports is the stocks-to-use ratio. And typically and historically, any time that ratio was above 10%, it would tell you you're in a good pricing environment. And I think the most recent report had it 12% or 12.5%. So that tells us that 2026 is going to be a good pricing environment.

Again, for the revenue side of the equation, again, I think we're pretty well balanced. So I don't -- I expect hog prices to be more normalized as we go through this year. If you look at the future strip today across 2026, it does show profitability. Again, when you look at that revenue side of that strip, there's not liquidity typically out past 6 months. So you're kind of looking at the underlying fundamentals out past that point. Those fundamentals being, I think people are still going to be looking for protein. I think beef is going to still be a ways away from a recovery. So I expect beef will still be priced relatively high. And that tells me that pork is really set up for a really nice 2026. And so I'm really bullish on how 2026 looks for us.

I think the things that we have done that maybe weren't as transparent in 2025, you'll be able to have full visibility of in 2026 as we see some of those normalized raw material inputs come back, specifically in our packaged meats business. So I'm really optimistic and bullish about 2026.

Great. Sticking with hog production. So on the cost grains are most important, but you talked about this a little bit, just you've optimized the footprint. You reduced the size of the herd. You talked about genetics and improving herd genetics a bit at the beginning. You said last quarter on the call, I think there's still more work to do there. Can you elaborate on that?

Yes. Now it's about continuing to fine-tune, right? We took a lot of the -- we did a lot of the heavy-lifting. So we closed regions. We moved where they were just too geographically displaced to ever achieve a level of profitability. So while they may have good KPIs, good people, they were just too far from either the harvest facilities or from the grain belt where you could feed the hogs economically or you could harvest them economically -- transportation, we just couldn't overcome. So we've closed a lot of those areas.

We have had farms that were historically high cost, more prone to disease, maybe a little less efficient than they should have been. We've rationalized those farms. And so now it's about how do we optimize our feed networks, how do we get grain here better? How do we improve our basis and those type of things that I believe we still have an opportunity when you couple that with our health initiatives. Health is a big issue in hog production and keeping your animals healthy, and it can be expensive when you don't. And so what we've done in the last 2 years is really focus on biosecurity.

And the good thing about biosecurity is not always necessarily a capital investment. It's more process oriented. Should we run -- when should -- how should we stagger the trucks to run from farms to feed mills, for example? A lot of it's about process. And that's what we've been focused on is improving the processes. And so I think we'll continue to see improvements in our livability in overall disease and productivity. So I think we still have -- on the cost side of our equation, we still have some room to continue to improve that business.

Great. And then maybe lastly, with fresh pork, spreads were compressed this year, but you still delivered solid profitability. What's working well in your efforts to kind of capture the full value of the hog to call it?

Yes. If you looked at our business through the third quarter and compared it to the same time period last year, you would see that the normal market spread, there was a degradation of roughly, let's call it, $150 million, $155 million. We offset about $70 million to $75 million of that through just being better operators. So again, going back to the cost structures that we talked about, the automation, but also really developing more markets for our product. So we've really focused on building our domestic pet food markets where we can sell to Nestlé and Mars and Hill's.

Our pharmaceutical channel, we're now harvesting mucosa, which comes out of the intestines of the pig, turning that into heparin, which is sold as an active ingredient in the pharmaceutical industry, thyroid glands, pancreatic glands. So a number of things in our pharmaceutical channel.

Export markets, we've changed our approach to the whole business with the export markets in mind to a next best sell approach. Where is the next best sell for this product so we can achieve net realizable value of the whole carcass? From a labor standpoint, we've invested over the last 10 years, we've invested as a company, not specific to fresh pork, but as a total company, about a little over $4 billion in our U.S. infrastructure. That's gone into those automation, that technology. And what it allows us to do is repurpose that labor to other parts of the plant that maybe can't be automated. So we've seen improvements in our overall save rates in product that maybe 3 years ago was going to rendering because we didn't have the man hours to process it. That product is now being harvested and sold either domestically or externally. So a lot of things going into that.

And I think the as I touched on earlier, taking that bottom 10% out so that we weren't making bad sales at the end of the day has made a big difference in our ability to just perform better. And we're seeing that when you compare it to the spread. And as you pointed out, this was an incredibly -- from a market basis, was a really difficult year in fresh pork, and I think our team performed extremely well from being nimble when -- back in April when tariffs were changing every day, and we had ships going one place and the next day, we were sending them somewhere else to, again, just embracing the different levers that we could pull to make sure at the end of the day, that 285-pound pig, we have a home for all 285 pounds and 20 pounds of it isn't going to rendering.

Okay. So maybe putting it all together, potential for a recovery in packaged meats margins as raw materials come down. You continue to drive mix shift innovation. It sounds like a good outlook for hog production at this point still and continue to execute on fresh pork. You said yourself you're bullish. So without asking for guidance, you've delivered a record year this year. Kind of how do you think about compounding that as we look ahead to '26?

Yes. I think I would answer that by saying, again, I'm really bullish on 2026. I think there are things that we're continuing to execute that, again, will come into clear visibility. One of the things we wanted to do when we came back to the market back in January, we deliberately showed our business in 3 segments. And that's because each of those 3 segments has its own unique set of strategies. And we want you as our investors to be able to follow along with those strategies and see how we're executing. And I think when you do that, what you see in each of those areas, whether that's hog production, we're doing what we said we were going to do.

In fresh pork, we're executing against a commodity style market, but we're executing better than the industry. And in packaged meats, while the long-term algorithm hasn't changed, this year has shown pressure, but it's also shown you in spite of that pressure, we're still performing extremely well against our peers and continuing to expand the margin differential with them. So when I look at 2026 and seeing that we're not done yet, that we still have a lot of runway in front of us, both from a cost standpoint, from a mix standpoint and from a distribution standpoint, I think we have a lot of runway left.

Great. We have a couple of minutes left. I wanted to open it up to see if there's any questions in the room. It's the afternoon. Is the room full tired?

It's after lunch. Everybody's got the Italian sub hangover.

Okay. Capital allocation is always a great place to end. Really strong balance sheet. How are you thinking about paying nice dividend? How are you thinking about kind of the capital allocation priorities today? And you can -- maybe you can weave M&A in there specifically and just kind of how you -- what your priorities are...

Yes. So from a capital allocation standpoint, we're going to continue to reinvest in our business. We will spend roughly about $400 million a year in capital. Half of that will go to automation, technology, return on investment, capacity expansion. Half of that will go to normal infrastructure type repairs and maintenance.

From an M&A standpoint, I would tell you the word we talk about a lot is disciplined. From a brand standpoint, we don't feel like we need to go chase M&A targets because of a brand. We believe we have really strong brands. So the idea of going and paying really high multiples for something just to add to our portfolio really doesn't make sense to us. Our M&A strategy, really, Nashville is the greatest example of that. The dry sausage acquisition that I referred to, that gave us 50 million pounds of capacity, but it fixed the problem for us. We knew that by the end of 2026, we were going to be out of dry sausage capacity.

We also knew through that process that a new build would cost us upwards of $3 a pound. We were able to do that acquisition at a cost of about $0.80 per pound of capacity. So very opportunistic. And again, we weren't paying high multiples for brands or anything else. So we'll look for acquisitions to fix a problem for us. Mexico, we have a fresh pork and hog production operation in Mexico. We'll look to close that vertically integrated model down there through either greenfield investments in packaged meats or maybe through an acquisition that we can add on.

Our customers here in the U.S. that also have retail operations down in Mexico are asking us for product made in Mexico for the Mexican market. So we have a built-in customer base for that already. So I think in 2026, you can look to hear some news about some things we're doing around Mexico as well.

To your point, really strong balance sheet. Our leverage ratio is less than -- we're less than 1x levered. So a very disciplined approach to our balance sheet. And yes, so I'm looking for 2026 to -- we have a lot of dry powder, and we're ready to make some waves in '26.

Great. I think that's an awesome place to end. So thank you, Shane. Thank you for being here. Thanks, everyone, for joining, and I hope everyone has a great holiday.

Yes. Thank you all. Thank you.

Good day, and welcome to the Smithfield Foods Third Quarter 2025 Earnings Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Julie MacMedan, Vice President of Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to Smithfield's Third Quarter 2025 Earnings Call. Earlier this morning, we announced our results. A copy of the release as well as today's presentation are available on our IR website, investors.smithfieldfoods.com.

Today's presentation contains projections and other forward-looking statements. They 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 publicly any forward-looking statements, whether because of new information, future events or other factors. Please refer to our legal disclaimer on Slide 2 of the presentation for more 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 data.

With me this morning are Shane Smith, President and CEO; Mark Hall, CFO; Steven France, President of Packaged Meats; and Donovan Owens, President of Fresh Pork.

I will now turn the discussion over to Shane. Shane?

Thank you, Julie. Good morning, everyone. I'm pleased to report that we delivered record third quarter adjusted operating profit of $310 million, which represents an 8.5% increase year-over-year and an adjusted operating profit margin of 8.3%. We achieved record third quarter results by delivering innovation, value and convenience to our customers and consumers and through a continued disciplined execution of our strategies.

Our Packaged Meats segment achieved its second highest third quarter profit on record despite persistent higher raw material costs and a more cautious consumer spending environment. This underscores the power of our brand and private label portfolio strategy to deliver quality and value across all price points. Our Packaged Meats segment performance was driven by product mix improvements, our well-diversified portfolio of products and price points, new product innovation and operating efficiencies. Our fresh pork segment was pressured by a compressed industry market spread, which was driven by higher hog prices. As a result, a portion of our fresh pork profits moderated to our hog production segment, both were retained within our pork operations due to our vertically integrated model.

In the face of challenging market conditions for our fresh pork segment, I'm proud of our team for mitigating more than half of the year-over-year compression in the industry market spread. Additionally, fresh pork has been navigating in a challenging tariff environment. To achieve the level of profitability that the segment has accomplished demonstrates our team's outstanding execution on all controllable aspects of the business, including optimizing the net realizable value of hog and continuing to drive operational efficiencies.

As I noted a moment ago, our hog production segment benefited from higher hog prices Additionally, the team has tirelessly executed our strategy to improve operational performance and lower our raising cost. Our Production segment adjusted operating profit more than doubled since last year as a result of more favorable markets, coupled with the improvements on our retained forms.

Now turning to our outlook for fiscal 2025. I'm pleased to report that we've raised the midpoint and tighten the range of our outlook for 2025 adjusted operating profit by staying true to our strategies and delivering on our commitments. Mark will share more details in a few minutes.

Now I'll turn to our key growth strategies. Our strategic growth priorities are as follows: Increased profits in Our Packaged Meats segment through enhanced product mix, volume growth and innovation; grow profits in our fresh pork segment by maximizing the net realizable value across channels; achieve a best-in-class cost structure in our hog production segment; optimize operations and deliver operating efficiencies in manufacturing, supply chain, distribution, procurement and SG&A; and finally, evaluate synergistic M&A opportunities across North America.

First, in Packaged Meats, which is our largest and most profitable segment. Protein remains a growing category with quality protein representing a core staple in consumer dies. Consumers are also looking for value, convenience and new flavors. Our Packaged Meat segment is delivering on each of these consumer preferences without sacrificing profitability. Our 3-pronged strategy to grow Packaged Meat segment profit encompasses product mix improvements, volume growth and innovation.

First, product mix. We remain focused on continuing to improve our product mix, which enhances margins and drives unit velocity. A key driver of this strategy is to confirm sales of our more commoditized Heritage products, like large holiday hams, into increased unit sales of higher-margin products for everyday consumption, such as packaged lunchmeat and quarter hams. Smithfield Prime fresh packaged lunchmeat continues to win with both customers and consumers.

Our premium lunch meat offering delivers the quality of a freshly sliced daily meat without the During the third quarter, while volume for the $6.3 billion packaged lunch meat category was down, Prime Fresh volume increased double digits, and we gained a full point of volume share versus the third quarter of 2024. This outstanding volume growth was driven by higher ACV and product innovation, and we see a long runway ahead.

Our Smithfield Anytime Favorites quarter hams are another great example. Unlocked large holiday hands, quarter hands are perfect for everyday family dinners. They are also a great value, which consumers love. Smithfield Anytime Favorites quarter hams increased volume share by 5.7 points versus the third quarter of 2024.

Another key component to unit sales growth is expanding our drive sausage offerings to capitalize on the popularity of pepperoni and salami. These products are growing faster than the packaged meats category as a whole and have higher margins. To position our dry sausage products with well-diversified price points, we market them under specialty brands like Margarita and Korando as well as value brands like Armor. During the third quarter, our total branded dry sausage category grew volume by nearly 8% versus the third quarter of 2024.

Second is volume. We participate in 25 key packaged meat subcategories in retail, 10 of which are valued at over $1 billion, and we see continued white space opportunities to grow volume and increase market share in each of these categories. Year-to-date, through September 28 versus the same time period a year ago, we grew branded market share in 6 of these $1 billion plus categories. We are driving volume in today's economy by delivering quality protein at a good value.

Our portfolio of quality branded products spans multiple categories and price points and is an important competitive advantage for Smithfield. We are attracting and retaining consumers within our branded portfolio, even as they trade up and down the value spectrum. Value seekers are also turning to private label, which is a key competitive advantage for us. Retailers and food service operators look to us as a trusted partner who consistently and reliably deliver high-quality products at scale. Over the past several years, we have improved private label profitability, which represents just under 40% of our retail channel sales.

Another great example of delivering value is in the sausage category, which spans all dayparts with an average retail price per pound of $4.23, our sausage offerings, help today's consumers get their protein cost effectively. Our sausage offerings collectively grew volume by 2.9% in the third quarter versus the third quarter of last year.

In addition to delivering value, we are driving volume by investing behind our brands with direct-to-consumer advertising and by executing effective trade promotion. During the third quarter, our Smithfield brand launched a new we speak for national advertising campaign. For decades, Smithfield has set a standard for quality and craftsmanship in pork. The new campaign is already driving positive engagement across digital and social platforms and helping us reach younger audiences with the focus on millennial and Gen Z shoppers. Beyond awareness, we are seeing early indications of stronger purchase intent and improved brand affinity.

Earlier this year, we launched a new campaign for our Records National brand, named Eckrich, the sausage that takes you home. We are also proud to continue our partnership with the College Football Playoff Foundation and its extra yard for teachers initiative for the 2025, 2026 season.

Our brand-building efforts are showing returns. Average cook dinner sausage volume increased 7.8% versus the third quarter of 2024, which was more than 5x the category growth.

Next, product innovation. Innovation is an important pillar of our packaged meats growth strategy. We continuously develop new concepts to address emerging consumer trends. These new products target consumers through line extensions of our trusted brands, new flavors and more convenient packaging and sizing options. On October 1, we launched our Smithfield Mike top Honey vacant, a sweet heat innovation that merges our signature Honey smug bacon with Mike Top Honey's iconic flavor. The product taps into the fast-growing sweet heat trend and strengthens our connection with younger consumers. It also serves as a strong proof point of how Smithfield is modernizing the category and driving brand relevance through innovation. This exciting new launch is spot line of Smithfield, we speak for brand campaign.

Another great example of an innovative product that aligns with evolving consumer preference for new flavors is our Carles ready in minutes Barbecue mills. Carles is the #3 brand in refrigerated barbecue meats and enjoyed the #1 year-over-year volume share increase during the third quarter at 1.4 points. The growth for Carles is being aided by innovation from our New World flavors such as Korean barbecue full pork, Cemetery Port Carnitas and Taishet Chile BoChicken.

Innovation is also a key driver of our 13.5% increase in foodservice sales in the third quarter versus the third quarter of last year. Despite high food away-from-home inflation, our innovative new offerings are attracting foodservice customers. Year-to-date, our foodservice sales increased over 10% with 3% volume growth. Key foodservice innovations include our Smithfield ready-to-eat bacon as well as 55 new limited time offers. We have introduced across value-added packaged meats categories. We are giving customers and consumers reasons to keep coming back.

In summary, our packaged meats segment is successfully driving volume and profitability by improving our product mix, offering value, building brand awareness and delivering on product innovation.

Now let's talk about our second quarter growth strategy, increasing our fresh pork segment profitability. We are focused on growing Fresh Pork operating profit by maximizing the net realizable value of heat hog and driving best-in-class operating efficiency. A key to effective whole hog utilization is developing multiple channels and outlets for our fresh pork products and operating with agility across these centers.

The execution of our strategy is why our third quarter results outpaced the significant compression in industry market spread. At a time when volume and consumer staples is challenged, our fresh pork segment delivered 5% volume growth in the U.S. retail channel. This was driven by consumers' desire for quality protein in their dives. We saw U.S. retail profit enhanced by value-added case-ready items.

We also have increased profitability in our pet food and pharmaceutical channels. These channels offer alternatives to certain export markets for some of our products. Our fresh pork segment continued to deliver operating efficiencies and cost savings which also helped mitigate the impact of the compressed market spread on segment profitability.

Now to our strategy to optimize our production segment. I'm proud of the team's work to achieve a best-in-class cost structure on our retained farms. Over the past several years, we have sold underperforming farms and improved our genetics our nutrition and feed procurement and health. While we still have work to do, we are pleased with our progress to date, and we are already demonstrating the power of our vertically integrated model with our more streamlined hog production operations.

Improved style productivity and fee conversion are key contributors to our cost savings versus last year. We still have more room to benefit from continued optimization. We expect our raising costs will continue to trend lower from the benefit of our reform measures and our genetics and overall third health initiatives.

This year, our hog production segment is on track to produce under 11.5 million hogs, which represents about 40% of our Fresh Pork segment's processing needs. Over the medium term, we remain focused on actively resizing our business to reduce to approximately 30% the number of hogs we produce ourselves. We believe this will provide a sufficient assured supply of high-quality raw materials to our fresh pork center while reducing the impact of commodity fluctuations on our consolidated results.

Next, our strategy to optimize operations and deliver operating efficiencies in manufacturing, supply chain, distribution, procurement and SG&A. Each year, we look for cost savings to offset inflation. We also dedicated a large portion of our capital investments toward automation, waste elimination and throughput maximization. Automation has enabled us to redeploy labor to higher-value activities as well as to reduce our overall labor count. We also continue to refine and optimize our transportation and logistics activities. Through these strategies, we continue to lower our overall operating costs.

Finally, we continue to evaluate opportunistic M&A in North America to support our growth strategies. We will remain disciplined in evaluating complementary and synergistic opportunities for our packaged meats business.

In summary, we delivered a record third quarter result through solid execution across all segments. Our Packaged Meats segment has demonstrated Brazilian in today's market, underscoring our ability to grow share and expand profitability over the long term. Our fresh pork and hog production segment support the packaged meat segment with an assured supply of quality protein, and our disciplined operating approach continues to help us navigate a dynamic macro environment.

With that, I will turn it over to Mark to review our financials in more detail.

Thanks, Shane, and good morning to everyone joining the call. As Shane stated, we set a record for the third quarter adjusted operating profit and net income which reflected the resilience of our business model in a challenging market environment. Strong profit growth in our hog production segment more than offset market headwinds in our other operating segments, underscoring the benefit of our vertically integrated model. I'm pleased to report that we ended the third quarter with a strong balance sheet, and we have the financial flexibility to invest in growth and return value to our shareholders.

Turning to the details of our third quarter results, starting with the consolidated results and then a review of our performance by segment. Consolidated sales in the third quarter were $3.7 billion, representing a 12.4% or $412 million increase compared to the prior year. This was driven by sales growth across all segments. Our record third quarter adjusted operating profit was $310 million with an adjusted operating profit margin of 8.3%. This was 8.5% higher than the adjusted operating profit of $286 million with a margin of 8.6% in the third quarter of 2024.

Third quarter 2025 adjusted net income from continuing operations was also a record at $230 million and compared to $203 million in the third quarter of 2024. Adjusted EPS was $0.58 per share representing a 9.4% increase from $0.53 per share in the third quarter of 2024.

Now on to our third quarter segment results. Our Packaged Meats segment delivered Third quarter adjusted operating profit of $226 million, which was the second highest third quarter profit on record and a healthy adjusted operating profit margin of 10.8%. These strong results in the face of persistent higher raw material costs and a challenging consumer spending environment demonstrates the success of our Packaged Meats segment strategy. Third quarter packaged meat sales -- up $2.1 billion, increased by 9.1% compared to the third quarter of 2024. This was driven by a 9.2% increase in the average selling price with flat sales volumes.

Industry-wide, volume growth has been challenged due to inflation and consumer-type budgets. As Shane mentioned, we were able to maintain volume by delivering innovation, value and convenience. The higher average selling price was driven primarily by higher market prices across the pork value chain with key raw materials such as bellies up 40%, TRIM up 35% to 68% and HAM up 14% year-over-year in the quarter.

Next, in fresh pork, for the third quarter of 2025, we delivered adjusted operating profit of $10 million and an adjusted operating profit margin of 0.5%. While this was down from the third quarter of 2024, it is an impressive achievement given the compression in the industry market spread year-over-year at roughly a $40 million unfavorable impact on profitability during the third quarter of 2025. By delivering outstanding execution on all controllable aspects of our business, our Fresh Pork segment results only declined by $18 million or less than half the market impact.

Profitability was strengthened by sales and volume growth in the U.S. retail channel with profit enhanced by value-added case-ready items. We also grew volume and profitability in our pet food and pharmaceutical channels, executing well on our next best sales strategy. In addition, we continue to deliver operating efficiencies and cost savings, which helped mitigate the impact of the compressed market spread on segment profitability. 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.

Turning now to hog production. We're pleased to report adjusted operating profit of $89 million for the third quarter of 2025 versus a profit of $40 million in the third quarter of 2024. The substantial increase was driven by improved commodity markets as well as actions we've taken to optimize our operations. Third quarter 2025 hog production segment sales of $813 million increased by 10.1% year-over-year. This was despite a 25% or approximately 850,000 head reduction in the number of hogs produced as part of our planned rationalization strategy.

The third quarter sales increase was primarily due to increased external grain and feed sales of $120 million, largely due to sales to our new joint venture partners while our average market hog sales price was up 8% year-over-year, inclusive of the effects of hedging. Adjusted operating profit for our Other segment, which includes our Mexico and Bioscience operations of $10 million in the third quarter was down $10 million compared to the third quarter of last year, primarily due to lower bioscience sales volumes. Our corporate expenses came in at $4 million below the prior year, reflecting our disciplined cost management strategies.

In summary, we are pleased to deliver record third quarter operating profit and net income despite challenging market headwinds due to solid, consistent execution across all of our operations.

Next, let's review our strong balance sheet and financial position. At the end of the third quarter, our net debt to adjusted EBITDA ratio was 0.8x, well below our policy of less than 2x. Our liquidity at the end of the quarter was $3.1 billion, including $773 million in cash and cash equivalents. This is well above our policy threshold of $1 billion of liquidity.

Capital expenditures for the first 9 months were $246 million compared to $268 million for the first 9 months of 2024. We now expect to spend between $350 million to $400 million in capital expenditures this year, primarily due to the timing of projects moving into 2026. Approximately 50% of our planned capital investments this year are to fund projects that will drive both top and bottom line growth. This consists primarily of various plant automation and improvement projects as we continue to lower our manufacturing cost structure and better utilize labor.

Reinforcing our commitment to return value to shareholders, we expect to pay $1 per share in annual dividend this year subject to the board's discretion. To date, we have paid dividends of $0.75 per share.

Now on to our outlook for fiscal 2025. Today, we again raised our outlook for adjusted operating profit, this time by $25 million at the midpoint, given strong year-to-date performance as well as our forward outlook. This brings the total increase to $75 million since the original guidance we provided in March. While we continue to navigate higher raw materials and a dynamic consumer spending environment, we still expect to continue to increase total company profitability by executing our core strategies that Shane reviewed.

First, we continue to anticipate total company sales to increase in the low to mid-single-digit percent range compared to fiscal 2024. Please note for comparability purposes, our sales outlook excludes the impact of hog production segment sales to the newly formed joint venture partners.

Outlook for segment adjusted operating profit is as follows: For our packaged meat segment, we anticipate adjusted operating profit in the range of $1.06 billion to $1.11 billion. Our revised outlook reflects the impact of persistent higher raw material costs and a cautious consumer spending environment, including the potential impact of delayed SNAP benefits. For Fresh Pork, we now anticipate adjusted operating profit of between $150 million to $200 million. Our revised outlook primarily reflects the impact of the tighter market spread that we expect to see throughout the end of the year.

For hog production, we've raised our anticipated adjusted operating profit range to $125 million to $150 million. Our revised outlook reflects the improved market conditions and better operational performance. As a result, we now anticipate total company adjusted operating profit in the range of $1.225 billion to $1.325 billion, which is a midpoint increase of $25 million from our guidance last quarter and $75 million from our original guidance. This primarily reflects the consistent execution by our flagship packaged meat segment combined with the benefits of our vertical integration.

In summary, we're executing our strategy and delivering record results in a challenging market environment. We've raised our consolidated fiscal year 2025 adjusted operating profit outlook based on the stability of our $1 billion-plus packaged meat segment, combined with our ability to capture the outperformance of our hog production segment through our vertically integrated model. Our strategies are working, and we're well positioned to continue to grow profitability over the long term.

Now I'll ask the operator to open up the call for Q&A. Operator?

[Operator Instructions] The first question comes from Leah Jordan with Goldman Sachs.

I just wanted to ask about packaged meats. I saw that volumes were flat in the quarter. You talked about a cautious consumer, you're even kind of considering some snap funding changes here. So as you look to the fourth quarter and maybe an early look into next year, how are you thinking about the balance of volume and price as top line drivers there? And I may have missed it, but I recall last quarter, you were talking about 1% volume growth in this segment for the full year. I mean, any change to that look as you think about elasticity in the current environment?

Thank you, Leah. Steve, do you want to take that question?

Sure. Thank you. So first, I'll start out on the retail side of the business. So I would say that despite a soft retail environment, we are gaining ground. So if you take a look at Q3, so retail sales were up [ 6% ], and our dollar share and unit share were both up 0.1%, while the industry is flat in dollars and down 0.8% on units. So the big thing is we continue to execute our strategy to grow our value-added items and really focus on higher-margin units versus commodity bulk items, which really continues to drive our industry-leading profitability. So when you think about it, we're winning not only on our bottom line performance, but we're also seeing strong category performance. So a good example would be, in Q3, our ham units were up 11% versus last year, while the industry was down 1.7%. And then if you dig deeper into that ham category, Smithfield Anytime Favorites the quarter ham was up 3.8%, while the category was down 5.9%. And then as Shane touched on when he went through his opening comments, Dry sausage really continues to deliver some excellent results with units up nearly 13% versus last year, while the industry units were down almost 2%. And of course, Prime Fresh continues to be an outstanding item for us and very positive results, not only for Q3 but also as we go through the year.

Okay. That's very helpful. And then just sticking with packages, just a little bit more on profitability, just given the continued input cost pressure there. And just how are you thinking about the ability to keep -- putting price through? And then as you kind of look into '26, how do you be thinking about the long-term margin recovery there in the time line there?

Yes. Thanks for the question. So first, I would say that I feel very good about where our packaged meats business stands today when you think about the sales increase that we were able to deliver in Q3, and also the strong profit margin coming in at 10.8%. So when you compare that to last year, obviously, yes, it's down slightly. And from a dollar standpoint, is down about $13 million. But I think the key point to take into account is that our overall costs were up about 12%. And just the raw material side that was over $200 million increase in Q3 this year versus last year. So I think that really shows the ability that we have take pricing with our customers and also manage and mitigate some of those higher raw material costs with a lot of the different activities that chain had kind of walked through, whether it's from a manufacturing footprint standpoint and really lowering our cost, supply chain, SG&As and other areas. So when you take into account all those different initiatives, it's really helped us offset some pretty significant inflation, including about 20% increase in the raw materials that I mentioned.

The next question comes from Heather Jones with Heather Jones Research.

Just talk about your -- ask about your comment regarding another 30% decline in the final target for number of hogs. And I'm asking because the packaged meats environment is getting increasingly competitive, new capacity coming on, I think is next year in Solstice and bacon. So just was wondering how you're thinking about that ultimately and how you think about it fills vertical integration as a competitive advantage vis-a-vis the rest of the space?

Yes, Heather, when you think about our production, if you go back to where we were back in 2019, we were raising about 17.6 million hogs. We began a process of lowering that down to about $10 million. So about 30% vertically integrated that you referred to. Today, as we look at 2025, we expect to be at about $11.5 million. And that will be, again, 40%. I think it's important to recognize where we've taken those hogs out. And so what we've done is remove our highest-cost farms. And so those are farms that are maybe they're geographically displaced, meaning there's an incredibly high cost in transportation, whether that means taken fee through the firms or grain through the feed mills, or moving those hogs to the processing plant. So even in this environment of increased profitability in hog production. Those particular forms that we've realized on a per head basis would have been, in some cases, negative even in this environment. So we still -- it's still the right strategy to continue to reduce.

Now as we go from $11.5 million to $10 million over the medium term, I would say, the process there is still to make sure we have an adequate number of hogs coming into the plants. So we'll do that in a number of areas or a number of ways, like we've seen in the East Coast for the last 2 years. We've reduced our exposure in the East Coast by converting contract growers into independent hog producers. And so overall, the goal of that reduction is to remove the commodity side volatility in hog production. So I still think 30% is the right number. I think we're on that path still, and we've seen that in the reductions to date. And I don't think it will have a negative impact on our hog availability going into the fresh pork business and ultimately feeding to the last part of your question, into the packaged meat side of our business. So we're really comfortable still looking at that 30% number from an overall vertically integrated model and the profitability with inside that model. So we're comfortable with still continuing towards that 30%.

And the follow-up, just wondering, I mean, clearly, this year, input costs have been affected by widespread the disease. But as we're thinking about over the next few years and more of the industry becomes board integrated into packaged meats and all, are you all expecting more volatility on that belly side? And is there anything you can do to mitigate that, just less of those become available to trade on the open market?

Yes. Well, when you look at -- what we see, again, from the supply side, all producers have been under pressure for a number of years now. And returning to profitability this year and seeing profitability when you look at the futures market out into 2026, though we don't hear of a lot of expansion that's taken place in hog production, at least not on a material level. You can look at what the USDA is calling for 2026, and they're calling pork to be up to about 28 million pounds. And so about a 3% increase. But then you look at the hogs report, and it's implying there's actually a decrease. And so we're aware of or conscious of what the industry is saying, but we're also paying a lot of affection internally to what we're actually seeing. 2025 -- early in 2025, there was a lot of disease, particularly out in the Midwest part of the industry. And we're paying attention to those external reports now to see what the disease outlook is as we go into these colder months where the spread tends to be a little more prevalent. But I don't see a lot of expansion taking place on Fresh Pork side.

Donovan, you want to talk to anything on the Fresh Pork side?

Well, I guess, in terms of the availability piece, I think she's mentioning, we still believe we're going to see a robust product markets well into 2026. So I don't think we're going to -- we're not expecting expansion or the lack of disease in order to mitigate some of the markets we have. I mean we're very poised to see elevated pork markets, especially when you look at how the protein sector is sitting right now would be being so high. So we do believe our product categories are sitting priced reasonably. And when you compare against competitive proteins, then I think that's going to continue. And again, I know the question was really specifically around bellies and bacon. But we do think that we've had -- we've seen some recent pressure on the belly market, but still relatively high compared to historical market trends on bellies. And I think that we're going to see that relatively higher belly market continue well into 2026.

The next question comes from Peter Galbo with Bank of America.

Maybe to stick on the topic of cost inflation. I guess, Shane, like one of the surprises was how high some of the cut markets remained over the course of the summer between delis and trim. But now even since the end of the quarter, those have come in quite a bit. So I just want to get maybe an understanding from you whether that's just normal seasonality in terms of what you've seen even since the start of the quarter? Or has there been any sort of demand destruction that's caused some of the hog markets to kind of roll a bit more? Additional color there would be helpful.

No, I don't think we're seeing demand disruption, Peter. I think this is normal seasonality that we're beginning to go through. As Donovan said a while ago, the belly market is still elevated compared to historical terms, where we're sitting at in the fourth quarter. So I don't think we're seeing any level of demand destruction across the industry. Again, we don't see and hear a lot of expansion talk, at least not at a material level across the industry. And so when we look at that going into 2026, especially with beef markets still at elevated levels. I think pork is set up to continue to perform well in comparison to the other proteins. And again, Donovan, Steve, I don't know if there's anything you would add there, but I really don't see any type of demand destruction taking place.

Yes. From -- again, I'll just piggyback again on what we just talk about it. We're in an elevated market. Hence, the -- much of the conversation about the compressed industry spread that is what's leading to that, but in relationship to some near-term relief, you're going to get the normal seasonality, which we see. We see in the markets back off as we head into Thanksgiving, but quite honestly, I don't think we're going to see a huge plunge in these markets. Demand is still very, very good report from what we see on our end. And we're going to continue to see that fresh pork demand surge as we get beyond the holiday season of Thanksgiving and we certainly see pretty good demand for the first quarter of 2026. So from the demand side, I think it's going to temper really any weakness because we just don't have enough supply right now in the market to come in and really, really hurt the overall structure of where we see pork prices. So I think pork is in a good situation as we head into 2026.

And I'll add -- I'll add to that real quick because we're having a lot of conversations on the belly side. But specifically on bacon when you think about back meat. So we're actually pleased with the overall performance that we've seen in Q3 for packaged meats. And despite the high belly market that we had to deal with, we've actually been very intentional on discipline in how we manage our pricing and promotions, and that's really to protect the category profitability during these markets. And not only inflated, but also sustained throughout the quarter. So even if we have to give up a little bit of volume, but for the most part, across the board, our volumes flat, but it's really about managing those higher markets and making sure that we're working specifically with our customers, either on the retail side or food service side to make sure we're getting the appropriate promotions in place, but not just giving the pricing away or the product away because of high raw material markets and then trying to drop our pricing due to increased promotions or keep promotions.

Great. And Shane, I actually wanted to get your perspective on beef as well. You mentioned it a little bit. I know it can be upwards of like 20% of your buy for packaged meats. Obviously, we've had some commentary out of the administration, both kind of informally and formally through USDA. But just -- how do you kind of see the beef trim markets shaping up over the next call it, 12 months? Do you feel like there's potential for some relief there? It can be, again, a decent chunk of your raw material buy and it's been a pressure point? So would love your perspective on that going forward.

Yes. Everything we see, Peter, is still reporting pointing to a recovery in beef being out in '27, later parts of '27. And I know there's been a lot of discussion recently in the last few days about Argentina and book can come in from there. If you look at what Argentina produces or what they're looking to go to could equate to about maybe 175 million, 176 million pounds. But to put that in context, the U.S. as an industry produces 25.5 billion pounds a year. So even if all of that export from Argentina was to come to the U.S., it represents about 1% of U.S. production. And about 85% of that is lean trim.

Again when we think about the positioning where forecast from a value perspective as it relates to beef. I think we're really well positioned as a protein because, again, me personally, I don't see a material recovery in beef, again for another probably 18 months or so.

The next question comes from Ben Theurer with Barclays.

Shane, Mark, thanks for opening space for some questions here. Most of it has been asked, but just wanted to follow up a little bit within packaged meats across the portfolio, your brand versus private label. Obviously, a very successful give or take 9% increase here on pricing with essentially no impact on volume. So can you help us understand a little bit about the pricing initiatives and the mix effect maybe in between the different segments and the strategy you've been following? And how should we think about the price level as we move into the fourth quarter and maybe into the first quarter of next year? Is that something you think you could stick on? Or is there a component of it that might come back if the commodity markets were to come down? That would be my first question.

Yes, Ben, thanks for the question. And Steve, do you want to take that?

Sure. So I guess I'd start off by saying that when you think about the pricing and the elevated markets that we've been dealing with, one of the big things we have to our benefit is we've really reduced the volatility in our business through our formula pricing on our private label business. And then on top of that, we have our well-known brands, whether it's a national brand or regional brand along with strong consumer loyalty, really enables us to maintain those margins and pass along higher raw material costs. But at the same time, as Shane had walked through, we've been relentless on our operational efficiencies and lowering our costs. So all those things to buy to help us mitigate some of those higher raw material costs.

And then how are we managing that? So when you think about some of the promotions that we run and not only will we're seeing, but also what we see our competitors do is that we are actually being very selective with our promotions. So we're focusing on quality over quantity. And we've really seen others in the industry do some pretty sporadic heavy discounting that might drive some short-term volume spikes. But the reality is it has limited impact in overall share growth or long-term consumer loyalty. So instead, we're focused on leaning into promotions that are more effective at driving volume and also keeping our brand on top of mind. So the reality is our end game is to not trade dollars at the shelf with our competitors, but for us to build our brands actively with our retail categories, retailers categories.

So really, our end goal is we want to make sure that we attract new consumers to a category. We also want to increase consumption. And at the end of the day, we want to reengage consumers that may have walked away from some of these categories. So I think when you combine all those things, that's how we're addressing the market and also dealing with some of these higher raw material costs.

Okay. Got it. And then just for clarification, you've lowered the CapEx guidance for the year. So maybe a little bit of clarity here and like what delaying that? Is that a delay? Or is that just a review? How should we think about the lower CapEx versus the prior guidance?

Yes, Ben, it's Mark. Really, it's largely just due to the timing of some projects that are shifting into early 2026, whether it's availability of the plant for downtime purposes, et cetera. We're going to continue to be prudent stewards of cash and make sure that the return justifies the investment, but we still have plenty of opportunities to grow the business and improve our cost structure through capital investment. So it's just -- it's really more timing than anything.

The next question comes from Megan Clapp with Morgan Stanley.

Just a couple of follow-ups from me as well. First, on the packaged meat profit outlook, I was wondering if we could just go back to Leah's question, if you could just unpack the change and the deceleration kind of in the year-over-year profit decline that's implied in the fourth quarter for packaged needs? And is there any way to just contextualize to what extent does that just reflect maybe pricing lagging, the raw material costs because they stayed higher for a bit longer? And how should we think about that correcting as pricing catches up in the first half of next year, if that's the case?

Steve, do you want to this?

Yes, I'd say it's really two things that I kind of touched on. So one is our ability to take pricing with the markets. And obviously, with the private label business that we have, it represents about 40% of our -- just our retail mix. So we have that flexibility to take that pricing as the market moves now. As far as timing, a lot of that depends on the categories. So there's a difference within categories as far as when that time will go into -- really go into effect. And then on the branded side, so we have that flexibility, same on the retail side and also the foodservice side to take pricing when it makes sense, depending on where that market is and also from a competitive standpoint. But the reality is, as far as what our outlook is for the rest of the year, it's really taking the best view that we have of our business today, but also where we believe the market is going to end up. So -- and that's really why we're providing that range. But when you think about the focus areas that we have, between our national and regional brands and the ability to be very disciplined about our pricing and also promotional strategy, but it's that mix optimization that you continue to hear us about -- your talk about. It is really focused on growing our unit volume on high-profit items, innovation and then the operational efficiency. So when you take all those into account, those help drive that guidance that we provided for Q4.

Okay. That's helpful. And that's a good segue to my follow-up, which is just -- Shane, and you talked a lot about all the momentum you're seeing in the strategies and package meats the mix improvements, efficiencies and innovation. Maybe if we just could take a step back. Can you give us a sense of what inning you think you're in on these strategies, particularly around the mix optimization and the efficiency side of things, just provided a lot of ballast in the margins this year? I'm just trying to think about how that trends through next year and beyond?

Yes, Megan, I don't know exactly how to call what inning we're in, last night -- 18 innings. So I don't know exactly what innings we would be in. But what I will tell you is like mix, you talked about mix. Is that something that's going to be an ongoing evolution. And so for example, if you think about our holiday ham components, we know just as an industry, we're going to lose 5% to 6% of that volume per year. Our goal at Smithfield is to replace that volume with more smaller packaging, everyday use type items. And so that will -- every year as we lose that holiday ham volume, we'll be transitioning that as well.

In Drive sausage, another category that Steve talked about, where we've seen just great growth. We invested in plant in Nashville a couple of years ago that's really given us a lot of capacity that now we're growing into and pushing into. So it's really going to be a never-ending look at our mix, where we should be, flavor profile. We've talked a lot over the course of the year about reaching younger consumers, and I think we're doing a great job with that through Flavors, which again, continues to change that mix into the overall more profitable mix portfolio. But step even just outside of packaged meats and looking at the company in total, I think what you're seeing is the benefit of our unique supply chain runs our vertically integrated model. And so now that we've really streamlined the hog production operations. What we're seeing on the bottom line. Q3 was a record quarter for us. And what's interesting inside of that, if you look at the individual segments, it's not a record quarter for any one of our segments. But the collective company is making record profits. And so you're seeing where we see profit migration. So this -- we see hogs putting pressure on the spread, which is causing higher meat cost in our packaged meats business. But overall, a higher level of profitability. And so when I think about the momentum of the company, that's where I think about it, is across that vertically integrated model and making sure the bottom line is continuing to grow, that is continuing to generate consistent earnings and cash flow across the company.

We have time for one more question. Our last question comes from Max Gumport with BNP Paribas.

You mentioned throughout the call the cautious consumer spending environment that you're seeing now. I was hoping you could expand on what you're seeing and how that's informing your outlook for the next several months?

Yes. Yes, Steve, do you want to delve into a consumer

Sure. So it's a good question. We actually spend obviously a tremendous amount of time really understanding what's happening to the consumer. So I would say from a -- from a settlement standpoint, it certainly remains cautious, and we really continue to observe value-seeking behavior. So this trend is really consistent across the industry. So higher income consumers are really demonstrating more resilience in maintaining spending levels. While we continue to see lower income households across intro's really becoming more selective than what they're spending. So I would say the bottom line is consumers are definitely feeling challenged, and they're adjusting their shopping habits by making more stopping trips with fewer items, opting for larger pack sizes, structuring deals and cooking and home more often, all those things are to really reduce their overall cost.

Now despite these trends, we feel that we're in a great position because our protein really made a clear priority for the consumer to provide their families and put products, whether it's fresh pork, with Domains team or packaged meats, the items are really doing well due to its affordability, also its versatility across both retail and food service. So really, when you think about it, our expensive brands that we continue to talk about and the portfolio that we have is really playing into the current state of the consumer because we have the ability to really capture that consumer across that pricing spectrum in a lot of different categories. And you've heard me mention several times that we've got strong brands that fit those needs for that consumer and it really puts us in a good spot. And then when you take into account private label as well, it really provides us the opportunity that as the consumer moves up and down that value spectrum. There's a good chance we can capture that consumer with a significant main product, whether it's branded or private label.

Great. And then just related to that, you had mentioned in the prepared remarks that your outlook for 4Q, it embeds an impact from delayed SNAP payments. I was hoping you could quantify what that impact is that's embedded in your outlook for 4Q and then provide a bit of color for how you got to that quantified impact?

Yes. So I would say for SNAP, so we're definitely paying close attention to what's happening with SNAP right now. So obviously, there's a lot of uncertainty around the federal funding and the potential for benefit disruptions happening in November. Now with categories that we sell, so this is for the total industry, about 7.5% of dollars are really tied to SNAP usage. So while any reduction will be a major agent for those consumers who rely on that the overall impact to our business would be relatively minor. At the end of the day, families still need to buy protein to feed their households. And we don't expect a dramatic shift really in demand for the products that we sell. Now that said, I'd say we're certainly concerned about the broader impact to the American consumer. And we're working closely with our retail partners to make sure we're promoting items that really deliver on strong value and affordability based on the current situation with SNAP. And we do believe that our diversified portfolio that I just talked about really gives us a significant competitive advantage, and we're better positioned than others due to our pricing strategy to deliver really quality products across that pricing spectrum that we continue to reference. And of course, that would also include our ability to produce private label products. So we're taking that into account. Obviously, it's a very fluid situation and continues to change, but we did take some of that into account into the guidance that Mark was referencing.

This concludes our question-and-answer session. I would like to turn the conference back over to President and CEO, Shane Smith, for closing remarks.

I'd like to thank everyone who joined the call today. We are pleased with our record third quarter results. I think the solid execution by our teams demonstrated this year underscores how well we're positioned to deliver growth and increase value for our shareholders over the long term. So thank you all for joining.

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