New Insights:
- Smithfield Foods is swiftly offloading pigs as the top pork producer in the U.S. aims to recover losses in hog production and expand its presence in packaged meats.
- The company anticipates producing approximately 11.5 million hogs in 2025, a significant decrease of nearly 35% from its peak of 17.6 million in 2019, according to executives during an earnings call.
- In 2023, Smithfield terminated contracts with pig farmers in Utah and other western states where livestock raising is costlier. Additionally, the pork giant has converted some contract growers into independent suppliers for the company.
Fresh Perspective:
Smithfield is trimming its exposure to agricultural markets while expanding its footprint in the more profitable packaged meats sector, which has generated over $1 billion in profits for three consecutive years.
The hog industry, despite expected profitability this year, has faced challenges that have impacted earnings across the sector. Factors such as oversupply of pigs, decreased demand, and higher pig raising costs created a challenging environment in 2023, as noted by Mark Hall, Smithfield’s CFO.
The hog production division of the company recorded a loss of $756 million in 2023 and a $152 million loss last year. This pressure on hog production impacted Smithfield’s overall sales, which dipped by 3% compared to 2023.
Looking ahead, the company aims to own 10 million hogs, representing around 30% of the requirements for Smithfield’s fresh pork segment.
Transitioning from a commodity-focused firm to a provider of value-added premium products is a key strategy for Smithfield, as highlighted by Steve France, president of packaged meats, during the company’s earnings call following its recent initial public offering.
Smithfield is also scaling back its involvement in holiday hams and other seasonal items with lower margins. Instead, the focus is on reaching consumers who purchase deli meats more frequently, rather than those who buy a large ham occasionally.
With lunch meats presenting a significant opportunity, both under the Smithfield Fresh brand and as a supplier for private labels, Smithfield is well-positioned to capitalize on the trend of consumers shifting to private label products due to inflation. By maintaining a presence in this space while offering premium products, the company can generate profits.
In 2024, Smithfield’s packaged meats unit achieved record profits, increasing by 6% from the previous year to reach $1.1 billion.