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.
Yeah. Thank you, Leah.
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 food service channels. The company also exports fresh pork products to more than 30 markets around the world. Let's get into our chat.
All right.
I just wanna start off here. You know, Smithfield returned to being a public company about a year and a half ago.
You reemerged as this more streamlined company under a One Smithfield model. You've improved your cost structure across your three different segments, ultimately supporting the strong packaged meats business. Maybe we could start out at a high level, just an overview of the transformation that you've been on over the last couple years and how does this position Smithfield better for the longer term?
Thank you, Leah. I think you touched on a couple of keywords there, reemerged and transformation. When we went essentially private back in 2013, we had been public for a number of years. During that timeframe leading up to 2013, we had been a highly acquisitive company. The way we ran the operations was through the independent operating company model or the IOC model. 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? That's where we came up with this idea of One Smithfield. You know, at one point in our history, we were supporting 40 different brands. We had multiple management teams, multiple distribution networks.
We've really been on this path of transforming the company into what we are today, which is a much leaner, a much more agile, one company, doing the right things. What we've seen emerge from that is the business we have today. You know, 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, you know, 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.
I would tell you today we're a completely different company than we were back in 2013.
Yeah. We've seen it.
Yeah.
Really strong results over the past year and a half, which is great.
We've talked about the three segments you have. Maybe we'll just start at the beginning of the supply chain.
Okay
with hog production.
In that business specifically, we've seen a really nice recovery.
Yeah
over the past year. I think when we look out at the commodities forward curve continue to suggest a very constructive backdrop for you. Maybe as you sit here today, what's your updated view on profitability for that business? How are you managing things like feed costs?
Any visibility there, as well as on the supply side? How do you think about the industry dynamic there as we head into the back half? Any optimization efforts as well that you've done?
Yeah. 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. 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 steady supply of pigs going into our fresh pork plant and then that meat going into our packaged meats business?" 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.
That's really a function of math based on the different areas of the country. We looked at the number we had, which was about 17.5 million, and said, "Okay, where do we start taking hogs out?" 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. 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.
We went through this process of lowering our numbers, and I think by 2024, we had gone from 17.5 to about 14. Today, 2025, we finished at around 11. 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, a little over 11, but we're still working toward that goal of that 30% level of vertical integration.
That's great. Thank you for that. Maybe we'll just shift then into fresh pork.
Obviously an interplay with the hog production business as well. We saw some spread compression last year.
given the commodity backdrop.
Yeah
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.
Yeah.
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?
Yeah. You know, 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 you be the low-cost, most efficient producer out there? 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 kill plants. We've created flexibility. You know, 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. Creating flexibility in our fresh pork business.
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. 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. We've seen that really pay off for us as well.
We've also moved back into some channels that I would say historically we had neglected, and food service 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. Really looking at every angle in fresh pork. You know, our first and best sell is always to our packaged meats business. When you think about that as components, the different components of the pig, you know, the bellies, we're using nearly all of our bellies in our bacon business. We're using nearly all of our hams in our trim. It's really about those retail cuts now. Where do we sell the loins, and is that domestic, is that export, butt complex?
I would say the team today, the fresh pork team, is doing a outstanding job. Several years ago, 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. We're, again, we're seeing the benefits of that today. The fresh pork team's doing well. You mentioned the spread compression last year. We were able to offset a tremendous amount of that spread last year. Really excited about where we're gonna go in fresh pork, and viewing it more than a commodity side of our business, and the team's doing a really nice job.
Yeah. We've seen that execution and the distribution gains across those other customers.
that's really coming through. I think a lot of this, that, right, you talked about how the right level of hogs goes into ultimately supporting the packaged meats business. Maybe as we could talk a little bit more about that.
as this is a consumer backdrop, ultimately the end consumer demand.
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, to say the least.
What are you seeing maybe shift between retail and food service or shift across your brands and portfolio, given you have such a wide range of price points?
From a consumer standpoint, protein is still in very high demand. It's a part of the overall basket. We're still seeing good demand from the protein complex and pork specifically as it's positioned now with beef. 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. You know, our pricing strategy and brand strategy has been to be present across the entirety of the pricing spectrum, from the high end all the way to the value side. 40% of our retail business is in private label.
We did a lot of work over the past few years right-sizing those contracts, to where now the margin differential between a private label and a branded product really isn't that extreme. 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. You're still seeing consumers pick up the high level. You're seeing them move through the brands. Overall, I would tell you consumers right now are looking for value for their money.
You know, are they getting what they're paying for? 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. We're still seeing brands coming off the shelf, and I think that's a combination of our brand loyalty. You know, we've been around for 90 years. Customers know our brands.
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. For us, and our, 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. When we look at the outlook for the year, we think we're in a really good position.
No, that's great to hear, definitely the range of price points you offer. I think ultimately what we're seeing with the consumer, right.
The dynamics backdrop is mixed.
value kinda means something different to everybody, and you're giving that range of the portfolio. 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 for your portfolio.
a tailwind to the top line and margins. Maybe we could dig in further. You know, what have you done on the value-added side? How much more opportunity do you see there? Ultimately, if we see more macro pressure on the consumer?
how do you think about the puts and takes to continued shifts?
to value added going forward?
You know, when we talk about mix shift, that's been something we've really been focused on the last, I'd say the last five years. You know, when you look at it's specific to each category. Every category is nuanced a little bit differently. I'll use the holiday ham category. You know, that's a big volume category, we know that category is declining at a rate of 5%-6% a year. Consumers just aren't buying those 20-lb hams for Easter and Christmas. 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? That's where, you know, the Prime Fresh is coming out of that complex.
When we see volume in certain categories falling, we're relying on that continuing evolution of mix. You know, where's 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. 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. You know, I'll go back again to the Prime Fresh example. That's a product we created through innovation that solved a problem for our customer.
You know, the customer was having a problem staffing the deli counters. We said, "Well, let us bring that in-house." We created a fantastic product that is just growing at light speed to the point where we're investing to stay ahead of that. It's a much higher margin than what we would've seen in the holiday ham, and it's in a growing category. You know, another area is in our dry sausage category. You know, that's an area that we're growing or really fast growing for us. We just added capacity in Nashville through an acquisition that we did through Cargill. 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.
Yeah, absolutely. That innovation, right, that's kinda 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. You know, maybe just talk more about the share gains. You know, how do you think about that?
turning as we go to the back half? You know, it sounded like with lunch meat, right, you gained a lot of shelf space.
providing an incremental service that was saving the retailer. 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?
Yeah. I think it's a combination of a number of things. 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%. Increasing the points of distribution is really the leading indicator of where we're gonna see volume growth. Innovation helped drive volume growth across our portfolio. We saw a 12% volume increase in our Armour dry sausage and, again, a 26% volume increase in Prime Fresh, and that's just in the first quarter. When we think about innovation in Smithfield, it's really a pillar of our packaged meats business. We're intent on keeping a really robust pipeline of new products coming out, and they're not all gonna succeed.
We wanna keep rolling out new products, meeting that customer where they are, making sure we have the product that they wanna pick up. Innovation, you know, is really what's gonna drive this next phase of Smithfield.
Yeah. We've seen a lot of that innovation come through. I know we always wanna know what's the next thing. They won't tell us until. We have to wait and see.
Yeah
it like everybody else. Then maybe just kind of rounding out this discussion just on the competitive environment.
You know, 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. Maybe just the competitive environment for packaged meats overall, anything by category, and maybe how you're thinking about that, how that could evolve as we go into the back half?
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 lift. We don't think that's something that's gonna be sustainable, nor do we think it's really healthy for the long-term health of the brand. When we think about and talk about promotional, we're really focused on quality merchandising and 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's been our most impactful medium to get into the stay with that consumer. Again, as I mentioned, in the first quarter of this year, our branded volume was up about 1.6%.
We gained share volume growth of about 0.4%. 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 in coming out of 2025. It's still, it's not a peanut butter spread. It's a very surgical approach to where we wanna promote, where do we wanna, how do we wanna support the brands. You know, with the brand strategy that we have now, you know, 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, we'll continue to support those. The value brands, again, to stay all the way on that pricing spectrum. Some specialty brands, like you see in our dry sausage categories or meatball categories.
Okay. That's, that's great color. Thank you. I think, you know, you said you planned for more marketing-
Mm-hmm. We did
spend this year. I think something, if we think about that was unplanned.
Yeah
for this year is maybe a, you know, global conflict.
Yeah
that's causing some changes around the cost structure for different folks.
I think, you know, you have a benefit of being vertically integrated, but there is always the discussion we have with investors around what is the rising input costs mean for the packaged meat business.
Maybe you could just talk about what you're seeing on the raw material side. You know, how do you expect that to evolve in the back half? I think ultimately, you know, what are mitigation strategies you have to address that?
Yeah. In 2025, you know, 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, and I'm talking about pork specifically, 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. For Smithfield, you know, 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. We have the benefit of being present along that whole value chain.
If you, again, you think about the complexes, you know, the belly complex, we're going to use nearly all of those. The ham complex, the vast majority of that. The way we move our transfer pricing, we stay at market. 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. That gives us the ability to really see the signals that are coming across the industry. 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. We'll kind of see how that plays out for the year. We feel like somewhere along our chain, 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. Ultimately in packaged meats, where we have the majority of our pricing ability, is located in the packaged meat segment. You know, again, our pricing strategies, you know, I talked about that being on the spectrum. We'll see people move up and down. We'll see some move to private label. Ultimately, we'll keep them in our overall portfolio. You know, the consumer is under pressure. They're very cautious, and we see that, and we hear that. 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.
Yep. That's very helpful color, I know we'll all have to be watching the commodities move. You guys have been very resilient, over even the challenges over the last two years.
Yeah.
maybe just more specifically on the freight side as well.
Yeah.
You know, 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.
Anything on diesel going forward.
Yeah. The nearest term watch-out is clearly diesel and freight. I mean, that's caused the most discussion across all industries really over the month of April and coming out of March. Net higher fuel volatility is having an impact on transportation cost. Now we started a network optimization probably three years ago. We actually, 25 compared to 24, we had taken about 1 million miles out of our distribution and have that same plan for 26 compared to 25. 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.
Those things have driven some really meaningful gains for us. Ultimately, at the end of the day, you know, you have to look to your pricing strategies and how much of this can be passed on, when can it be passed on. That's a very real conversation that you have to have with fuel costs staying up at the levels that we see them at today. For us, you know, whether you're talking about freight or just overall efficiencies, you know, it really comes down to cost improvement, cost execution. Every year, as we kinda 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? You know, how do we add automation? How do we add technology?
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, you know, cost increases. You know, this is my 5th year as CEO, and every year, I think next year's, you know, there's not gonna be an emergency next year. It's gonna be normal. 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. How do we continue to evolve from, you know, the ways we used to go to market? How do we continue to evolve that today?
That's what the team's really focused on. I think they're doing an excellent job. I think as we move through this year, as we continue to talk about these things, as there's more and more clarity, it'll become clear to the investor groups that we're doing a good job of managing the overall cost impacts.
Yeah. No, for sure. We've seen it so far.
All the more resilient margin profile for sure. You know, maybe as we put together this discussion, you know, we've talked about some headwinds with mix on the consumer, maybe some near-term cost pressures. Ultimately, these get passed on.
Other tailwinds with shared gains and better cost structure. You know, maybe at a high level, just talk through the puts and takes we should think about for your FY 2026 outlook. You know, what are the biggest swing factors you're watching or the risk to get to the high end or the low end?
Yeah. I would say as we look at 2026, we feel really good. We came off of 2025, which was a record year for us. What's interesting in that, it wasn't a record year for any individual segment. 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, 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. Feel really good from the input and the cost side of our business as well.
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, you know, food service is really a category that's gonna 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. 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. We feel really good about where we are.
Oh, that's great to hear. I mean, we saw the momentum in the first quarter.
Yep
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, you know, your strong cash generation.
Yeah.
Your very low leverage, well below your target.
Maybe that leads us to how are you thinking about capital allocation today? Any updated views on how you're thinking about payout ratio or M&A in this environment?
Yeah. You know, we have a really strong balance sheet, and the team's done a great job. You know, our Treasurer, Jenifer Byrd, and I were here many years ago, back in, gosh, all the way back in 2008 and 2009, and it's just incredibly different than what it was then. Our leverage right now, when we ended Q1, it was a 0.4x , really strong liquidity. From a capital allocation standpoint, we'll continue to invest $350 million-$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, you know, we're talking about and have disclosed that we'll be doing a dividend of $1.25, a strong return to our shareholders through the form of a dividend. You know from an M&A perspective, I would tell you our approach to M&A is disciplined. We don't believe that we need to go chase brands and pay high multiples. We look for M&A to potentially fix a problem. When you look at the 1 of the acquisitions we did in Nashville, we bought a dry sausage facility from Cargill. The problem that fixed for us is that's a category for us. This is a high-margin category and growing, and we knew we would be out of capacity in 2026.
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. You know, 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 owned and manufactured Nathan's and owned the licenses rights at retail for over 10 years now. We've been making Nathan's products. That agreement comes up in about six years, this was an opportunity to really own those rights into perpetuity. That was the idea behind Nathan's. The other M&A we think about is potentially in Mexico.
You know, 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. What I would tell you, just in general, from a philosophical standpoint, our approach to M&A is gonna be very disciplined. We're not gonna go out and chase things. They've gotta make sense. They've gotta fit our overall investment thesis. 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 have to wrap up here. I mean, as we close this session, you know, anything else you would like the audience to take away on Smithfield?
You know, for the audience, I would love for you to take away a few things. One, you know, 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. For the other parts of our business, you know, 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 raise 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. A completely different philosophy than the one we had when we were last public. I would tell you, continue to watch us. We're gonna 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, you know, over the coming quarters.
Thank you, Shane. I think we'll leave it there.
Thank you.
That was great color. Thank you.
Thank you.