Smithfield Foods' Q3 2025: Shifting Strategies on Hog Production, Vertical Integration, and Packaged Meats Pricing

Date of Call: October 28, 2025

Financials Results

• Revenue: $3.7B, up 12.4% YOY
• EPS: $0.58 per share (adjusted), up 9.4% YOY (from $0.53)
• Operating Margin: Adjusted operating profit margin 8.3%, compared to 8.6% in Q3 2024

Guidance:

• Total company sales expected to increase low- to mid-single-digit percent vs FY2024.
• Packaged Meats adjusted operating profit expected $1.06B–$1.11B.
• Fresh Pork adjusted operating profit expected $150M–$200M.
• Hog Production adjusted operating profit expected $125M–$150M.
• Consolidated adjusted operating profit expected $1.225B–$1.325B (midpoint +$25M QoQ, +$75M vs original).
• CapEx expected $350M–$400M (timing shift; ~50% to automation/growth).
• Annual dividend expected $1.00/share (subject to board); $0.75 paid YTD.

Business Commentary:

* Record Financial Performance: - Smithfield Foods reported record third quarter adjusted operating profit of $310 million, representing an 8.5% increase year-over-year and an adjusted operating profit margin of 8.3%. - The growth was driven by innovation, value, and convenience delivered to customers and consumers, as well as a disciplined execution of strategies.

• Packaged Meats Segment Success:
• The Packaged Meats segment achieved its second highest third quarter profit and a healthy adjusted operating profit margin of 10.8%.

• This success was due to product mix improvements, a diversified product portfolio, and operating efficiencies amidst persistent higher raw material costs and cautious consumer spending.

• Fresh Pork Segment Challenges:

• The Fresh Pork segment faced a compressed industry market spread, which led to a decline in profit. However, it only declined by $18 million, less than half the market impact.

• The team mitigated more than half of the year-over-year compression in the industry market spread by optimizing net realizable value and operational efficiencies.

• Revised Outlook and Strategic Growth:

• Smithfield raised its fiscal 2025 adjusted operating profit midpoint and tightened the range, reflecting strong year-to-date performance.
• This was supported by the consistent execution of growth strategies, including improved profitability in Hog Production and increased Fresh Pork operating profit through strategic channel development.

Sentiment Analysis:

Overall Tone: Positive

• Management reported a record Q3 adjusted operating profit of $310M (up 8.5% YOY) and adjusted net income of $230M; raised consolidated FY2025 adjusted operating profit to $1.225B–$1.325B (midpoint +$25M); strong balance sheet: net debt/adjusted EBITDA 0.8x and liquidity $3.1B.

Q&A:

• Question from Leah Jordan (Goldman Sachs Group, Inc., Research Division): 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?
  Response: Packaged Meats is gaining share despite soft retail demand by shifting mix to higher-margin, value-added products (e.g., Prime Fresh, quarter hams, dry sausage) — volumes holding in key categories while price/mix drive the topline.

• Question from Leah Jordan (Goldman Sachs Group, Inc., Research Division): That's very helpful. And then just sticking with packaged meats, 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?
  Response: They can take pricing with customers and offset substantial raw-material inflation (~$200M impact in Q3) through pricing, mix improvements and ongoing cost/efficiency initiatives, supporting margin resilience (Packaged Meats margin 10.8%).

• Question from Heather Jones (Heather Jones Research LLC): I wanted to 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 it's next year in sausage and bacon. So just was wondering how you're thinking about that ultimately and how you think about Smithfield's vertical integration as a competitive advantage vis-a-vis the rest of the space?
  Response: They will reduce retained hog production toward ~30% of needs by removing highest-cost farms; this lowers commodity exposure and volatility while maintaining adequate supply to support Fresh Pork and Packaged Meats.

• Question from Heather Jones (Heather Jones Research LLC): And the follow-up, just wondering, I mean, clearly, this year, input costs have been affected by widespread disease. But as we're thinking about over the next few years and more of the industry becomes forward 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?
  Response: Management expects elevated belly markets to persist into 2026 with limited industry expansion; they are monitoring disease/seasonality and believe demand remains strong, so volatility is possible but being actively managed.

• Question from Peter Galbo (BofA Securities, Research Division): 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 bellies 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.
  Response: Declines since quarter-end look like normal seasonality rather than demand destruction; pork demand remains solid and pork is well positioned versus other proteins.

• Question from Peter Galbo (BofA Securities, Research Division): 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.
  Response: Beef trim recovery is not expected near-term; management sees a recovery later in 2027 and views potential imports (e.g., Argentina) as immaterial versus U.S. supply, so little near-term relief expected.

• Question from Benjamin Theurer (Barclays Bank PLC, Research Division): 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 this 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.
  Response: Private label formula pricing (~40% of retail mix) plus strong branded loyalty reduce volatility and enable pricing pass-through; combined with disciplined promotions and operational efficiencies, they can sustain pricing while selectively promoting to protect margins.

• Question from Benjamin Theurer (Barclays Bank PLC, Research Division): 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 is delaying that? Is that a delay? Or is that just a review? How should we think about the lower CapEx versus the prior guidance?
  Response: CapEx reduction reflects timing shifts of projects into early 2026 (plant availability/downtime), not a strategic cut; investment priorities remain focused on high-return automation and growth.

• Question from Megan Christine Alexander (Morgan Stanley, Research Division): Just a couple of follow-ups from me as well. First, on the Packaged Meats 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 Meats? 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?
  Response: Q4 Packaged Meats outlook reflects category- and timing-driven pricing lags and market uncertainty; management believes they have pricing flexibility but timing varies by category, and mix/efficiency actions support recovery.

• Question from Megan Christine Alexander (Morgan Stanley, Research Division): 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 Packaged 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?
  Response: Strategy execution is ongoing — mix shifts, innovation and efficiency remain multi-year initiatives; vertical integration and streamlined Hog Production are already contributing to record consolidated results and expected to sustain profit growth.

• Question from Max Andrew Gumport (BNP Paribas Exane, Research Division): 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?
  Response: Consumers are value-seeking and cautious (more trips with fewer items, larger packs, home cooking), but protein remains a priority; Smithfield's diversified branded/private-label portfolio positions it to capture demand across the price spectrum.

• Question from Max Andrew Gumport (BNP Paribas Exane, Research Division): 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?
  Response: SNAP comprises ~7.5% of industry dollars; management views potential SNAP disruptions as a relatively minor headwind to Smithfield overall, but they have modestly embedded the risk into guidance and are working with retailers to promote value SKUs.

Contradiction Point 1

Hog Production and Vertical Integration Strategy

It involves a significant change in the company's strategic approach to hog production, which directly impacts supply chain management and financial forecasting.

Can you explain your 30% hog production reduction and its impact on Smithfield's vertical integration? - Heather Jones (Heather Jones Research LLC)

2025Q3: We plan to reduce our sow herd to 1.1 million sows, which will result in approximately 10 million hogs produced annually. - Shane Smith(CEO)

How much visibility do you have on further reductions in hog production? - Leah Jordan (Goldman Sachs)

2024Q4: We are actively working to reduce hog production to 10 million in the medium term. Conversations with potential partners are ongoing, and we aim to reduce our vertical integration to 30%. - Shane Smith(CEO)

Contradiction Point 2

Pricing and Cost Management in Packaged Meats

It involves the company's ability to manage pricing and mitigate inflationary pressures in the Packaged Meats segment, which is crucial for profitability.

How are you managing pricing power in Packaged Meats, and what is the timeline for long-term margin recovery? - Leah Jordan (Goldman Sachs Group, Inc., Research Division)

2025Q3: Despite higher raw material costs, we have been able to manage pricing and mitigate inflation. - Shane Smith(CEO)

With rising input costs, why hasn't the Packaged Meats profitability guidance changed for the second half? - Peter Galbo (BofA Securities, Research Division)

2025Q2: The Packaged Meats business has been efficient in cost structures, with hedging mechanisms in place. - Shane Smith(CEO)

Contradiction Point 3

Hog Production and Supply Strategy

It involves Smithfield's strategy regarding hog production and supply, which directly impacts the company's operational efficiency and profit margins.

Can you explain the impact of a 30% reduction in hog production on Smithfield’s vertical integration? - Heather Jones (Heather Jones Research LLC)

2025Q3: Smithfield plans to reduce its hog production to 10 million, a 30% vertically integrated model. - Shane Smith(CEO)

What's your current view on hog supply/demand and how are tariffs affecting production assumptions? - Megan Clapp (Morgan Stanley)

2025Q1: Hog production has seen revenue volatility due to tariffs, affecting hog prices, but has since rebounded. - Shane Smith(CEO)

Contradiction Point 4

Packaged Meats Volume and Pricing Strategy

It concerns Smithfield's strategy for managing volume and pricing in the Packaged Meats segment, which impacts market positioning and profitability.

Looking ahead to Q4 and beyond, how are you balancing volume and pricing as revenue drivers for Packaged Meats? Is there an updated outlook for volume growth in this segment? - Leah Jordan (Goldman Sachs Group, Inc., Research Division)

2025Q3: Despite retail market challenges, Smithfield is gaining share by focusing on value-added items and higher-margin units. - Steven France(CPO)

How did the packaged meats segment perform in terms of volume and price for the quarter? - Leah Jordan (Goldman Sachs)

2025Q1: Easter volume shifted into Q2, but overall volume is expected to increase. - Steven France(CPO)

Contradiction Point 5

Hog Production and Vertical Integration

It involves the company's strategic decisions regarding hog production and vertical integration, which directly impact the company's operational efficiency and profitability.

Can you explain how reducing hog production by 30% impacts Smithfield’s vertical integration? - Heather Jones (Heather Jones Research LLC)

2025Q3: We are planning to reduce our hog production to 10 million, a 30% vertically integrated model. - Shane Smith(CEO)

How do you assess the impact of hog production on fresh pork? - Benjamin Theurer (Barclays Bank PLC, Research Division)

2025Q2: We do believe that it is the right long-term strategic direction for us to have a much more vertically integrated company. - Shane Smith(CEO)