Q4 2024 Smithfield Foods Inc Earnings Call
[music].
Good day, and welcome to the Smithfield Foods fourth quarter and fiscal year 'twenty 'twenty four results conference call.
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 to withdraw your question.
Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Julie Mac meeting.
Julie Mac: This president of Investor Relations. Please go ahead.
Yeah.
Speaker Change: Thank you operator, good morning, everyone welcome to Smithfield foods fourth quarter and fiscal year 'twenty 'twenty four earnings call.
Julie Mac: Earlier this morning, we announced our result.
Julie Mac: A copy of that release as well as todays presentation are available on our IR website investors got Smithfield foods dotcom.
Julie Mac: Today's presentation contains projections and other forward looking statements.
Julie Mac: That are being provided pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Julie Mac: 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.
Julie Mac: These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections.
Julie Mac: These risks and uncertainties include but are not limited to the factors identified in the release.
Julie Mac: And in our annual report on Form 10-K, as well as our other filings with the Securities and Exchange Commission.
Julie Mac: The company undertakes no obligation to update or revise publicly any forward looking statements, whether because of new information future events or other factors.
Julie Mac: Please refer to our legal disclaimer on slide two of the presentation for more information.
Julie Mac: Today's presentation will also include certain non-GAAP measures.
Julie Mac: Putting but not limited to adjusted operating profit and margin adjusted net income.
Julie Mac: I said earnings per share and adjusted EBITDA.
Julie Mac: For a 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.
unknown: With me. This morning are Shane Smith, President and CEO, Mark Hall CFO do.
unknown: Your friends President of packaged meats, and I live in Owens President of fresh pork.
unknown: Now I'll turn the discussion over to Shane Shane.
Shane: Thank you Julie It is my pleasure to welcome everyone to Smithfield first results conference call since returning to the U S public equity market.
Shane: Before I review, our achievements in 2024, and our outlook for the future I want to make sure everyone is familiar.
Speaker Change: Familiar with today's news Smith.
Speaker Change: The last time, we were in the public markets. We were completely different company today, we are a new company a package meets company with leading market share.
Speaker Change: The U S value added packaged meats market represents a $46 billion opportunity and is supported by long term trends, including consumer demand for how we're approaching them. It's a quality nutrition product versatility and convenience we have the number two branded market position by volume across 25.
Speaker Change: Key packaged meats categories.
Speaker Change: We hold impressive on shelf performance with 93% ACB and we have strong customer loyalty with an 81% repeat purchase rate.
Speaker Change: We have a broad portfolio of some of the most well known and well loved brands in the U S, including our namesake Smithville brand as well as acreage and nathans famous value brands like armor and cooks Super regional brands, such as farm land and farmer, John and specialty brands like Rhonda and Margarita.
Speaker Change: We complement our strong brand portfolio with private label offerings, creating a spectrum of price points to appeal to consumers up and down the value chain and making us a strategic partner to our customers.
Speaker Change: Over the past 10 years, we have gone through a significant transformation into a more unified cohesive and profitable company. We've built a solid foundation that positions us well for the future with a strong balance sheet and ample cash flow to support our growth strategies and increase value for our shareholders.
Speaker Change: Today, we announced our board declared a quarterly dividend of 25 cents per share underscoring our commitment to return value to shareholders. We anticipate dividends for the full year 2025 will be a dollar per share subject to the discretion of our board.
Speaker Change: Turning to our accomplishments in fiscal 'twenty 'twenty four older.
Speaker Change: On a consolidated basis, we delivered adjusted operating profit of $1 billion in adjusted operating profit margin of seven 2% this compared to adjusted operating profit of 258 million in 2023.
Speaker Change: The challenging industry conditions for Hog production are strong rebound reflects our resilient business model led by another year of record profits in our packaged meats suddenly.
Speaker Change: 'twenty 'twenty four marks the 10th year, excluding 2020, which was impacted by Covid that are packaged meats segment as expanded profitability.
Speaker Change: During that same timeframe, we also more than doubled packaged meats operating profit margins, so nearly 14%.
Speaker Change: Our fresh pork team also executed well in 2024, representing the third consecutive year of profit expansion. The improvement was largely driven by our initiatives to drive cost savings in manufacturing and distribution as well as strong demand for U S for them.
Speaker Change: I'm pleased to report that both Smithfield and the hog production in the industry at large have moved beyond one of the most challenging economic cycles, we've seen in decades in 'twenty 'twenty four we delivered a more than 600 million dollar improvement in our hog production segment profitability.
Speaker Change: Our strategy is to further reduce volatility in our hog production segment to deliver more consistent profitability and cash flows in the future.
Speaker Change: High point, we produced $17 6 million homes in 2019.
Speaker Change: In 2024, we have reduced that number to $14 6 million and in 2025, we expect to produce about 11 and a half million hogs. This marks significant progress toward our goal of reducing internally produced arms.
Speaker Change: Approximately 30% of the needs of our fresh pork segment in the medium term, reducing the scale of our hog production operations will lower our exposure to commodity market risk and we expect that this will help stabilize our earnings and our cash flows.
Speaker Change: Across the board our teams delivered cost savings and efficiencies across operations supply chain and in SG&A and I want to thank and recognize the smithville team for successfully deliver on our 2024 goals and for unlocking operational improvements and cost savings across our company. It is truly a.
Speaker Change: Part of our DNA to continuously improve operating efficiencies each year.
Speaker Change: 'twenty 'twenty four results further strengthened our financial position we ended the year with a net debt to adjusted EBITDA ratio of just 0.8 times well below our cap of two times and cash flow from operating activities of those were not for a million dollars.
Speaker Change: Our rock solid balance sheet provides us with the financial flexibility to support our growth strategies and return value to our shareholders.
Speaker Change: Turning now to our outlook for fiscal 2025 weeks.
Speaker Change: We expect to deliver continued operating profit expansion driven by consistent execution of our five core growth strategies.
Speaker Change: First in packaged meats to achieve our outlook, we will continue to execute the strategies that have led to our third consecutive year of over $1 billion in packaged meats operating profit in 2025, we plan to continue to expand packaged meats operating profit through ongoing product mix improvements volume.
Speaker Change: Growth and innovation.
Speaker Change: Two key areas of product mix improvement in volume growth or draw sausage and package launched mi in.
Speaker Change: 'twenty 'twenty four we expanded our dry sausage production capacity by 50 million pounds.
Speaker Change: And as well to grow this higher margin category.
Speaker Change: Between 2019, and 2024, we increased units of dry sausage, so about 37% demonstrating our success in growing this category.
Speaker Change: We also continue to successfully convert holiday hams into smaller more frequently purchased and higher margin items.
Speaker Change: One of those items as package lunchmeat led by our flagship brand Smithville prompt rush, which commands a premium at regional.
Speaker Change: According to sure Kona packaged lunch meat represents a $6 $4 billion market opportunity at 8% share we hold the number five market position. We believe this gives us a large opportunity to increase our package lunchmeat volume and improve our mix by converting our legacy seasonal items into a.
Speaker Change: More profitable category.
Speaker Change: Second innovation, we have a pipeline of products that address consumer trends and new flavor profiles, creating convenient meal solutions and smaller package sizes. In 2025, we were addressing these trends with new offerings, and our armor nathans and Smithfield anytime favorites lines.
Speaker Change: Innovation extends to being a nimble partner at our retail and our foodservice customers.
Speaker Change: Our reputation for quality and service strength strengthens our customer relationships and enhances our ability to consistently drive profitable growth I'm.
Speaker Change: I'm pleased to share that in January Smithville culinary was named the overall winner of the 2025, if the distributors choice awards recognized in our company as a strategic partner and a sales leader.
Speaker Change: Moving to the third core growth strategy fresh pork maximizing the net realizable value of each arm and driving best in class operating efficiency. We are closely monitoring the tariff and geopolitical environment, which is very fluid.
Speaker Change: We have an experienced team that has worked together for more than 20 years and has navigated through numerous cycles. While we are not immune to the impact of tariffs, we have built flexibility into our system and established multiple outlets for our fresh pork products.
Speaker Change: We plan to leverage our leadership position to maximize product across domestic and export channels as well as in adjacent markets such as pharmaceuticals.
Speaker Change: The pet treats and skins for snacking.
Speaker Change: We also see continued opportunity to improve fresh for profitability through operating efficiency, both in our plants and across our supply chain.
Speaker Change: Fourth our growth strategy includes optimizing our operation. This starts with talk production, which supports our downstream fresh pork and packaged meats businesses by ensuring the right supply of consistent high quality protein. We are focused on operating the best in class cost structure on our retained forms through genetic trans.
Speaker Change: Formation aren't health improvements and procurement and nutrition savings.
Speaker Change: We are actively resizing the business by reducing the number of owned hubs produced from a high point of $17 6 million in 2019 to an expected 11, and a half million in 2025 over the medium term, we do plan to further reduce our internally produced hawk volume to approximately 30%.
Speaker Change: Of the needs of our fresh pork segment.
Speaker Change: As I mentioned earlier, we drive a culture of continuous improvement.
Speaker Change: Each year, we look for new ways to improve operating efficiency and to reduce our cost basis with the goal to more than offset inflation, we achieve improvements across our manufacturing platform through initiatives such as automation within our supply chain, we strive to improve service to our customers while optimizing cost.
Speaker Change: And in procurement and SG&A, we are continuously looking for ways to reduce our overall spend we expect these savings to again contribute to enhanced profitability in 2025.
Speaker Change: And then finally, we will continue to look at opportunistic M&A in North America.
Speaker Change: In summary, we delivered outstanding profitability growth in 'twenty, two 'twenty 'twenty four driven by solid execution across our operations. We have a strong balance sheet are well positioned to achieve our 2025 outlook and to continue our growth trajectory over the long term.
Mark: With that I'll turn it over to Mark to review.
Mark: Financials in more detail Mark.
Mark: Thanks, James and good morning to everyone joining the call our ability to deliver over $1 billion in 2020 for operating profit reflects solid execution by our teams across each of our segments as well as improved market conditions, particularly in pulp production.
Mark: Ross the organization, we continue to drive efficiency and improve our cost structure.
Mark: <unk> profitability and disciplined financial management further strengthened our balance sheet, our strong balance sheet gives us the flexibility to invest in our business and return value to our shareholders.
Mark: Turning to the details of our 2024 results sorry.
Mark: Going with the consolidated results and then a review of our performance by segment.
Mark: <unk> sales in 2024 were $14 1 billion, which was a decrease of 3% compared to the prior year, primarily due to lower fresh pork harvest levels, which is consistent with our optimization strategy and lower external grain sales in our hog production segment.
Mark: Packaged meats and fresh board sales were up slightly with higher average sales prices outpaced lower volumes, we delivered adjusted operating profit of over $1 billion and the adjusted operating margin was seven 2% as compared to adjusted operating profit.
Mark: The $8 million or one 8% in 2020, reflecting challenging industry conditions for hog production.
Mark: Excluded from our 2024 adjusted operating results were $87 million of Covid era, and employee retention tax credits, which had been deferred until 2024 additional adjustments to 2024 results were largely offsetting.
Full year 2024, adjusted net income from continuing operations attributable to Smithfield, a $714 million compared to $132 million in the prior year adjusted EPS of $1 88, compared to 35 cents in 2023.
Mark: Now turning to our 2024 segment results.
Mark: Packaged meat segment delivered another record year with adjusted operating profit was $1 1 billion, which is an increase of 6% versus last year margins also expanded by 70 basis points to 13, 6% for the year.
Speaker Change: <unk> is our cornerstone business Shane noted earlier, except for 2020, when the segment's performance was negatively impacted by Covid.
Speaker Change: <unk> ability has increased each year over the last decade and profit margins have more than doubled.
Speaker Change: Packaged to meet annual sales increased by 5% to eight $3 billion in 2024, or three 1% increase in average price more than offset volume declines of two 5%.
Speaker Change: Lower volumes reflect our strategy to decreased sales of lower margin heritage products like seasonal hands, while simultaneously increasing unit velocity and higher margin items, such as lunch meat and dry sausage.
Speaker Change: Products command, a higher price for by providing on trend and innovative solutions to consumers and customers.
Speaker Change: We also saw lower slower volumes of Bacon, resulting from the group housing legislation in California and Massachusetts.
Speaker Change: Higher average selling price was driven by product mix shifts like the ones I just described as well as the pass through of higher input costs due to an increase in the pork value chain year over year. For example, the USDA cutout rose six 5% year over year and key inputs, such as bellies surged by over 15%.
Speaker Change: Our ability to not only hold but expand margins in the face of increasing raw material costs was largely attributable to our cost improvement initiatives driving down manufacturing distribution and SG&A expenses.
Speaker Change: Fourth quarter, we reported packaging adjusted operating profit of $313 million a profit margin of 12, 7%.
Speaker Change: Packaged meats profit improvement of $7 million versus the fourth quarter of 2023 was largely driven by cost savings initiatives in our supply chain.
Speaker Change: It's more than offset our higher offset higher raw materials, such as bellies and hams.
Speaker Change: Fourth quarter packaged meat segment sales of $2 5 billion increased by $54 million or two 2% versus the fourth quarter of 2023.
Speaker Change: Stronger average sales price as we continue to improve our product mix more than offset volume declines.
Speaker Change: Turning to fresh for for the full year 2024, adjusted operating profit increased by $108 million or <unk> 93.
Speaker Change: 93% compared to 2023.
Speaker Change: Proven and results was largely driven by our continuous improvement initiatives to deliver cost savings in manufacturing and distribution as well as strong demand for U S. R, which is supported by higher relative prices for competing proteins and strength in export markets.
Speaker Change: Our selling prices more than offset the impact of higher market prices for like Hawks.
Speaker Change: Fresh sports segment sales of $7 9 billion, an increase of half a percent our average sales price increase of five 4% more than offset a four 7% decrease in volume.
Speaker Change: Demand for pork drove the USDA market prices up year over year, while the decrease in fresh pork volume was largely due to our strategic plan to optimize harvest levels.
Speaker Change: Please note that 37% for the fresh pork segment sales were internal to our packaged meats.
Speaker Change: And those sales were eliminated on consolidation.
Speaker Change: For the fourth quarter <unk> operating profit of $70 million increased 57% versus the fourth quarter of 2020 through the increase was driven by favorable sales margin led by value added products, such as case ready and marinated in our retail sales channel.
Speaker Change: Product innovation in terms of new marinated flavors helped drive.
Speaker Change: And we continue to Maxim optimize manufacturing and distribution costs in fresh pork.
Speaker Change: These benefits more than offset higher hog prices in the tighter markets right.
Speaker Change: Fourth quarter fresh pork segment sales of $2 billion increased nine 1% versus the fourth quarter of 2023 sales.
Speaker Change: Sales increase was primarily due to higher average sales price driven by strong demand for hams bellies and risks USDA cutout was up 10% from the prior year fourth quarter.
Speaker Change: Turning now to Hog production. This segment rebounded significantly in 2024 due to relief in commodity markets and the actions we've taken to optimize our operations.
Speaker Change: Full year 2024, we reported a hog production production adjusted operating loss of $152 million versus a loss of $756 million in 2023. It is important to note that 2023 with the most challenging year for the hog production industry in over a decade in 2023 represented the perfect.
Speaker Change: Storm, including an oversupply of four soft global demand and higher rates and cost.
Speaker Change: U K.
Speaker Change: Results have been sizable losses in our hog production segment last year.
Speaker Change: Looking ahead, the futures market is pointing to a return to profitability in our production industry in 2025.
Speaker Change: For 2024, Hog production segment sales decreased by $315 million or 95% year over year, driven by a seven 8% decrease in the number of hogs sold due to our hog production Reformation activities and $171 million decrease in grain sales to external customers.
Speaker Change: This was partially offset by a six 2% increase in our average sales price primarily reflected a higher fee in the hog market prices.
Speaker Change: Note that over 80% of the revenue generated by our off production represented an internal sales through our fresh pork segment and again with eliminated on consolidation.
Speaker Change: Fourth quarter Hog production operating loss narrowed to just $8 million, which is a 94% improvement versus the fourth quarter of 2020.
Speaker Change: The improvement was driven by robust hog selling prices and reduce costs.
Speaker Change: EMEA was up 16% from the prior year quarter, while grain and other raising costs were down.
Speaker Change: Fourth quarter production segment sales of $782 million decreased four 5% compared to the fourth quarter of 2023.
Speaker Change: Our sales were primarily due to lower grain and feed sales to external customers.
Speaker Change: Sure.
Speaker Change: With the prior year.
Speaker Change: 6% decrease in the number of hogs sold due to our <unk> production optimization activity was offset by higher average sales price, including the impact of hedging.
Speaker Change: Turning now to our balance sheet and cash flows are solid profitability.
Speaker Change: Financial management in 2024 further strengthened our balance sheet is established financial policies deny designed to provide us with the financial and operational flexibility and the ability to weather economic downturns.
Speaker Change: The first of our two key financial policies.
Speaker Change: Adjusted EBITDA at the end of 2024, our net debt to adjusted EBITDA ratio was 0.8 times down from two two times at the end of 2023.
Speaker Change: We're well below our policy of less than two times net debt to EBITDA.
Speaker Change: Our second key financial policy is to maintain at least $1 billion.
Speaker Change: At the end of 2024, our liquidity was $3 $2 billion, which is well above our policy threshold.
Speaker Change: For net cash flow from operating activities increased $228 million.
Speaker Change: Year to $916 million.
Speaker Change: Capital expenditures in 2024 were $350 million compared to $353 million in 2023 more than 50% of our Capex investments funded projects that will drive both topline and bottomline growth.
Speaker Change: Consisted primarily of various plant expansion automation and improvement projects. We added capacity for these high margin products, such as dry sausage and launch. Additionally, we continued to lower our manufacturing cost structure and better utilize labor significant investments in automation.
Speaker Change: Shayne mentioned today, we announced that our board declared a quarterly dividend of <unk> 25 per share reinforcing our commitment to return value to shareholders.
Speaker Change: Turning now to our outlook for fiscal 2025 in the face of a dynamic consumer spending and tariff environment. We expect to continue to drive margin expansion by executing on our five core strategies that seem reviewed first we anticipate that total company sales to increase in the low to me.
Speaker Change: Mid single digit percent range compared to fiscal 2024.
Speaker Change: Outlook for segment adjusted operating profit is as follows.
Speaker Change: Packaged meat segment, we anticipate adjusted operating profit in the range of $1 <unk> 5 billion to $1. One 5 billion refreshed or we anticipate adjusted operating profit of between $150 million and $250 million.
Speaker Change: And for Hog production, we anticipate adjusted operating profit to range between a loss of $50 million to a profit of $50 million.
Speaker Change: We anticipate that total company adjusted operating profit in the range of one one to $1 3 billion.
Speaker Change: Total company operating profit outlook reflects the continued efforts more than offset inflation and cost savings and efficiency initiatives.
Speaker Change: We expect capital expenditures of between 400 $500 million for fiscal 'twenty five.
Speaker Change: Finally, we expect an effective tax rate between 23% and 25% in 2025.
Speaker Change: In summary.
Speaker Change: Look for 2025 reflects continued operating profit growth with a range of outcomes that are reflective of the dynamic consumer spending and tariff environment with.
Speaker Change: With respect to the first quarter of 2025, I want to point out some market related trends.
Speaker Change: <unk> strength in hog prices as well as meat prices in the first quarter.
Speaker Change: Play across the vertical its benefits Smithfield as a whole.
Speaker Change: With respect to each segment and our packaged meat segment raw material prices are low and Easter is later than last year dampening Q1 profitability versus last year.
Speaker Change: Refresh or last year in Q1, we saw an unusually strong spread between the cutoff in hog prices and the spread this year reflects a more normalized level.
Speaker Change: And hog production were seeing higher hog prices and lower grain prices this year versus last.
Speaker Change: As a reminder, with the new external hog production ventures that both commenced in Q1 of this year, we'll see higher external green reign sales in hog production. This year and these sales are at a neutral margin.
Speaker Change: In summary, these are the key market trends to think about when comparing first quarter of 2025 results for the first quarter of 2024 with that I'll ask the operator to open up the call for Q&A.
We will now begin the question and answer session to ask a question you May press star one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the keys.
Speaker Change: Any time your question has been addressed and you would like to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Speaker Change: The first question comes from Peter Galbo with Bank of America. Please go ahead.
Peter Galbo: Hey, good morning, Shane and Martin and team.
Shane: Hey, Peter.
Mark: Mark maybe just to start I appreciate the comments you gave on the first quarter.
Speaker Change: Year over year comparison, and that's very helpful. I was wondering as it pertains to the sales guidance for the year the low to mid single digits. Maybe if you could just give us some additional details how youre thinking about the moving pieces on that by segment and to the extent that you can just any color around kind of volume relative to.
Mark: Price that's baked into your expectations on the sales line.
Mark: Yes, so in terms of top line items again low to mid.
Mark: Mid single digit growth and again, we've seen appreciation in the market and the first part of the year.
Mark: Factoring that to continue.
Mark: So.
Mark: With that coupled with modest volume growth across the across the business segments. Excluding hog production, we will see that top line growing.
Mark: Mid single digit range.
Mark: Got it no that's helpful. Thank you.
Mark: Maybe just more broadly on hog production I appreciate that.
Speaker Change: <unk> on on kind of getting us a range for the year I think through the first two months of the year at least some of the third party data would suggest that that hog production.
Speaker Change: Certainly much more profitable than last year, but maybe even running ahead of expectation. So I think that was what you were also implying in your prepared remarks, but just wanted to understand kind of the improvements in industry profitability, you're expecting this year relative to your own guidance, which I think called for kind of breakeven profits at the mid point, thanks very much.
Speaker Change: Yeah, when we look at our production this year one as we think about it internally you know Peter we've done a lot of work to improve our underlying cost structure and we're seeing the benefit of that today.
Speaker Change: Comparing to 2023.
Speaker Change: Really saw high raising costs really led by corn and soybean mill than we saw in the back part of 2024 of those come down to more normalized level.
Speaker Change: As we've rationalized, our hog production operations to get down to that <unk>.
Speaker Change: 11, and a half million number that I referred to that was really a function of doing a few things.
Speaker Change: The first is you know as we took those farms out we're really looking for high cost farms. Some farms that we're either just underperforming due to a number of reasons or they were geographically displaced maintenance. They were in areas that just inherently had a high raising costs and so you can think of places like Utah and Arizona.
Speaker Change: Moving out of our system, just inherently improved our cost structure.
Speaker Change: And so in conjunction with that what we've been working on is a number of things, including a genetic changeover. So we're nearly done with with what has turned out to be about a five year genetic changeover and it'll have a big impact on our cost structure also coupled that with health and live ability initiatives.
Speaker Change: And feed cost initiatives and so those things are.
Speaker Change: Outside of the the market improvement, we saw a really inherent to two hour system, where we're seeing cost improvement now to your question. When we when we look at our model looking forward and using the futures markets and looking at the crush we do see the industry returning to profitability. It is show in 2025 will be.
Speaker Change: A profitable year.
Speaker Change: We still are doing.
Speaker Change: Doing things to improve our cost structure.
Speaker Change: We believe the range, we've given that negative 50 to plus 50 is a good range based on all of the macro environment conditions that mark referred to and.
Speaker Change: And so that's that's where we believe it will we will end the year based on what we see today.
Speaker Change: Great. Thanks, very much guys I'll pass it on.
Ben Theurer: The next question comes from Ben Theurer with Barclays.
Speaker Change: Barclays. Please go ahead.
Speaker Change: Hey, good morning, Shayne Mark Congrats on getting the first quarter as a public company again.
Just two quick two quick follow ups. So so number one I mean, Peter Peter asked about like just more of the sales growth coming from and I think I understood. Some modest volume growth can you give us maybe a few more examples in between what you're what you've been seeing already maybe in <unk>, because you said, it's a little softer.
Speaker Change: And a year ago, so just between fresh pork and.
Speaker Change: Packaged meat side as to how to think of how to think about the volume drivers throughout the year and then my second question is really just related around call. It global trade environment and uncertainty have you seen anything amongst your customers speed in the domestic market.
Speaker Change: Or in the international market I E. The key export regions of being more hesitant, putting orders in and going more to spot purchases just to see if there's any behavioral shift.
Speaker Change: Yes, Thanks, Ben for the comment out Steve maybe that maybe you can tell you that question sure.
Speaker Change: So this is Steve Frank So I'll talk a little bit about what we think is coming at us from a 2025 on packaged meats. So when you think about packaged meats, we have consistently outperformed key competitors in terms of profitability and also margins and when do you think about that as far as what's gotten us to this point over the last 10.
Speaker Change: N years, it's really the strategies that we have in place. So when you think about some of the strategies some of the big benefits that we have is really the strong brand portfolio.
Speaker Change: We currently have which really provides us a sizable competitive advantage in a challenging consumer environment. When you think about the extensive portfolio of brands across the pricing spectrum, which really enables us to provide that consumer branded solutions across all economic situations. So when you think about that depending on.
Speaker Change: Their economic situation as consumers trade either going from a premium brand down to mid tier mid tier down to value or vice versa. The reality is we have brands. So the way we've segmented our brands and positioning our brands is that we can capture that wallet share as that consumer moves up and down that pricing spectrum.
Speaker Change: The big benefit that we have is if that consumer does decide to trade out of our brand and go into private label. There's a good chance that we can capture that consumer with some of the private label business that we do with our customers. So we feel that we're in a really good position from that standpoint.
Speaker Change: Other strategy that you've heard us talk about over the last several months is really the mix optimization.
Speaker Change: And when you think about the optimization that is really one of the big drivers that we have for the growth of package needs not only from a top line from a unit.
Speaker Change: Sales standpoint, but also from a profitability standpoint, so when you think about some of the comments that chain as mentioned in the past about really that transition for Smithfield going from a commodity company to a more value added premium products and a great example of that.
Speaker Change: That I can share with you is when you think about seasonal hands or a spiral ham so within that category, we can typically capture that consumer.
Speaker Change: By one two maybe three times a year. So now we know that the trends of that category. It is declining so what we have positioned ourselves is we're taking that same Ham hospital now and now we're converting that and taking that into more value added premium products. So that can go into <unk>.
Speaker Change: <unk> heard us talk about that is doing extremely well at retail or it can also go into what net weight order pms. So by doing that think about the reach that we have from a consumer standpoint, so instead of one consumer buying that seasonal ham once or twice a year that same consumer multiple consumers are now.
Speaker Change: Buying our product and now we're moving anywhere from 10 to 15 different units instead of two to three units because that consumer are the other big initiative that we have in strategy that has.
Speaker Change: Got us to this point on packaged meats and will continue to drive our growth is from an innovation standpoint.
Speaker Change: And when you think about innovation, it's been a big part of our growth strategy not only on the retail side, but also on the foodservice channel and we do have a very disciplined process. It starts with the consumer or foodservice operator.
Speaker Change: Or the foodservice distributor <unk> and this process is really stake allowed us to stay in front of changing consumer trends and also developed targeted innovation, which really increases our chance of success and also longevity for the products that we bring out to market and then finally, one of the big drivers that we have.
Speaker Change: <unk> has made a big difference not only in our bottom line results, but we also have line of sight to continue to have improvements as when we think about operational efficiencies one of the comments that you've heard US talk about is the fact that we've invested over $3 billion in Capex since 2013 really focused on automating and then redeploy.
Speaker Change: That labor into our increased.
Speaker Change: Increased capacity for packaged meats, and that's made a big difference for US and then we think about cost savings, we have extreme focus on where to take cost out of the system.
Speaker Change: Either it's through supply chain procurement and SG&A, but all those things have made a big difference and we expect as we go through that process is that really covers any inflationary costs that come at us from year to year. So we feel that we're in a very good position with the strategies that we have in place for package needs to continue the trends that we've been.
Speaker Change: Delivering over the last 10 years.
Speaker Change: So.
Speaker Change: Then your second question was to the geopolitical situations is that correct.
Speaker Change: Yes, just like if you're if you're seeing any change in behavior from your from your customers because of all that uncertainty.
Speaker Change: Tariff on off on off I meant that there seems to be a lot of confusion and if that has cost anything particularly in your export markets.
Speaker Change: Okay.
Speaker Change: One of them, maybe you'll take that I'm talking about the global impacts in your business, yes, Thanks, Ben from a fresh pork perspective.
Speaker Change: The recent the recent climate has caused some disruption as you are.
Speaker Change: As youre talking to you've seen the adjustments in the markets that we've seen through the.
Speaker Change: The potential tariffs in Mexico in Canada, So I can't say that we haven't seen any impacts from a disruption perspective, but they have been fairly minimal.
Speaker Change: So I mean I would just add that you know from our fresh pork perspective, we have a very dynamic business that is impacted by global issues on a daily basis, our business management risk management team is responsible for analyzing all aspects that can that can have both short term and long long term impact on our business and then the team will reshape.
Speaker Change: Our marketing strategies and go to market plan as necessary. So I can't speculate on any specific tariff impacts, but we do have recent history with tariffs that can help us do a better job of contingency planning as we are as we faced similar upcoming challenges I'll also add a huge initiative for our profitability model is to return to that best.
Speaker Change: In class operational efficiency expectation and cost savings initiatives that were slowed by the pandemic yours. This is this is something that we had total control our focus from an operating perspective is to be the low cost producer in the industry and I'll end with that I'm very comfortable with our current market outlook, a contingency planning models.
Speaker Change: I do believe we are uniquely positioned to weather punitive impacts with our robust package meat segment seeing potential benefits to help neutralize the total company impact that youre referring to.
Speaker Change: And then I would just add when you when you think about our fresh business. We've done a really nice job over the last couple of years of really building in a lot of flexibility. So that we can move with those markets and so we're always looking for that highest return opportunity for every part of the dog and we harvest.
Donovan: This is Donovan said, our best customers always to our packaged meats business and then we sell in the remainder of that fresh pork either in the U S domestic market or export.
Donovan: But we've also developed a lot of other channels outside of the 30 different export markets and we can go to whether that's the pet food channel the pet treats channel the pharmaceutical channel and so it really kind of building in a lot of levers we can pull so that is the.
Donovan: The global environment changes, we can react.
Donovan: Very quickly and take advantage of that.
Donovan: Use that to our benefit in some cases.
Speaker Change: Also Donovan, Nick mentioned, Mexico, and as you know we have a we have operations on the ground in Mexico, which makes us a little bit different and so when we think about tariff impacts on a global basis. We also things there there's going to be some tradeoffs within our own business that the Mexican business, which is built for the Mexican market.
Donovan: Should perform well in this environment.
Speaker Change: We may see some profit migration across the different.
Speaker Change: Vertical integration vertically integrated aspects of our company, but I think we're pretty well positioned through our scenario modeling and analysis.
Whether any of the tariffs.
Speaker Change: Yes, this is to come our way.
Speaker Change: Okay.
Speaker Change: Got it thank you very much I'll pass it on.
Julie Mac: Yes, Thanks, Ken.
Speaker Change: Your next question comes from Thomas Palmer with Citi. Please go ahead.
Thomas Palmer: Good morning, and thanks for the question guys.
Thomas Palmer: I wanted to make sure I understood the comment about <unk> seasonality, especially for hog production I think traditionally in the first quarter or maybe you see seasonally weaker results for hog production.
Thomas Palmer: Again, I just want to clarify the comments today suggests that maybe you'd see some seasonal or counter seasonal strength to start off the year and then kind of for the full year you were assuming that.
Thomas Palmer: Embedded in the outlook is fit that doesn't hold.
Thomas Palmer: Yeah, and Hog production, you know you're right the seasonality aspect of it is typically in the first and fourth quarter, you're you're losing money and then the second and third quarters. When you tend to make money.
Thomas Palmer: When we look at our first quarter of this year.
Thomas Palmer: I would just say, we believe it's going to be performed significantly better than the first quarter of last year and again you can look at those.
Thomas Palmer: Future strips and other other.
Thomas Palmer: Indices, the Iowa State model for example.
Thomas Palmer: Give you a good indication of where our profitability for the industry should be I would just say that this first quarter. It will be will be much better than the first quarter of last year.
Speaker Change: Okay. Thank you Mark.
Thomas Palmer: Yeah.
Thomas Palmer: And then just on the hog supply side, just broadly in the U S.
Thomas Palmer: You guys have a lot better insight I think than we do are we seeing the point, where hog farmers are making enough money to justify increased production just anything that youre seeing thank you.
Thomas Palmer: I think and don't have a new jump in here too I think the hog supplies in balance right now I think.
Thomas Palmer: I think the future split indicate there will be profitability.
And then any other time, we could see some expansion, but I think coming off the heels in 'twenty off the heels of 2023.
Thomas Palmer: When the industry was just under such tremendous pressure from losses, I don't think theres going to be my opinion, a big appetite to see a rush to expansion.
Speaker Change: Donovan I don't know from the fresh bullshot you'd see something totally agree we've got more than half our big stemming from external suppliers and so we got.
Thomas Palmer: Many relationships that that we are working with on a daily basis.
Thomas Palmer: I agree totally with change comments, there that yeah. There is still a while while things look better than they have over the last 18 months and hog production I don't think anybody is ready to go.
Thomas Palmer: Just upset the applecart so to speak here and add a tremendous amount of homestead scenario. So I think I think balance is the key and Shane alluded to that the industry is very content, staying imbalanced and trying to trying to keep.
Thomas Palmer: Trying to keep some.
Thomas Palmer: Some I would say supply and demand economics in place here for an extended period of time.
Thomas Palmer: Alright, thank you for the insights.
The next question comes from making Clap with Morgan Stanley. Please go ahead.
Morgan Stanley: Hi, good morning. Thanks, so much I wanted to start by asking about package me. It's obviously really strong results and a nice finish in 'twenty four.
Morgan Stanley: One of your slides mentioned, increasing profits is a priority for 25, but I guess, if we look at the overall.
Speaker Change: Side for package me. It's I think you are looking for a slight decline in operating profit at the midpoint. So maybe can you just you talked about some volatility in later Easter in terms of seasonality here in <unk>, but for the year. If we just take a step back can you comment a little bit on the puts and takes driving that implied outlook for us.
Speaker Change: Yes, Steve.
Speaker Change: Sure.
Speaker Change: So I would say that the outlook that we have really reflects our best view of the business as we see it today. So we plan to continue to expand package meets operating profit through ongoing product mix improvements.
Speaker Change: Volume growth and also innovation. So we are providing a range of estimates that really takes into account higher input prices and a cautious consumer spending environment.
Speaker Change: That said, we believe we can mitigate some of these challenges.
Speaker Change: The external market so when we think about.
Speaker Change: The uncontrollable piece of that.
Speaker Change: What we try and do is break down that uncontrollable into pieces to understand how can we mitigate that whether it's through the potential fluctuations of the raw material market and how do we position ourselves with our customers. So a good example would be say private label. So we work with our private label customers to put them onto a <unk>.
Speaker Change: Formula pricing, so by doing that and there's different timeframes for those formula pricing.
Speaker Change: As we do that it helps to mitigate and smoothed out over a longer period of time. It takes out kind of those spikes and valleys. When you think about the fluctuations of the raw material market, but as far as what we're looking at for this year. When you think about the categories that we participate in.
Speaker Change: Today's world people are looking for a high protein.
Speaker Change: Highly nutritious.
Speaker Change: Got it.
Speaker Change: And the products that we produce certainly fill that need and then when you think about one of the early comments that Shane had made the categories that we participate in it represents a $46 billion opportunity and even though we have a number to share in 25 of the categories that we participate in and 10 of those categories are 1 billion.
Speaker Change: Plus categories and within that we have a positioning of either a one or two share in those top $10 billion of categories. The reality is we are focused on we're not satisfied by any means and we are focused on the opportunities to not only move up on those other four.
Speaker Change: So the $1 billion category, but to continue to close that gap and increase the share. So even though we might be number one in a specific category, we definitely see a tremendous amount of white space based off the brands that we have to continue to grow within that space. So we're very excited about not only what we're looking at in 'twenty five based.
Speaker Change: On the opportunities to grow that value added piece and that's a big focus of what we've been doing the last several years, which you guys can see but also as we move forward, that's where we see the opportunity for packaged meats.
Morgan Stanley: Great Super helpful and maybe.
Speaker Change: Mark just a follow up on some of <unk> comments I was wondering if you know it sounds like there's going to be some year over year pressure on packaged meats and fresh pork, specifically, but and some nice year over year improvement on hog production. So as we think about just the total.
Morgan Stanley: <unk> operating profit margin is it fair to kind of put those together that.
Speaker Change: The hog production improvement should more than on a year over year should more than offset.
Speaker Change: Timing pressure, you're expecting in fresh pork and packaged meats such that I'm just trying to understand you know whether <unk> profit can still grow year over year.
Speaker Change: Yeah, no absolutely I think thats the right way.
Speaker Change: Thank you.
Speaker Change: Look at the market dynamics.
Speaker Change: In terms of strengthening our position in terms of production.
Speaker Change: Even with the seasonal shifts that we talked about we've been impacted.
Speaker Change: Shifting to the new systems.
Speaker Change: And the higher raw material costs.
Speaker Change: That doesn't work.
Speaker Change: The dynamics at play in the first quarter.
Speaker Change: Okay, great. Thank you.
Lee: The next question comes from Lee of Jordan <unk> with Goldman Sachs. Please go ahead.
Speaker Change: Excuse me.
Speaker Change: MS. Jordan Your line is open.
Speaker Change: You have a question.
Speaker Change: Oh Hello, good morning.
Speaker Change: Can hear you now please.
Speaker Change: Hello, Thank you sorry about that.
Speaker Change: Congrats American chain on that on a great quarter first knock out here.
Speaker Change: I just wanted to go back to the package me think consumer discussion I think you know that a couple of times in prepared remarks, and a dynamic environment and I think you just called it a cautious consumer environment. So just curious if you've actually seen any shift in behavior by your consumer over the last couple of months, maybe any shift in brands or products are engaging with.
Speaker Change: And then just given the dynamic environment has your view evolved at all with how you think about the tailwind from the value added shaft or perhaps theres any need for more trade spending as we go throughout this year.
Speaker Change: No. Thank you for the question so.
Speaker Change: I would say it really depends on the category. So I would say there is some shift.
Speaker Change: And again, it depends on which category or segment that you are talking about but the reality is we are very well positioned with the brands that we have as that consumer does shift we're still able to capture that consumer so that that is a huge benefit for us and then as I mentioned.
Speaker Change: If they do decide to trade out and go into private label. We can also capture that consumer and when you think about the private label side of the business I would say historically and this is going back many years, but I would say historically private label was kind of considered a bad work you did one private label business, but I would say one of the shifts that we've seen that week.
Speaker Change: Actually had a big benefit as a company is that as not only retailers, but also foodservice operators and foodservice distributors as they work to elevate their private label that's been a major benefit for us and what I mean by that is as they want a higher quality product at really.
Speaker Change: Limits the number of manufacturers that are out there so I would say historically.
Speaker Change: Pretty much any manufacturer could make a low tier value add or a value tiered product from a commodity standpoint for somebody's private label and as that dynamic has shifted and as they look for more value added premium type products that puts us a leg up over quite a few manufacturers so not only.
Speaker Change: The ability to provide higher tier or higher quality product for our customers.
Speaker Change: As we do that.
Speaker Change: It also has changed that dynamic that we have and the relationships that we have with those customers and we see the benefit of that on the branded side of our business. So as we partner with them to provide them that quality product and again.
Speaker Change: They pick us because not only the product we can deliver but also you start thinking about the food safety side of that so we have well over 600 people in our plants dedicated to food safety. So that is that as a major concern when somebody's putting their name on that product and then the other one is the plant redundancy. So when you put all those things together we.
Speaker Change: <unk> a premier supplier. So once we become that premiere supplier that provides us the opportunity to have much more strategic long term conversations. So those conversations are not about the next add at that point, it's about what do we do in the next year two years three years out and that conversation revolves around the branded side of the business.
Speaker Change: And also the private label side of the business. So it has really shifted.
Speaker Change: Where we are as far as a relationship standpoint, with our customers. So even though that consumer will shift we can still capture that consumer because of the broad base of business that we have on the branded side and on the private label side. So we're we're very comfortable with the positioning that we have we see a lot of.
Speaker Change: Opportunities in front of us because of that.
Speaker Change: That's very helpful. Thank you and then just for a follow up on the hog production business around your optimization plan.
Speaker Change: The guide for a reduction to $11 5 million hogs. This year, but just if you could provide an update on the visibility into further reduction.
Speaker Change: To hit your medium term goal any status update on the ongoing discussions you have there with potential partners.
Speaker Change: Yeah, what I would tell you is we have.
Speaker Change: <unk> done a number of things and it's really based on geographic regions. So we grow hubs three three different regions of the U S and they each have their own unique.
Speaker Change: Unique profile so in the East coast, our strategy has been to convert contract growers into independent Hog producers and we've been successful with two of our largest growers in the east coast.
Speaker Change: In the Midwest, where there is a robust network of independent power producers I think we will see an opportunity to.
Speaker Change: And for some of our internally grown again into that that independent producer model and in Missouri is really a industry that it was built.
Speaker Change: Our company owned facilities. So there's not a lot of independent producer. So the strategy there was to fix that that 2 million hogs comp.
Speaker Change: Complex, so that we could really be in the top five or 10% of cost structures.
Speaker Change: As I've mentioned at the beginning our goal is to be down to at least 10 million hogs in the medium term.
Speaker Change: We have a number of conversations that are ongoing.
Speaker Change: We will update our shareholders own.
Speaker Change: They if they develop more fully.
Speaker Change: The desk.
Speaker Change: And for US right now is to get to that 10 million hogs.
Speaker Change: 30% vertically integrated level.
Speaker Change: Great. Thank you.
Speaker Change: We have time for one more question. Our last question comes from Manav Gupta with UBS. Please go ahead.
Speaker Change: Yeah.
Manav Gupta: Good morning. Thank you for squeezing me in I, just trying to understand the dividend payout policy here.
Manav Gupta: The dividend instituted came in better than our expectations. So how should we think about the dividend going ahead would it be a percentage of net income and and how can you grow this dividend from here. Thank you.
Manav Gupta: Hum.
Manav Gupta: The dividend policy is 50% of that inbound and we expect this to be stable and growing them.
Manav Gupta: Each year.
Manav Gupta: With the.
Manav Gupta: Significant cash flow generating capabilities of our business.
Manav Gupta: But to be able to grow that.
Manav Gupta: Subject to approval, obviously at the board.
Manav Gupta: Thank you.
Manav Gupta: Thank you for you so I'd like to end today's call by thanking everyone, who has joined the call. Today. We are excited to be back in the U S equity market and to be able to continue to share our story with investors.
Manav Gupta: As you heard for many of the comments, we do believe we are well positioned to deliver long term growth and increased value for our shareholders. We do look forward to sharing our first quarter results with you when we meet together again at the end of April So thank you everyone.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: [noise].
Speaker Change: [noise] [noise].
Speaker Change: [noise].