Smithfield Foods, Inc.

Good day, and welcome to the Smithfield Foods 4th Quarter 2025 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad, and to withdraw your question, please press star then two. Please note, today's event is being recorded. I would now like to turn the conference over to Julie McMeaton, 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 two 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 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 Cercana Mueller Plus data. With me this morning are Shane Smith, President and CEO, Mark Hall, CFO, Dee France, President of Package Meats, and Donovan Owens, President of North America Fork. 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 multi-year 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 package meets portfolio, exited non-core and high-cost operations, accelerated automation, and built an accountable culture focused on profitable growth. This hard work prepared us for the IPO. In 2025, first year as a public company, we delivered on our commitments, record operating profit, record net income, strength in 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 chains. 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 to $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 pork, hog production, and commodity risk management will report to Donovan. Donneville 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. Package Meats delivered its fourth consecutive year of operating profit above $1 billion and its second highest profit year despite higher raw material costs and a cautious consumer spending environment. Fresh pork demonstrated strong execution amid a compressed industry market spread and trade disruptions due to tariffs. and hot production achieved its highest profit year since 2014, 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 just 0.3 times 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 return value to shareholders through dividend payments of $1 per share. Today, we announced a quarterly dividend of 31.25 cents per share, and we anticipate paying annual dividends of $1.25 per share in 2026. In January, we entered into a definitive agreement to acquire Nathan's 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 three years to build a new state-of-the-art packaged meats and fresh pork processing facility in Sioux Falls, South Dakota. Building this innovative new plant from the ground up will represent one of the largest investments in American agriculture and will modernize our manufacturing footprint and unlock long-term costs and efficiency benefits. Now let's turn to our growth outlook for fiscal 2026. Protein demand is strong and growing across consumer demographics, valued for its nutrition and health benefits. Pork, which is not our only protein but is our primary offering, is well positioned within the protein complex. Pork presents a strong relative value to beef and its nutritional profile with lean cuts like pork tenderloin, 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 for pork, and we expect 2026 to be another year of increased profitability, driven by margin expansion, disciplined cost management, and continued execution of our four strategies. Our five strategic priorities remain unchanged. Increase package meets profit through mix, volume growth, and innovation. Grow fresh pork 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 packaged meats operating profit centers on three 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 top 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 four higher margin focus areas of lunch meat and cooked 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 25 key package meat subcategories at retail, 10 of which are valued at over a billion dollars. In 2025, we grew branded volume share in six 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 products spans multiple categories and price points and is an important competitive advantage for Smithfield. A great example is Logitech. We are attracting and retaining consumers within our branded portfolio even as they trade up and down the value spectrum. If they choose private label, we benefit as well. Over the past several years, we have improved private label 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 and promotion. In 2025, we increased food service sales by 10%. driving higher sales volumes with both new and existing customers. Our success in food service 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 help 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 food service volume 2% in 2025. In 2026, we expect to increase package meats volume across the retail and food service channels, driven by product innovation, strong marketing, advertising, and trade investments. Next, product innovation. Innovation is an important pillar of our Package Meets Growth strategy. We focus on introducing new flavors, convenient and easily prepared offerings, and premium offerings. We have numerous innovative product offerings planned for 2026 in the retail channel for our three national brands, Smithfield, Eckridge, and Nathan's. So, in summary, we expect to grow Package Meets profitability by focusing on three levels. makes improvement, volume, and innovation. Now let's talk about our second core growth strategy, increasing fresh pork profitability. We are focused on maximizing net realizable 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-sell 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-added 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 hog production. In 2025, we outperformed the Iowa State benchmark for hog role profitability reflecting improved genetics, feed management, and herd health. In 2026, we will continue to focus on improving our operations, including herd health 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 high point in 2019 and from $14.6 million in 2024. This reduction reflects the transfer of $3.8 million to our external joint ventures, which was consistent with our right-sizing strategy. Over the medium term, we continue to target producing approximately 30% of Freshport'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 deploy 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 package meat spreads to make us famous. Successfully closing the acquisition will secure our rights to this iconic brand into perpetuity 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 meats brands. 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 PackageMeets, provides a competitive advantage and supports 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 Clark 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 package meets 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 83 cents per share, up from 52 cents per share in 2024, and for the full year 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' tight budgets. As Shane mentioned, we were 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%, trim up 19% to 35%, and ham 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 in maximizing the net realizable value of each hog and continued 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 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 an income through the 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 0.3 times. well below our policy of no less than two times. 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 a 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 and annual dividends in 2025. And as Shane mentioned today, we announced that our board declared a quarterly dividend of 31.25 cents per share, and that we anticipate paying annual dividends of $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 up 2.5% in 2026. That said, we're monitoring herd health 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 environment and a dynamic geopolitical environment. It's still too early to predict the full impact from the conflict in Iran. But there are three 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 Shane 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 billion to $1.2 billion. 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 Sioux Falls, South Dakota. targeted capital spend 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 three years to construct the new state-of-the-art package meats and fresh pork processing facility in Sioux Falls. We currently anticipate groundbreaking to commence in the first half of 2027 and for operations to commence by the end of 2028. 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?

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you're using a speakerphone, we ask that you please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we'll pause for just a moment to assemble our roster. And today's first question comes from Megan Klopp with Morgan Stanley. Please go ahead.

Hi. Good morning. Thanks for taking our questions. I guess maybe to pick up, Mark, where you left off there, I wanted to start with the package meets outlook specifically. You talked about low single-digit top line growth for the total company. I guess, you know, part A. I'm sorry, can you still hear me?

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

Okay. Okay, I'll start over. So package meets outlook, 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 package meets 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 mixed benefits, and then anything you're taking into account on consumer demand, given some of the macro factors.

Thanks. 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 one-time inventory sales to the joint ventures in 2025. That won't repeat. So that's about 150 basis units. And then consistent with the comments, you know, 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 package links.

No, thank you for the question. So I'd start out by saying that nothing has really changed with respect to our long term outlook for packaged meats margins. In the short term, as Mark had mentioned, you know, 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, overall 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 funding our innovation that aligns with consumer trends. We also continue to shift, as Shane had 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, you know, for our outlook for 2026, at this point it really reflects the best view that we have today. and it's really guiding our package meets profit 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 war 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 – you know, we'll be able to address some of these challenges as they come at us throughout the year.

Great. That's super helpful. Thanks for all the detail. And just a follow-up on hog productions, the guide for the year 150 to 200 would suggest similar profitability to 25 at the midpoint. And the futures curve at this point does seem to imply similar producer profit levels as well. At the same time, you know, you've talked extensively, including in the remarks here, about the structural improvements you're seeing in your own business and even talked about, you know, perhaps monitoring the herd health as 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, you know, versus your own internal cost improvements. Thanks.

Yeah, Megan, when you look at supply, you know, 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 meat 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 feels like we're back in somewhat of a normal cycle in that Q1, Q4 cycle. 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 hog production. To your point, we have seen some real structural changes in our business. And, you know, the genetics that we've talked about for the last couple of years have You know, that really helped us in 2025. We saw a weaned pig cost that was down probably 8% year over year. Better feed initiatives and livability initiatives, you know, our overall feed 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.

Great. Thanks so much.

Thank you. And our next question today comes from Ben Thur with Barclays. Please go ahead.

Hi. Good morning, Shane, Mark, team. Thank you very much for taking my question. 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 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 potentially a somewhat challenging 2025 with all the trade restrictions, et cetera. But as we move into 2026, and as you kind 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.

Yeah, so then maybe I'll start and then hand over to Donovan. You know, 2025, you know, I'm really proud of how the fresh pork team executed. You know, we saw $135 million degradation in the gross market spread, but yet our profits were only down about $17 million. And so, we saw 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-sell strategy. Donovan, do you want to add to that?

Yeah, I think Doug and Shane, you said it well in the opening. But yeah, 2026 for Fresh was a challenging year. I think it led off with what Doug might be referring to as a tariff. So the tariffs started to have 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 looking at our fresh pork, fresh pork in business, as Shannon mentioned earlier. Growing our fresh pork in that arena is going to be pivotal in 2026, as it was in 2025. So we're going to focus on

Our case-ready value-added pork, we're going to focus on our marinated offerings. We're also going to focus on our branded effort, branded fresh pork to tie into our package meats portfolio.

So we want to connect the dots, Doug, on all of our business. I think that's been an opportunity for Smithfield for a while and leverage our strength of a package meats business and start putting our name on our fresh pork portfolio of Smithfield, not just straight up. you know, a brand that we have to fight with other, with our competitors in the industry. So, look forward to it. Look forward to it. Ben, sorry for that. I got your name mixed up. But nonetheless, 2026, I feel very confident that we will continue our strategy with Fresh Fork and look forward to improved results.

Awesome, thank you. And then real quick on the capacity expansion project, Serge Voss, 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, splitting that into what would be 27 and 28? And how do you think about... The general timeline, if you could refresh me on that one, that would be much appreciated. Thank you.

Yeah. So, Ben, as you indicated, there is no capital included in our estimate 350 to 450 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 27, 28, and a little bit of spillover in the 29. 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.

Perfect. Thank you very much. I'll pass it on.

Thank you. Our next question today comes from Lee Jordan at Goldman Sachs. Please go ahead.

Thank you. Good morning. Yes, I wanted to follow up on Megan's question within package needs. 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. We're going to be lapping some different input costs as we go through the year as well as, you know, potential shift in Easter and as well as the 53rd week. Thank you.

Sure. Thank you for the question. So first, when you think about margins 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're going 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 build over decades 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, consistency. And the 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 hams, 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 will see Easter earlier this year, so there will be some Q1 impact of last year when we were still in Q2. And the 53rd week actually will fall at the end of December, which would be post-Christmas for us.

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

That's very helpful. Thank you. And then just for a follow-up, I wanted to ask on the feed side, given lower feed 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? And just any color around assumptions within the guidance range and your flexibility there. Should we see some movement? Thank you.

Yeah, on the feed side, and Leah, we don't, necessarily talk specifically about our hedge position, but we do use corn and soybean meal contracts to help lock in when we think it's advantageous. 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 grain in. What I would tell you as it relates to feed for 2026, we are seeing some increases, and 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 corn 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.

That's very helpful. Thank you.

Thank you. And our next question today comes from Heather Jones at Vertical Group. Please go ahead.

Good morning, and thank you for the question. 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 in retail and food service, and 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 seasonally, it's a softer week in the year. as all the loading has gone on leading up to the holiday season. So, you know, from a volume and profitability standpoint, it punches below the average week's 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 y'all thinking about the cadence of that 2.5% growth? Because my understanding is that, you know, there was some expectation that there would be like an easy comparison because of the PD and PERS we had in 25. But PERS has 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?

Yeah, if I understood your question correctly, you know, we are hearing that same thing that you just mentioned, that PERS 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 years in Q2 and Q3. So we think from a disease standpoint, from a quorum standpoint, transportation, that 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.

Okay. Thank you so much for that.

Thank you. And our next question today comes from Chris Downey at Bank of America. Please go ahead.

Hey, guys. This is Chris on for Pete. Thanks for taking the question. You noted that acquiring Nathans 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?

Yeah, Chris, I'll begin, and maybe I'll throw it over to Steve or Mark. You know, as we're in this process, we're really kind of limited on what we can say and what we can share. Once we close this transaction, once we successfully close it, 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?

Yeah, I can just add a couple things. And, you know, first and foremost, we're very excited on the PAX to meet 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 food service 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 that transaction closes. But it's a great question. We're very excited about the opportunity to purchase Nathan's.

Yeah, 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, you know, what that licensing fee has been.

Thanks. Appreciate the color. I'll pass it on.

Thank you. And our next question today comes from Max Comfort with BNP Paribas. Please go ahead.

Thanks for the question. I'm just going to turn back to Sioux Falls. 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 a very old plan. I think it's, you know, over 100 years old. Maybe particularly on the cost side, what this means for efficiencies, automations, and cost savings. Thanks very much.

Yeah, Max. You know, I'm really excited about this investment in Sioux Falls. And to your point, it's a large investment, but it's necessary. You know, Sioux Falls is a key part of not only our fresh pork business, but also our package 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 and technology that we as a company are really rolling out across our footprint. You know, when this facility is done, it'll be the largest fresh combined fresh forth and packaged meats facility in our system. We're 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 in-turn investment, and we expect to see those benefits in year one as we move to that optimal production level. But, you know, the interesting thing about Sioux Falls 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's not only good for us, it's good for South Dakota agriculture, the surrounding regions, and 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. Thanks very much for all that color. 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. I realize 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.

Yeah, it's really about continuing execution of our strategies. You know, continue to improve that makes it within the package meat side of the business, you know, appealing to 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 Fork. you know, 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 five weeks, I think, to report on the first quarter, but thanks for shaping up.

Okay. Thanks very much.

I'll pass it on. Thank you. We have time for one more question today, and our final question comes from Samaya Jane with UBS. Please go ahead.

Hi, thank you for squeezing me in and congrats on the quarter. 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?

Yeah, so in terms of CapEx, again, the uptick in 27 and 28 is related to the Sioux Falls build-out. You know, our guide for this year is really in that $350 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 two lease 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, you know, drive capacity expansions and cost our savings projects through automation. Again, the 350 to 450 is all encompassing on the base business, but incremental spend related to Sioux Falls in 27, 28, and 29. Great.

Thank you. And then real quick, I noticed that the market share in the hot dogs package meat subcategory changed 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 natives and changing the competitive dynamic in the space?

That'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, they're gravitating down to private label or value tiers. Now, keep in mind, when I say that, 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 category, so not just where we were, but for the total hot dog 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% 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. Got it.

Thank you.

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