Item 1. Business
ITEM 1. BUSINESS
Our Company
Headquartered in Smithfield, Virginia, since 1936, Smithfield Foods, Inc., together with its subsidiaries (“Smithfield,” “the Company,” “we,” “us” or “our”), produces a wide variety of packaged meats and fresh pork products primarily in the United States (“U.S.”). Smithfield is an American food company that employs approximately 34,000 people in the U.S. and 2,500 people in Mexico. Smithfield’s portfolio includes high-quality iconic brands, such as Smithfield®, Eckrich® and Nathan’s Famous®, among many others. Smithfield is a majority owned subsidiary of Hong Kong-based WH Group Limited (“WH Group”).
Our Mission
Good food. Responsibly. ® At Smithfield, we are helping to feed a world of nearly eight billion people. Our products are found on tables everywhere. We provide families with wholesome, safe and affordable food while finding new and innovative ways to care for our people, communities, animals and planet. It is our responsibility and our promise. We make more than good food. Good is what we do.
Our Operations
We conduct our operations through three reportable segments: Packaged Meats, Fresh Pork, and Hog Production. We also conduct operations through two other operating segments, Mexico and Bioscience, which are aggregated and reported as “Other.”
Packaged Meats Segment
The Packaged Meats segment consists of our U.S. operations that process fresh meat into a wide variety of packaged meats products, including bacon, sausage, hot dogs, deli and lunch meats, dry sausage products (such as pepperoni and genoa), ham products, ready-to-eat products and prepared foods (such as pre-cooked entrees, bacon and sausage). Approximately 80% of the Packaged Meats segment’s raw materials are sourced from our Fresh Pork segment. We market our domestic packaged meats products under a strategic set of core brands, which include: Smithfield, Eckrich, Nathan’s Famous, Farmland, Armour, Farmer John, Kretschmar, Krakus, John Morrell, Cook’s, Gwaltney, Carando, Margherita, Curly’s and Smithfield Culinary. We also sell a sizeable portion of our packaged meats products as private label products. The majority of the Packaged Meats segment’s products are sold to retail and foodservice customers in the U.S.
Fresh Pork Segment
The Fresh Pork segment consists of our U.S. operations that process live hogs into a wide variety of primal, sub-primal and offal products, such as bellies, butts, hams, loins, picnics and ribs. In fiscal year 2024, the Fresh Pork segment sourced approximately half of its raw materials from our Hog Production segment and half from independent farmers with whom we partner across the U.S. In fiscal year 2025, we expect that approximately 40% of the hogs processed by the Fresh Pork segment will be sourced from the Hog Production segment as a result of our new partnerships in Murphy Family Farms and VisionAg, which are described under “Recent Developments—Hog Production Reform” below. Approximately one-third of our fresh pork products, including the majority of hams, bellies and trimmings, is transferred to our Packaged Meats segment. Externally, we sell our fresh pork products to domestic retail, foodservice and industrial customers, as well as to export markets, including, among others, China, Mexico, Japan, South Korea and Canada.
Hog Production Segment
The Hog Production segment consists of our hog production operations in the U.S., which produce and raise our hogs on numerous company-owned farms and farms that are owned and operated by third-party contract farmers. Nearly all of the hogs produced by this segment are processed by our Fresh Pork segment. The Hog Production segment also sells grains to external customers.
Other Segments
2
Mexico. In Mexico, we own a 66% interest in Granjas Carroll de Mexico, S. de R.L. de C.V. (“Altosano”), which raises hogs and produces fresh pork products that are sold primarily to customers in Mexico.
Bioscience: Our Bioscience operations use raw materials from hogs that we process to manufacture heparin products, including an active pharmaceutical ingredient that mitigates the risk of blood clots. These intermediate products are sold to the healthcare industry for use in pharmaceutical drugs and medical devices.
Recent Developments
Initial Public Offering
On January 29, 2025, we completed our initial public offering (“IPO”) of 26,086,958 shares of common stock, which represents 7% of the total outstanding shares, at a price of $20.00 per share. We issued 13,043,479 shares of common stock bringing the total number of outstanding shares to 393,112,711. The remaining 13,043,479 shares of common stock were sold by our existing shareholder. Our existing shareholder granted the underwriters a 30-day option to purchase up to 3,913,042 additional shares of our common stock. On February 20, 2025, the underwriters partially exercised such option and purchased 2,506,936 additional shares of common stock from our existing shareholder. We received net proceeds from the IPO of approximately $236 million after deducting underwriting discounts, commissions and fees. As a result of the IPO, our common stock is listed on the Nasdaq Global Select Market under the ticker “SFD.”
European Carve-Out
On August 26, 2024, we completed a carve-out and transfer of our European operations to WH Group. The European carve-out represents a strategic shift in our geographical footprint. Accordingly, the results of operations, assets and liabilities, and cash flows of the European operations have been condensed and reported as discontinued operations in the consolidated financial statements for all periods presented.
Hog Production Reform
We have taken a number of actions over the last couple of years to restructure and optimize the size of our hog production operations, including:
• In May 2023, we made a decision to cease operations on a number of sow farms in Missouri. The decision was driven by persistent livestock disease issues, underperforming operations and shifting industry supply and demand dynamics.
• In fiscal years 2023 and 2024, we terminated certain agreements with underperforming contract farmers and closed certain farms in the eastern U.S.
• On December 27, 2024, we became a member of a North Carolina-based company, Murphy Family Farms LLC (“Murphy Family Farms”), by contributing $3 million in cash in exchange for a 25% minority interest. In connection with the transaction, we sold approximately 150,000 sows and the associated commercial hog inventories located on company-owned and contract farms in North Carolina to Murphy Family Farms. Murphy Family Farms is now a hog supplier to us and will supply approximately 3.2 million hogs annually. We will supply animal feed and other supplies and provide certain support services to Murphy Family Farms.
• On February 24, 2025, we became a member of a North Carolina-based company, VisionAg Hog Production, LLC (“VisionAg”), by contributing $450,000 in cash in exchange for a 9% minority interest. In connection with the transaction, we sold approximately 28,000 sows and the associated commercial hog inventories located on certain company-owned and contract farms in North Carolina to VisionAg. VisionAg is now a hog supplier to us and will supply approximately 600,000 hogs annually. In addition, we will supply animal feed and provide certain support services to VisionAg.
Our Growth Strategies
3
The strategic initiatives we are executing across our segments are complemented and enabled by our strong balance sheet and ongoing operational investments, positioning us for future growth.
Drive Growth of Packaged Meats
Our Packaged Meats segment is core to our growth strategy and has been a major driver in transforming our business since 2014. We have methodically shifted our business mix to focus on this higher-margin segment over time. The segment contributed 59% of our sales and 105% of our overall operating profit in fiscal year 2024.
We plan to accelerate the growth of our Packaged Meats segment through several strategic initiatives, including:
• continuing to shift our portfolio toward a higher mix of value-added and premium products, such as:
• converting one-time seasonal commodity bone-in ham purchase occasions to increased unit sales of everyday, convenient products such as quarter-weight ham, Anytime Favorites ham and Prime Fresh sliced lunch meat; and
• increasing penetration of higher-margin dry sausage products through expanding distribution points and manufacturing capacity;
• harnessing our powerful brands to continue to expand product offerings and drive awareness, loyalty and increased market share;
• leveraging the breadth of our platform and national and specialty brands to further penetrate dayparts and households;
• expanding in under-indexed geographical locations and moving into new categories;
• attracting new consumers, particularly younger demographics, through product and packaging innovation and effective and appealing marketing strategies while maintaining our promise to consumers to offer high-quality products for every budget; and
• deepening our presence across our distribution channels through our integrated sales force, which leverages our scale and breadth to provide a unified, reliable and consistent customer experience.
We believe that these proven strategies will drive profitable organic growth in our Packaged Meats segment. As an example, we see significant potential for our Packaged Meats segment to generate continued growth through our distribution expansion opportunities across brands to expand unit count within our existing product portfolio.
Further Enhance Fresh Pork
We continually seek greater efficiencies as we manufacture and market fresh pork products. Our capabilities and supply chain allow us to provide differentiated products and high service levels to our customers. We deliver a high-quality, consistently available supply to our Packaged Meats segment and maximize the value of our raw materials. We will seek to enhance the profitability of our Fresh Pork segment by:
• maximizing the value of each hog and expanding use of raw materials, including unprocessed fresh and value-added pork, snacks, pharmaceuticals and pet food treats and ingredients;
• capitalizing on export markets as an outlet for increasing the value of raw materials through whole-hog utilization, and appealing to differentiated, global tastes and preferences;
• leveraging our relationship with WH Group to inform product development opportunities for the Asian market and to benefit from WH Group’s distribution network; and
• appealing to ever-changing consumer preferences and demand for flavor enhancements through ongoing product innovation.
4
As we seek to grow our fresh pork business profitably, we remain committed to demonstrating that profitability can go hand-in-hand with sustainable operations. We will further our mission of producing good food the right way by seeking new and unique ways to use our raw materials.
Continue Investing in Innovation
We will continue to invest in product, packaging and operational innovations in our Packaged Meats and Fresh Pork segments to drive growth, enhance our profitability and expand our total addressable market. We are focused on strengthening relationships with customers and consumers by being first-to-market with new products and solutions.
Within our branded packaged meats portfolio, we are introducing more value-added and premium innovations. We see a significant opportunity to increase distribution of our innovative Smithfield Prime Fresh packaged lunch meat offering. Smithfield Prime Fresh embodies the quality of bulk deli meat but is displayed in the packaged lunch meat section of the retail wall. This enables our retail partners to increase average revenue per pound and reduce in-store labor costs while providing a convenient lunch meat option for consumers.
In addition, our Smithfield Double Thick/Double Smoked bacon and Smithfield Maple Thick Cut bacon demonstrate our ability to introduce premium, higher-margin offerings with new cut and flavor characteristics. These products sell at a higher velocity than the category average.
In the Fresh Pork segment, we are investing in value-added products and adding new cuts and flavors, such as Sweet & Smokey BBQ, Chipotle and Lemon & Garlic marinated fresh pork loin filet.
Innovation does not stop with our products. In our plants, we are committed to advancing automation and strategically redeploying labor. On our farms, innovative approaches to animal nutrition are increasing feed conversion and lowering our cost basis. Byproducts that were once considered waste are now used to create renewable natural gas through our biogas joint ventures and lifesaving pharmaceuticals through our bioscience business.
Our culture of responsibility, operational excellence and innovation serves as a catalyst for our ongoing business transformation. We conduct company-wide competitions and recognition events for grassroots projects that drive innovation throughout our organization. By fostering this entrepreneurial spirit, we will seek to drive growth in our top- and bottom-line results and build on Smithfield’s competitive advantage.
Optimize Our Operations and Supply Chain to Decrease Our Cost Basis
We have implemented many initiatives over the past several years to reduce costs and realize operational efficiencies. These initiatives have enabled us to offset inflation and enhance margins across our entire business.
We continue to optimize the size of our company-owned hog production operations and procure a greater mix of hogs from independent suppliers with market-based supply agreements. Additionally, we continue to implement cost-saving initiatives in our retained hog production operations to improve our cost structure.
We employ automation in all of our plants to redeploy labor to higher value tasks, improve yields and drive efficiency by reducing complexity to lower our cost basis and help offset inflationary pressures.
In our logistics and distribution network, we have reduced transportation and warehousing costs through transportation efficiencies, maximizing utilization of our storage and trucking assets, improving supply and demand
5
planning and optimizing inventory levels. These actions increase profitability and improve customer service levels, which we believe is essential to being a supplier of choice.
We remain committed to optimizing our operations and supply chain through a series of targeted actions, which in the past have supported meaningful margin improvement:
Hog Production Packaged Meats & Fresh Pork Logistics
“Reform and Rationalize” “Best-In-Class Lean
Manufacturing” “Improve Service at
Optimal Cost”
• Optimize number of company-owned hogs
• Improve herd health
• Transform genetics
• Drive procurement and nutrition savings
• Offset inflation with cost savings programs
• Employ automation
• Improve yields and maximize raw material usage
• Reduce complexity
• Be the supplier of choice
• Maximize assets (reduce transport miles, warehouse utilization)
• Improve supply and demand planning
• Optimize inventory levels
Implementation of our growth strategies requires us, in particular, to continue to grow our Packaged Meats segment and to reduce our exposure to commodity price volatility through optimization and continued reduction of the size of our company-owned hog production operations. For information about challenges that we face in implementing this strategy and our other growth strategies, please see “Item 1A. Risk Factors—Risks Relating to Our Business and Operations—Our results of operations are cyclical and could be adversely affected by fluctuations in the commodity prices for meat, livestock (primarily hogs) and feed ingredients,” and “Item 1A. Risk Factors—Risks Relating to Our Business and Operations—Disruption of our supply chain could adversely affect our business, financial condition and results of operations.”
Execute Synergistic Mergers and Acquisitions in North America
We intend to execute opportunistic, complementary mergers and acquisitions to bolster our value-added product portfolio and production capacity in North America. While acquisitions are not a primary growth driver for us, our team is experienced in identifying strategic acquisition targets and integrating them successfully into our business. We believe our integration expertise allows us to capture both cost synergies and incremental revenue opportunities. We will remain disciplined in our acquisition approach and maintaining our investment grade ratings, while pursuing opportunities that we believe will prove accretive to earnings and enhance our operational profile.
Trends in Market Demand
We operate in the large and growing global packaged and fresh meats market, which includes value-added fresh, refrigerated and frozen proteins. Our business operations are primarily concentrated in North America, but, as a leading exporter to major international markets, we also benefit from significant global demand for our products.
The U.S. packaged meats market is supported by long-term secular tailwinds, including consumer demand for high-protein diets, high-quality nutrition, product versatility and convenience. We expect these tailwinds to continue to drive increases in overall meat consumption. Nevertheless, changes in market trends, consumer preferences and the impact of macroeconomic factors on consumer spend could adversely affect our results of operations. For more information, see “Item 1A. Risk Factors—Risks Relating to Our Business and Operations—Changes in consumer preferences and failure to maintain favorable consumer perception of our brands and products could negatively impact our business.”
Global demand for pork and pork products supports strong U.S. pork exports. According to the U.S. Department of Agriculture (“USDA”), the U.S. share of the global pork export market increased to 26% in 2022 from 2% in 1990. While the European Union is currently the world’s largest pork exporter, the U.S., at number two, is emerging as a more cost-effective alternative due to lower feed and labor costs, according to the Agriculture and Horticulture Development Board. According to the USDA, total U.S. pork product export volume was 3.2 million tons in 2024.
6
Sales and Marketing
Our goal is to provide quality and value to the ultimate consumers of our packaged meats and fresh pork products. We sell our branded and private label packaged meats and fresh pork products through a variety of channels, including:
• national and regional retailers (primarily grocery supermarket chains, independent grocers and club stores);
• the foodservice industry, including foodservice distributors, fast food and other restaurants, hotel chains and other institutional customers;
• industrial customers who use our products as raw materials in their finished goods production, including prepared meals, byproducts for pharmaceutical production and pet food treats and ingredients; and
• export sales to international retailers and wholesale distributors, primarily in North American, Asian, Latin American and other emerging markets.
We use a variety of consumer advertising and trade promotion programs designed to build awareness and increase sales distribution and penetration. We also provide sales incentives to certain of our customers through rebates, such as those based on achievement of specified volume and/or growth in volume levels. We primarily use company-employed salespersons to sell our products, and we also engage independent brokers who work on a commission basis.
Customers
In fiscal year 2024, we sold our products to approximately 5,600 customers. Walmart Inc. (“Walmart”) is a customer of our Packaged Meats and Fresh Pork segments and accounted for approximately 13%, 12% and 12% of our consolidated sales in fiscal years 2024, 2023 and 2022, respectively. Walmart has been our customer for multiple decades. No other customer accounted for 10% or more of our consolidated sales during fiscal years 2024, 2023 and 2022. Cumulatively, our top ten customers accounted for 38%, 37% and 36% of our consolidated sales in fiscal years 2024, 2023 and 2022.
Manufacturing Facilities
We manufacture packaged meats, fresh pork and value-added items at 39 processing plants across 19 different states:
• Packaged meats . We produce packaged meats products across 31 processing plants in 18 states.
• Fresh pork . We process hogs at eight processing plants in six states, with the aggregate processing capacity of our collective processing plants of approximately 108,000 hogs per day.
• Value-added items. We operate six additional processing plants that use our fresh pork products to produce value-added items, such as case-ready products, pork skins for snacking and pet food and treats.
Our processing plants are strategically located to access raw materials in a cost-effective manner and to service our diverse customer base. Six of our fresh pork processing plants also include packaged meats operations, which improves our overall cost structure by reducing the cost of transporting fresh raw materials and leveraging shared fixed overheads.
We continue to optimize our operations by reconfiguring our manufacturing footprint, closing high-cost operating lines and creating greater agility across our facilities. Our facilities utilize modern, highly automated equipment to process and package our packaged meats and fresh pork products, aiding us in redeploying our team members to higher-value tasks. We believe that these expenditures have enhanced product quality, improved customer satisfaction and increased sales potential. Our economies of scale and network afford us significant supply chain transparency and substantial availability of high-quality raw material supply to our growing Packaged Meats segment. Our portfolio of production facilities requires routine capital investment for repairs and maintenance. We
7
believe that annual total capital expenditures in the near term are likely to be in the range of $400 million to $500 million inclusive of both repairs and maintenance and profit improvement projects. Capital expenditures could be more in certain years to ensure continuity of production in our older assets.
Our facilities are also designed to promote regulatory compliance and worker safety, as well as reduced waste and emissions, while seeking to comply with applicable environmental standards.
Our Mexico operations produce 1.8 million hogs annually at 115 company-owned farms and processes 1.5 million hogs at one manufacturing plant. Our Bioscience manufacturing location in Ohio processes raw materials from hogs that we process to manufacture heparin products, including Heparin Sodium, an active pharmaceutical ingredient, which mitigates the risk of blood clots.
Distribution and Transportation
We have integrated, centralized teams that coordinate supply and demand planning, customer service and logistics to service our packaged meats and fresh pork customer base. We use a combination of third-party shipping companies and our leased and owned fleet of tractor trailers to distribute meat products to our customers, as well as to move products between facilities. In the U.S., we distribute products directly from some of our plants and from owned and leased distribution centers in Indiana, Kansas, Maryland, Nebraska and North Carolina. We use these distribution centers to consolidate products that are manufactured at different plants across our network to fulfill our customer orders efficiently. One of these distribution centers is operated by third-party logistics providers.
Due in part to the different demands of distribution for frozen and refrigerated products, as well as the seasonality of certain of our products, we use a network of over 45 third-party cold storage locations for storage, handling and other value-added services. These arrangements are generally contracted on an annual basis with either fixed or variable usage requirements. Access to these locations provides capacity to sell frozen and chilled product offerings to our export customer base. For export sales to overseas geographies, we contract with third-party international container shipping carriers to ship our products cost effectively to the destination ports of our customers.
Our distribution network enables us to enhance our customer reach and sell our products efficiently and cost effectively throughout the U.S. and the world. We continue to seek innovative solutions to accomplish this mission. We use automation in our distribution centers to pick and fulfill orders and thereby reduce labor costs. We coordinate deliveries and use backhauling to reduce overall transportation costs.
Raw Materials
Feed for Internally Sourced Hogs
The primary raw materials for hog production are corn, soybean meal and wheat. Hogs consume grain during the grow-out period from wean to finish, which takes six months on average. Feed costs account for approximately 60% to 65% of our Hog Production raising cost. We have over 50 locations used for feed production and feed storage in the U.S., which are located near our farms, where we convert purchased grain into feed for our animals.
Feed grains are readily available from numerous sources at competitive prices, and we believe such raw materials to be in adequate supply. We take an active role in the physical markets for grain and other feed ingredients throughout the world. These efforts range from buying lower-cost corn from local farmers near our feed mills to importing grain or soybean meal from South America from time to time.
We seek to mitigate higher input costs through productivity initiatives to improve feed conversion, procurement initiatives and the use of derivative instruments to hedge a portion of forecasted future consumption economically. We seek to stabilize pricing generally by purchasing grains through forward purchase contracts.
8
Raw Materials for Fresh Pork Segment
Internally Sourced Hogs
In fiscal year 2024, we sourced approximately half of the hogs processed in our Fresh Pork segment’s facilities from our Hog Production segment. In fiscal year 2025, we expect that approximately 40% of the hogs processed by our Fresh Pork segment will be sourced from our Hog Production segment as a result of the new partnerships in Murphy Family Farms and VisionAg. Our Hog Production segment consists of more than 250 company-owned farms and more than 1,300 contract farms in the U.S. that raise our hogs for processing. Contract farmers provide the initial facility investment, labor and front-line management through a pre-determined economic and commercial arrangement, and we provide the animals and the feed.
In fiscal year 2024, we produced 14.6 million hogs from approximately 750,000 sows. We expect to produce 11.5 million hogs in fiscal year 2025 from approximately 570,000 sows. Nearly all of the Hog Production segment’s hogs are sold to the Fresh Pork segment.
We develop breeding stock, optimize diets for our hogs at each stage of the growth process, feed our hogs and design hog containment facilities. From the process’s origin at the grain farms to the ultimate step of delivering hogs to our processing plants, we monitor the vertically integrated process at every juncture to ensure a premium level of product, assurance of supply and control of input costs. Whether our animals are raised on company-owned or contract farms, we seek to have a supply chain that meets our standards for quality and animal welfare practices.
At our company-owned and contract farms, we have ongoing initiatives to improve profitability, including genetic transformation, herd health improvements and procurement and nutrition savings. These ongoing initiatives are intended to improve the livability of our animals while reducing costs. We utilize our fleet of leased and owned tractor trailers to transport hogs between farm and production facilities.
Externally Sourced Hogs
We procure hogs that we process in our Fresh Pork segment through multi-year, market-based supply agreements with independent suppliers, which provide us with a stable supply of high-quality hogs at market-indexed prices. The loss of any one supplier would not materially impact our business or operations.
Raw Materials for Packaged Meats Segment
We source approximately 80% of the raw materials used in our Packaged Meats segment from our Fresh Pork segment. We purchase beef and poultry from other meat processors to supplement our processing requirements. Our third-party pork and beef purchases are made on a spot basis, while our third-party poultry purchases are booked through annual volume commitments.
Although the price of our raw materials fluctuates due to market dynamics, we believe that our supply of raw materials is adequate and generally available from numerous sources. We seek to mitigate higher input costs through productivity improvements in our operations, various procurement strategies and the use of derivative instruments to economically hedge a portion of forecasted future consumption.
Packaging Materials and Ingredients for Fresh Pork and Packaged Meats Segments
We have a centralized procurement function responsible for competitively sourcing packaging and ingredient raw materials from third-party suppliers. We purchase raw materials, including seasonings, sweeteners, cheese and antimicrobials from ingredient suppliers, commodity processors and other food companies located primarily in the U.S. We also purchase packaging materials, including flexible resin-based packaging, corrugated boxes and folding cartons, foam trays and pads, labels and casings, from packaging manufacturers located primarily in the U.S. We purchase the majority of our packaging materials under contracts with pricing formulas based on published raw material indices for the primary components of our packaging, which are typically resin and paperboard.
We purchase most of the seasonings for our Packaged Meats segment from Saratoga Food Specialties, LLC (“Saratoga”). We owned Saratoga until October 2022 when we sold it to Solina Group Holding. Shortly thereafter,
9
we entered into a strategic sourcing purchase agreement with Saratoga pursuant to which we agreed to purchase certain seasonings exclusively from Saratoga. The sourcing agreement expires on October 31, 2025. The prices at which we purchase seasonings are adjusted annually by agreement between us and Saratoga based on market information and operations data. Saratoga has a right of first refusal to supply us with any new seasoning or sauce products we need. We may terminate the exclusivity arrangement or terminate the sourcing agreement entirely if Saratoga does not satisfy certain key performance indicators. We believe that we carry sufficient inventory of finished product and seasonings to overcome an interruption in the supply of seasonings from Saratoga.
Seasonality
Our business is somewhat seasonal in that, traditionally, the periods of higher sales for hams are the holiday seasons such as Easter, Thanksgiving and Christmas, and the periods of higher sales for ribs, smoked sausages and hot dogs are the summer months. We typically build inventories of certain products in anticipation of seasonal demand fluctuations.
In addition, hog prices tend to rise as hog supplies decrease during the summer, and hog prices tend to decline as hog supplies increase during the fall and winter. This tendency is due to lower farrowing performance during the winter and slower animal growth rates during the summer.
Competition
In our business, we participate across the value chain—from farm to finished products. We believe our diverse branded and private label product offerings allow us to compete effectively across channels and customer price points.
Our ability to compete effectively depends on our capacity to execute across the following primary competitive factors:
• taste;
• product quality;
• nutritional profile and dietary attributes;
• product availability;
• convenience;
• price;
• brand recognition and loyalty; and
• the ability to identify and satisfy emerging consumer preferences.
The protein industry is highly competitive. Competing large, multi-brand consumer packaged food companies include Tyson Foods, Hormel Foods, Kraft Heinz, Pilgrims Pride, Maple Leaf Foods, Premium Brands and Conagra. These competitors are scaled, multinational corporations with substantial financial, marketing, research and development and other resources. Private, category-focused companies that we compete with include Boar’s Head and Johnsonville. These private competitors may be more innovative and able to bring new products to market faster and more quickly exploit and serve niche markets or new or burgeoning consumer preferences. Pork processing companies with which we compete include Tyson Foods, Triumph Foods, JBS USA, Prestage Farms and Seaboard. Although pork is relatively inexpensive in comparison to other protein sources, we also compete indirectly with the producers of chicken, beef, seafood and meat alternatives since changes in the relative prices of these proteins may alter consumer buying patterns. Additionally, we face competition for export sales from both domestic and international suppliers.
As a leading food company, we believe that we effectively compete through our high-quality products, leading brands, expansive channel reach, scaled distribution network, our significant focus on controlling our input costs
10
(including through internally sourced hogs) and our strong financial profile. Based on the strength of our longstanding relationships and proven, execution-oriented management team, we believe that we are a trusted partner to farmers, suppliers, customers and ultimate consumers across the value chain.
Research and Development
We conduct research and development activities to develop new and improved products for our customers, incorporate innovative ingredients, develop advanced pork processing equipment and methods and enhance the survival, health, growth and well-being of our animals.
Our in-house food science research and development team consists of approximately 35 professionals focused on developing new and improved products and enhancing plant productivity. In 2011, we opened Smithfield’s Innovation Center near our headquarters in Smithfield, Virginia. This technologically advanced facility is dedicated to developing new products, enhancing food safety and quality, exploring consumer insights and preferences and evaluating both our products and those of our competitors.
Our animal scientists conduct research at farms across the country to improve the performance and well-being of our animals. In addition, we conduct genetic and genomic research to advance the proprietary genetics of our animals and foster specific traits that improve their overall performance.
Human Capital
As of March 13, 2025, we employed approximately 34,000 individuals in the U.S. and approximately 2,500 in Mexico. Approximately 46% of our employees are covered by collective bargaining agreements or are members of labor unions, and approximately 8,000 of our employees are covered by collective bargaining agreements that will expire in 2025. Our corporate culture emphasizes responsibility, operational excellence and innovation at all levels, and consequently encourages input, initiative and new ideas. To attract and retain employees committed to these values, we recognize the importance of training and development, competitive compensation, and an uncompromising commitment to safety.
• We value every person who contributes to our mission, regardless of age, color, disability, family or marital status, gender, national origin, veteran status or any other characteristic protected by applicable laws. We strictly prohibit discrimination, retaliation, all forms of harassment and bullying, and communicate this through our Code of Business Conduct and Ethics, our employee handbooks, standalone corporate policies and annual training on each of these issues. Our SpeakUp! Hotline and our internal dispute resolution process allow us to quickly respond to employee concerns to support our efforts to maintain a harmonious workplace. We have zero tolerance for human rights abuses, including the use of child, forced or compulsory labor.
• We respect our employees’ rights of association and strive to work cooperatively with the unions that represent our workforce.
• We gather and integrate feedback from team members by deploying surveys, suggestion boxes, roundtable meetings, brainstorming sessions and an open-door policy that encourages team members to freely share ideas. We encourage our team members to participate in the problem-solving process through a framework referred to as worker participation and consultation. More than half of our team members offer feedback voluntarily each month through this formal program. Our second annual employee engagement survey, conducted in 2024, yielded a 61% response rate and provided us with important insights into how we can enhance the employee experience.
• We strive to provide competitive compensation packages and to reward high performers. Our annual incentive plan provides an additional payment to our exempt employees based on achievement of company metrics and individual performance. We reward innovation among our employees through an annual competition in which team members who have been the impetus for improvements that led to cost savings or greater efficiency receive cash awards.
11
• We offer our team members and their families a range of benefits, including medical, dental and vision insurance, prescription drug plans, retirement savings, paid vacation and sick time, paid leave, wellness and mental health programs, employee assistance services and other resources to support their health and wellness. Our employee discount program offers discounts and savings in more than 25 categories, including electronics, food and entertainment. Benefits are available to all full-time team members but may vary because of geographic location or collective bargaining agreements.
• We emphasize our team members’ professional development. Tuition assistance and reimbursement is available to team members for a wide range of educational needs, from undergraduate and graduate degrees to GEDs and English language learning. We offer instructor-led training programs on our industry and our business to promote and support the development of the next generation of supervisors and managers. All team members have access to a digital learning platform, offering hundreds of courses with topics ranging from food safety to leadership development. We also extend educational opportunities to team members’ dependents: in 2024, the Smithfield Scholarship Program awarded nearly $800,000 in college scholarships to 126 dependents of team members at 15 schools across eight states.
• Our apprenticeship program, now in its fifth year, provides apprenticeship opportunities to internal and external candidates, high school graduates and military veterans, with the goal of developing the next generation of experienced tradespeople in our industry. Apprentices receive mentorship, classroom learning and mechanics training while earning an associate degree and journeyman certification. Participants are offered free college tuition, salary, certifications and benefits. Currently, 91 U.S. team members across 22 production facilities are active in the program.
• We want our team members to be proud of their part in combating food insecurity and provide opportunities for them to participate in community events benefiting those who are un-housed or at-risk, as well as veterans and their families and first responders.
Workplace Safety
The safety of our team members is paramount, and safety is embedded into our culture. Safety training starts on Day 1 and continues throughout employment. We require strict adherence to our rigorous health and safety policies from every team member and visitor at our facilities. We practice a “stop work authority” policy, which empowers all our team members to halt production, without fear of retribution, if they believe something is unsafe.
We have implemented our Smithfield Injury Prevention System (“SIPS”), a comprehensive management system that outlines our safety and health policy requirements and includes rigorous validation of the management process. This validation process promotes compliance with SIPS, safeguarding team members and visitors at our facilities. This comprehensive safety program has enabled Smithfield to obtain an International Standards Organization (“ISO”) certification.
Adherence to local, state and federal regulatory compliance is critical for protecting our team, visitors and assets. SIPS is designed to provide the guidance needed to comply with regulatory standards, prevent injuries, manage risks and promote continuous improvement throughout our business. Performance is measured through various metrics, including internal improvement goals and external benchmarks, such as the annual U.S. Bureau of Labor Statistics Report.
Intellectual Property
We rely on a combination of intellectual property laws, internal procedures and policies and contractual provisions to protect our intellectual property and proprietary rights. We own and use numerous retail and foodservice brands, which are registered trademarks or are otherwise protected under applicable intellectual property laws, including, for example: Smithfield, Eckrich, Farmland, Armour, Farmer John, Kretschmar, John Morrell, Cook’s, Gwaltney, Carando, Margherita, Curly’s and Smithfield Culinary. Altosano sells branded products in Mexico under the Altosano brand. We pursue the registration of certain of our trademarks in the U.S. and in certain locations outside the U.S. to protect our brand names, products, and services around the world. Trademark registrations can generally be renewed as long as the trademarks are in use.
12
In December 2012, we entered into a license agreement with Nathan’s Famous. The agreement expires in March 2032. The agreement provides us with the exclusive right to: (1) manufacture, distribute, market and sell “Nathan’s Famous” branded hot dogs, sausages and corned beef and certain other products within the U.S., Canada and Sam’s Clubs in Mexico; and (2) manufacture and distribute “Nathan’s Famous” branded hot dog and sausage products in bulk for use in the food service industry.
We believe that registered and licensed trademarks have been important to the success of our branded fresh pork and packaged meats products. We consider these marks and the accompanying goodwill and customer recognition valuable and material to our business. Our brands are among the leaders across several of the largest packaged meats product categories in the U.S.
In our hog production operations, we use genetic lines of breeding stock that we own, which are considered trade secrets, as well as genetic lines that we license from third parties. We also sublicense rights to some of our strategic hog production partners.
Sustainability
Smithfield was an early mover in sustainability. Over two decades ago, we published our first sustainability report and announced a sustainability framework. Our sustainability strategy continues to evolve. The overarching objective is to show that we are making food responsibly – that we manage and reduce our environmental impacts, that we care for our animals, that we maintain a safe work environment, and that we make good, safe, nutritious and affordable food. We look at sustainability in relation to the value it creates for our company and key stakeholders such as our shareholders and customers. That value ranges from financial benefits like cost savings and innovation to goodwill created with our customers, team members and communities. Most recently, we emphasized the enhancement of our governance principles and management practices as well as the transition of many of our targets and commitments to better reflect optimizations in our operational footprint, performance calculation methodologies and business objectives.
We continue to reference standards and best practices outlined by globally recognized reporting frameworks including the Global Reporting Initiative, the Sustainability Accounting Standards Board Standards under the International Financial Reporting Standards and the United Nations Sustainable Development Goals to inform our strategy, and are guided by the sustainability priorities identified with input from key stakeholders as well as internal monitoring and analysis of sustainability trends, research and regulations. We focus on measurable progress year after year, guided by authentic practices and a culture of continuous improvement.
Respect for our animals, people, the environment and communities is at the core of how we operate. Since our inception, we have been committed to providing good food and dedicated to animal care, community support, employee safety, environmental stewardship and food safety and quality programs. More than 20 years ago, we started to develop a comprehensive animal care management system on our farms. We were also an early industry mover in group housing for confirmed pregnant sows on company-owned farms. To reduce our impact on the environment, we have invested in biogas joint ventures that capture and utilize methane produced on certain company-owned and contract farms as a renewable source of energy. We hold a one-third interest in Monarch Bio Energy, LLC (“Monarch”), a joint venture that currently operates renewable natural gas (“RNG”), projects at nine of our company-owned farms in Missouri. In 2022, TPG Rise Climate invested in Monarch, helping us to further scale the business. We also hold a 50% interest in Align RNG, LLC (“Align”), a joint venture that is developing RNG projects on six of our company-owned farms and contract farms in North Carolina and Virginia.
The development and support of the communities where our employees live and work is a core value and component of our sustainability program. Over the last ten years, we have contributed more than $320 million in cash and in-kind donations to fight hunger, advance education and support the vitality of our local communities.
Quality Assurance and Food Safety
Producing safe, wholesome products for our customers and ultimate consumers is our focus, and we operate under programs and policies that promote regulatory compliance and food safety and quality at every step of our value chain.
13
Regulation
We are subject to extensive food safety regulation, including the Federal Meat Inspection Act of 1906, the U.S. Packers and Stockyards Act of 1921, the Food, Drug and Cosmetic Act of 1938, the Nutrition Labeling and Education Act of 1990, the USDA Pathogen Reduction: Hazard Analysis and Critical Control Point Systems Rule of 1996, the Public Health Security and Bioterrorism Preparedness & Response Act of 2002, the Food Safety Modernization Act of 2011 and other rules and regulations promulgated by the U.S. Food and Drug Administration (“FDA”), the USDA and the sub-branches of these regulatory bodies relating to the production and introduction of human foods to commerce. These comprehensive and evolving regulatory programs govern, among other things, the manufacturing, composition, ingredients, labeling, packaging and safety of food, including compliance with specific current good manufacturing practice regulations.
Our processing plants are subject to on-site examination, inspection and regulation by the USDA. The FDA inspects various of our processing plants that produce snacking foods, heparin products, and pet food and treats in the U.S., as well as the production of our feed mills. We are subject to recalls of our meat products in the event of suspected contamination or adulteration that could constitute a food safety hazard. We maintain a rigorous program of interventions, inspections and testing to reduce the likelihood of food safety hazards.
Compliance with federal, state and local regulation is costly and time-consuming but remains one of our top priorities. Regulatory enforcement actions for violations of federal, state and local regulations may include seizure and condemnation of products, product recalls, cease and desist orders, injunctions and monetary, civil or criminal penalties.
Policies and Procedures
Our plants, as well as those of our hog suppliers, have all developed quality programs following the standards set in the USDA’s Process Verified Program (“PVP”). Our PVP programs monitor aspects of traceability, country of origin and Transport Quality Assurance status of drivers. In addition, all of our applicable U.S. facilities are certified to a Global Food Safety Initiative (“GFSI”) benchmarked standard, and all of our food safety plans and policies meet the requirements of a GFSI benchmarked standard. We also require our ingredient suppliers to undergo annual food safety audits, the majority of which, to our knowledge, meet the requirements of a GFSI benchmarked standard.
To drive adherence to these programs and policies, we employ data analytics to monitor food safety indicators and take corrective action if necessary. As part of our quality and food safety program, our professionals continuously work with the applicable regulatory agencies, including the USDA’s Food Safety and Inspection Service, the FDA and industry associations on projects aimed at improving food safety and increasing consumer protection to stay informed of emerging issues and improve our quality and food safety program.
Animal Care
We are committed to proper animal care and have a moral and ethical obligation to the humane treatment of animals. We believe our hogs can and should be raised, transported and processed using procedures that are safe and free from cruelty and neglect.
Regulation
We are subject to regulations relating to animal treatment, including the Humane Methods of Slaughter Act of 1978 governing our processing plants. Our processing facilities are subject to regular on-site examination, inspection and regulation by the USDA, and regular internal and third-party audits are conducted throughout the year. We are also subject to state laws governing the care of livestock that is used in certain meat products sold within those states, including California Proposition 12 and Massachusetts Question 3.
We believe that we are in substantial compliance with all applicable laws and regulations relating to the operations of our facilities. In addition to complying with federal laws and regulations pertaining to hog production, we are also required to comply with local municipality (city and county), as well as state regulations, including the registration
14
and licensing of our facilities, enforcement by state health agencies of various state standards and inspection of our facilities.
Policies and Procedures
Our comprehensive, systematic animal care management program to monitor and measure the well-being of our hogs on company-owned and contract farms was developed in consultation with experts in animal behavior and handling. The program guides the proper and humane care of our animals at every stage of their lives, from gestation to transport to our processing plants. All farm employees and contract farmers are required to employ the methods and techniques of the management system and verify their compliance.
Our Animal Care Policy underscores our commitments to provide:
• shelter that is designed, maintained and operated to meet the animals’ needs;
• access to adequate water and high-quality feed to meet nutritional requirements;
• humane treatment of animals that enhances their well-being and complies with all applicable laws and regulations;
• identification and appropriate treatment of animals in need of health care; and
• use of humane methods to euthanize sick or injured animals not responding to care and treatment.
Biosecurity, or procedures to prevent the spread of disease to our farms, is a critical element of our program to safeguard the health and well-being of our animals. Our standard operating procedure covers the animal production process at individual farms, as well as the movement of vehicles, animals, personnel and equipment between farms. For example, employees and visitors must “shower in” and change into clean clothing before entering all sow farms and must also “shower out” prior to leaving. In addition, equipment and supplies delivered to sow farms, as well as vehicles, must be disinfected prior to being allowed inside the farm complex.
Since 2009, all company-owned and contract farms have been certified by the National Pork Board’s Pork Quality Assurance Plus (“PQA Plus®”) program that are conducted every three years. Our company-owned and contract farms undergo on-farm site assessments every other year and are subject to random third-party audits.
In December 2017, we completed a 10-year program to phase out individual gestation stalls at our company-owned sow farms and replace the gestation stalls with group pens for all pregnant sows at our U.S. company-owned farms. We offered incentives to contract sow growers to convert to group housing and Altosano has also completed its conversion to group housing facilities for our Mexican hog production operations.
Other Regulation
In addition to the various laws and regulations described above related to quality and food safety and animal care, we are subject to various laws and regulations administered by federal, state and other government entities in the U.S. and internationally, governing, among other things, environmental protection, worker safety, and storage and transportation of our products, including governmental regulations issued by the U.S. Environmental Protection Agency (“EPA”), U.S. Occupational Safety and Health Administration (“OSHA”), the Center for Disease Control and the state and local regulatory authorities relating to handling and discharge of waste water, storm water, air emissions, treatment, storage and disposal of agricultural and food processing wastes, handling of hazardous substances, remediation of contaminated soil, surface water and groundwater, the use and maintenance of refrigeration systems, including ammonia-based chillers, noise, odor and dust management, the operation of mechanized processing equipment and other operations.
Hog production facilities generate significant quantities of manure, which must be managed properly to protect public health and the environment. We track the best technologies available and economically feasible for the management of swine manure, which require permits under state law and, in some instances, federal law. These permits impose standards and conditions on the design and operation of the systems to protect public health and the
15
environment and can also impose nutrient management planning requirements depending on the type of system utilized. In addition, our hog production facilities have been designed to meet or exceed all applicable zoning and other government regulations. These regulations require, among other things, maintenance of separation distances between farms and nearby residences, schools, churches, public use areas, businesses, rivers, streams and wells and adherence to required construction standards. New or more stringent environmental laws or regulations that impose additional requirements on our operations or on us could increase the cost of doing business for us. For more information regarding environmental regulation of our operations, see “Risk Factors—Risks Relating to Government Regulations—Governmental authorities may take further action restricting our ability to produce and/or sell livestock or adopt new regulations impacting our production or processing operations, which could adversely affect our business.”
We follow a number of other policies and protocols to reduce the impact of our hog production operations on the environment, including:
• the employment of environmental management systems;
• ongoing employee training regarding environmental controls;
• walk-around inspections at all sites by trained personnel;
• formal emergency response plans that are regularly updated; and
• collaboration with manufacturers regarding testing and developing new equipment.
Our Mexican operations also are subject to regulation by Mexican environmental authorities. The Mexican federal, state and local authorities may, from time to time, adopt revisions to environmental rules and regulations, and/or changes in the terms and conditions of our environmental permits, with which we must comply. Our Mexican processing plants are also subject to on-site examination, inspection and regulation by Mexican governmental agencies that perform functions similar to those performed by the USDA and the FDA. We believe that we are in substantial compliance with all applicable laws and regulations relating to the operations of our facilities. For more information regarding our Mexican operations, see “Item 1A. Risk Factors—Risks Relating to Our Business and Operations—We are subject to risks associated with our international sales, including disruptions to the worldwide economy due to changes in U.S. trade policy.”
It is our policy to comply with all applicable law in the jurisdictions in which we do business. We believe that we are in substantial compliance with applicable laws and regulations. We use internationally recognized management systems to manage many of our regulatory and compliance programs including, but not limited to, the ISO, 14001:2004 standard to manage and optimize environmental performance. We were the first U.S. livestock and major international meat processor in industry to achieve ISO 14001:2004 certification for our hog production and processing facilities.
Availability of Securities and Exchange Commission (“SEC”) and Corporate Governance Documents
The Company makes available its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 on its website at investors.smithfieldfoods.com. These reports are accessible under the caption, “Investors – SEC Filings” on the Company’s website and are available as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. These filings are also available on the SEC’s website at www.sec.gov. The documents are available in print, free of charge, to any shareholder who requests them.
Cautionary Statements Relevant to Forward-Looking Information
This Annual Report on Form 10-K and our other publicly available documents contain forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995 about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Annual Report on Form 10-K, including statements regarding our strategy, future financial condition, future operations, projected costs, prospects, plans, objectives of management, and expected market
16
growth, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words, such as “may,” “might,” “will,” “shall,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” “goal,” “objective,” “seeks,” “likely” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions.
Forward-looking statements contained in this Annual Report on Form 10-K include, but are not limited to, statements about:
• our ability to capture synergies between our Packaged Meats and Fresh Pork segments;
• our ability to execute on our strategy to optimize the size of our hog production operations;
• our ability to anticipate and meet consumer trends and interests through product innovation;
• the size of our addressable markets, market share and market trends, including our ability to drive organic growth in our business through our Packaged Meats and Fresh Pork segments;
• anticipated trends, developments and challenges in our industry, business and the highly competitive markets in which we operate;
• our ability to mitigate higher input costs through productivity improvements in our operations (including analytics and task automation), various procurement strategies and the use of derivative instruments;
• our dependence on third-party suppliers and our ability to mitigate any disruption or inefficiency in our supply chain and/or operations;
• our expectations regarding our hog production transformation strategy and our ability to achieve segment production targets;
• fluctuations in our quarterly results of operations due to the seasonal nature of our business;
• our ability to attract and retain employees and maintain our corporate culture;
• our ability to prevent cyberattacks, other cyber-incidents, security breaches or other disruptions of our information technology systems;
• our ability to defend litigation brought against us successfully and the sufficiency of our accruals for related contingent losses;
• compliance with laws and regulations, including environmental, cybersecurity and tax laws and regulations, that currently apply or may become applicable to our business both in the United States and Mexico and our expectations regarding various laws and restrictions that relate to our business;
• our ability to capitalize on export markets;
• our ability to execute on acquisitions, joint ventures and divestitures;
• legal, regulatory, or market measures to address climate change and our ability to achieve our climate-related goals and strategies;
• future investments in our business, our anticipated capital expenditures and our estimates regarding our capital requirements;
• the sufficiency of our cash and cash equivalents and the availability of our committed credit facilities to meet our liquidity needs;
• our ability to achieve our financial and operational targets;
17
• our ability to maintain our investment grade ratings;
• our expectations regarding expenses, such as stock-based compensation expenses;
• fluctuations in the values of our open derivative contracts and pension obligations and related assets;
• impairment in the carrying value of our goodwill or intangible assets;
• our ability to achieve or maintain our targeted Ratio of Net Debt to Adjusted EBITDA and minimum liquidity levels; and
• our dividend policy and our ability to pay dividends.
We cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur at all. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors, including those described in the section titled “Risk Factors” and elsewhere in this Annual Report on Form 10-K. Moreover, new risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Annual Report on Form 10-K.
The forward-looking statements made in this Annual Report on Form 10-K relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Annual Report on Form 10-K to reflect events or circumstances after the date of this Annual Report on Form 10-K or to reflect new information or the occurrence of unanticipated events, except as required by law.
18