SMITHFIELD FOODS INC (SFD) Earnings

Management highlights

### Overall Company Performance & Strengths - Delivered record Q2 and H1 2026 results: H1 adjusted operating profit hit a record $638 million, up 2% YOY, with a strong balance sheet, net debt to adjusted EBITDA of 0.4x (well below the 2x policy target) and $3.6 billion in total liquidity. - Attributes strong performance to two core competitive advantages: its vertically integrated model (Packaged Meats for brand resilience and pricing diversity, Fresh Pork for value maximization across channels, Hog Production for cost-controlled assured supply) and a deeply experienced, cohesive leadership team with a culture of disciplined execution and continuous efficiency improvement. ### Packaged Meats Operational Highlights - Gained volume share in 5 of its $1 billion+ product categories (cooked dinner sausage, dry sausage, hot dogs, packaged lunch meat, smoked ham), with strong performance during Q2 grilling season driven by new product innovation. - Grew branded packaged lunch meat volume 9.5% YOY and gained 1.1 points of volume share, led by 18.4% Q2 volume growth for its premium Prime Fresh line (driven by 24.3% distribution point expansion). The company holds brands across the full value spectrum from value private label to premium offerings, matching current consumer demand for flexible budget options. - The successful May 2026 launch of Nathan's Famous Grass-Fed Beef Hot Dogs reached 40% ACV distribution by quarter-end and became the #1 grass-fed hot dog in the U.S. The launch used a digital-first, social media-focused marketing strategy that generated nearly 2 billion earned media impressions, growing Gen Z revenue 15.2% over the past 52 weeks. - Grew total Q2 e-commerce volume 21.7% YOY, outpacing industry growth, and gained e-commerce volume share in 22 of 25 categories, driving a 6.2% YOY increase in total points of distribution. - Food service channel sales (30% of total Packaged Meats sales) grew 1% H1 2026, outperforming category trends, with 31 new limited-time offers launched in H1, several of which have been moved to permanent menus. ### Fresh Pork Operational Highlights - Grew higher-margin value-added case-ready and marinated volume 4% YOY, with a successful April 2026 launch of the new Smithfield meal-ready cuts product line. - Grew Q2 food service channel sales 12% and volume 8% YOY, driven by strong rib sales (a lower-priced alternative to beef) and strong sales to higher-margin pharmaceutical, pet food, and export channels, offsetting more than half of Q2 industry spread compression headwinds. ### Hog Production Operational Highlights - Marked the sixth consecutive quarter of segment profitability, driven by operational improvements and cost discipline. The company continues to progress toward its medium-term target of producing 30% of its fresh pork needs internally to create an optimal balance of supply assurance and risk management. ### Strategic & Capital Priorities - Continues operational efficiency investment across manufacturing, supply chain, and SG&A to offset inflationary headwinds, and is preparing for the new, highly efficient Sioux Falls combined processing plant pending final approval. - Remains on track to close the acquisition of Nathan's Famous in H2 2026, pending CFIUS review and customary closing conditions, and continues to evaluate other synergistic M&A opportunities. - Maintains a capital allocation framework prioritizing balance sheet strength, organic growth investment, M&A, and shareholder returns, with an expected $1.25 per share annual dividend.

Guidance

- Management revised the full-year 2026 outlook downward to reflect softer commodity market assumptions (especially for hog production and fresh pork), continued consumer caution driven by persistent inflation, and ongoing inflationary pressure on input costs; this guidance change does not reflect a change in long-term strategy or earnings power. - Total company full-year 2026 sales are now expected to be roughly flat year-over-year, revised down from the prior expectation of low single-digit growth. - Total company full-year 2026 adjusted operating profit is now guided to a range of $1.225 billion to $1.375 billion. Breakdown by segment: - Packaged Meats adjusted operating profit: $1.075 billion to $1.15 billion - Fresh Pork adjusted operating profit: $180 million to $240 million - Hog Production adjusted operating profit: $75 million to $125 million - Q3 2026 (seasonally the weakest profit quarter): Packaged Meats adjusted operating profit is expected to be slightly up YOY, but this gain will be more than offset by lower profitability in fresh pork and hog production, leading to overall Q3 profitability down sequentially from Q2 2026. Fresh pork will continue to face industry gross market spread pressure in Q3. - Q4 2026 (seasonally strong): Overall profitability is expected to grow solidly YOY, led by Packaged Meats growth driven by expanded distribution benefits, velocity from increased H2 marketing investment, continued mix shift to higher-margin products, and a 53rd week accounting benefit. Fresh pork is expected to post strong Q4 growth driven by seasonal profitability rotation from hog production. Hog production is expected to return to seasonal norms and post a Q4 loss, driven by current futures pricing that is 13% below 2025 Q4 levels.

Segment performance

Consolidated Q2 2026 sales were $3.7 billion, a 2.3% decrease year-over-year (YOY); excluding 2025 non-recurring hog joint venture inventory sales, consolidated sales were flat YOY. The company delivered a record Q2 adjusted operating profit of $300 million, with an 8.1% adjusted operating margin (up 20 bps YOY). 1. Packaged Meats: Segment sales were $2 billion, down 2.7% YOY, with volume down 5.5% (driven by earlier Easter timing) partially offset by a 2.9% average sales price increase. Adjusted operating profit was $265 million, down $31 million YOY, with an operating margin of 13.1% (down 110 bps YOY). This segment contributes ~54% of total consolidated sales and was the company's primary earnings driver in Q2. 2. Fresh Pork: Segment sales were $2 billion, down 3.5% YOY, driven by 2% lower volume (fewer hogs processed) and a 1.5% lower average sales price (this outperformed the 5.3% decline in the USDA cutout due to the segment's next-best-sales strategy). Adjusted operating profit was $14 million (0.7% margin), down from $30 million (1.4% margin) YOY. The YOY decline was driven by $37 million in industry gross market spread compression, $21 million of which was offset by value optimization and operating efficiencies. This segment contributes ~54% of total consolidated sales. 3. Hog Production: Segment sales were $772 million, down 8.2% YOY; excluding 2025 one-time joint venture inventory sales, sales increased due to a 9% rise in the average hedged hog selling price. Adjusted operating profit was $64 million, up $42 million YOY, driven by higher hog selling prices, nutritional plan savings, and improved operating efficiency on retained farms. This segment contributes ~21% of total consolidated sales.

Risks & headwinds

- Persistent inflation across household spending categories has kept consumer demand soft, with elevated value-seeking behavior and pressure on industry volumes. - Input cost volatility and inflation remain for key inputs including fuel, freight, and resin-based packaging, creating pressure on margins that takes time for pricing actions to fully offset. - Soft commodity market conditions for hogs have reduced near-term profitability expectations for the hog production segment, with current futures pricing well below 2025 levels in Q4. - Forward-looking statements are subject to inherent uncertainties that could cause actual results to differ materially from guidance, with additional risks detailed in the company's SEC filings (Form 10-K, Form 10-Q).

Analyst Q&A

• Q: Leah Jordan (Goldman Sachs) asked for detail on price vs volume drivers for the back half of 2026, and on consumer trade-down activity across the company's broad price-point portfolio. /

  A: Steve France responded that consumer budgets remain tight across income segments, but consumers still prioritize protein purchases. Smithfield's broad portfolio of branded, value, and private label options is well-positioned to meet varied budget needs. The company is focused on affordable innovation, such as its new Armour Lunchmaker products that are priced at half the category average, and has expanded household penetration across 11 of its brands, demonstrating broad-based momentum despite consumer caution. Mark Hall added that elevated first-half input costs spilled over into the second half, but pork raw material costs will likely be a tailwind in H2, and volume, price, and mix improvements will drive solid year-over-year profit growth in Q4 for packaged meats.

• Q: Peter Galbo (Bank of America) asked to reconcile the downward guidance revision for packaged meats with the expected tailwind from lower pork prices in the back half. /

  A: Mark Hall explained the downward revision reflects that first-half 2026 input costs (higher raw material, fuel, and freight) came in above expectations, and pricing actions take time to fully offset these costs, shifting expected profit growth into later in the year. Elevated transportation costs will remain a headwind in H2. Steve France added that Q2's 6.2% broad-based distribution expansion will drive most of its benefit in the back half, with growing momentum from high-potential new products like Prime Fresh and Nathan's Grass-Fed Hot Dogs leaving the segment well-positioned for H2 growth.

• Q: Peter Galbo (Bank of America) asked for detail on hog production hedging and the magnitude of the expected Q4 2026 loss. /

  A: Mark Hall explained the expected Q4 loss is driven entirely by current commodity pricing assumptions (current futures are 13% below 2025 Q4 levels), not operational underperformance. The baseline model implies a ~$20 per head loss in Q4, and Smithfield expects to outperform this baseline. Operationally, hog production has performed very well, with six consecutive profitable quarters and ongoing improvements to herd health, feed conversion, and cost structure.

• Q: Ryan Lavin (Barclays) asked how Smithfield is balancing pricing, market share retention, and input cost pass-through amid soft consumer demand, and whether there is risk of supply-demand imbalance from industry farmer production shifts. /

  A: Steve France responded that the industry has pulled back on aggressive promotional discounting, and consumers no longer respond strongly to discounts alone. Smithfield is focused on growing share through innovation, quality merchandising, and brand marketing rather than aggressive discounting, and this strategy has earned the company new distribution across its brands. Shane Smith added that current USDA data shows shrinking breeding herd and hog supply, which creates potential upside to hog prices in H2 relative to the futures-based guidance baseline.