SMITHFIELD FOODS INC Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Company Overview: Return to U.S. public equity market. New Smithfield is a leading packaged meats company with strong brands, #2 market share by volume in 25 key categories, 93% ACV, and 81% repeat purchase rate.
• 2024 Achievements: Consolidated adjusted operating profit over $1 billion, adjusted operating margin 7.2%. Packaged Meats had record profits for 10 years (excluding 2020). Fresh Pork had third consecutive year of profit expansion. Hog Production improved profitability by over $600 million.
• Core Growth Strategies:
  • Packaged Meats: Continue product mix improvements (e.g., dry sausage, packaged lunch meat), volume growth, and innovation.
  • Fresh Pork: Maximize net realizable value and operating efficiency, monitor tariff and geopolitical environment.
  • Hog Production: Resize operations to reduce internally produced hogs to ~30% of Fresh Pork needs.
  • M&A: Look for opportunistic M&A in North America.

Segment Performance

• Packaged Meats: Delivered adjusted operating profit of $1.1 billion in 2024, a 6% increase from 2023. Margins expanded to 13.6%. Annual sales were $8.3 billion, with higher average prices offsetting lower volumes. It's the cornerstone business with record profits for 10 years (excluding 2020).
• Fresh Pork: Adjusted operating profit increased by $108 million or 93% in 2024. Sales were $7.9 billion, with a 5.4% increase in average price offsetting a 4.7% volume decrease. Driven by cost savings and strong demand for U.S. pork.
• Hog Production: In 2024, it had an adjusted operating loss of $152 million vs. $756 million in 2023. Sales decreased due to fewer hogs sold (14.6 million in 2024 vs. 17.6 million in 2019) and lower grain sales, but average hog sales price increased. Expected to return to profitability in 2025.

Guidance

• Fiscal 2025 Outlook:
  • Total company sales expected to increase in low to mid-single digits.
  • Packaged Meats adjusted operating profit range: $1.05 billion - $1.15 billion.
  • Fresh Pork adjusted operating profit range: $150 million - $250 million.
  • Hog Production adjusted operating profit range: -$50 million to $50 million.
  • Capital expenditures: $400 million - $500 million.
  • Effective tax rate: 23% - 25%.

Risks

• Market and Geopolitical: Impact of tariffs, geopolitical environment, and commodity market volatility on Fresh Pork and Hog Production.
• Cost and Inflation: Potential inflationary pressures affecting input costs for Packaged Meats.

Question and Answer

Q: Peter Galbo from Bank of America asked about sales guidance by segment and hog production profitability.

A: Mark Hall said total company sales expected low to mid-single digit growth with modest volume growth across segments. Shane Smith discussed hog production cost improvements and industry profitability expectations.

Q: Ben Theurer from Barclays asked about volume drivers in 1Q and global trade behavior.

A: Steve France talked about Packaged Meats strategies like product mix optimization and innovation. Shane Smith and Donovan Owens discussed Fresh Pork's flexibility and global market positioning.

Q: Thomas Palmer from Citi asked about Hog Production seasonality and hog supply.

A: Shane Smith said Hog Production first quarter 2025 would be better than 2024, and hog supply is in balance with no immediate rush to expansion.

Q: Megan Clapp from Morgan Stanley asked about Packaged Meats operating profit outlook.

A: Steve France mentioned the outlook accounts for higher input prices and cautious consumer spending, with strategies to mitigate challenges.

Q: Leah Jordan from Goldman Sachs asked about Packaged Meats consumer behavior and Hog Production optimization.

A: Steve France discussed consumer brand engagement and market positioning. Shane Smith talked about Hog Production optimization plans to reduce hog numbers to 10 million in medium term.

Q: Manav Gupta from UBS asked about dividend payout policy.

A: Mark Hall said dividend policy is 50% of net income, expected to be stable and growing subject to Board approval.