Smithfield Foods (SFD) Q3 2026 Earnings Call: Pork Weakness Drives Guidance Cut

Key Takeaways

• Smithfield Foods reported fiscal Q3 2026 sales of $3.4 billion, down 8.3% year over year, as lower pork complex values weighed on the business.
• Adjusted operating profit fell to $145 million from $310 million, while adjusted diluted EPS declined to $0.26 from $0.58.
• Packaged Meats remained the key earnings driver. Operating profit rose $4 million to $230 million, and margin expanded 80 basis points to 11.6%, despite a 5.2% decline in segment sales.
• Fresh Pork recorded an $89 million operating loss, compared with a $10 million profit a year earlier. The industry processing spread narrowed about 28% sequentially and was approximately 35% below the prior year.
• Management lowered its full-year sales outlook to a low-single-digit decline and now expects adjusted operating profit of $900 million to $1 billion.
• Smithfield completed the Nathan’s Famous acquisition and entered a long-term supply agreement expected to reduce internally produced hogs by approximately 900,000 annually.

Key Financial Data

Smithfield ended the quarter with $1.2 billion of cash and cash equivalents and $3.5 billion of liquidity. Net debt to adjusted EBITDA was 0.5x. Trailing 12-month operating cash flow was $1.3 billion, while operating cash flow for the first nine months of 2026 increased by $244 million to $365 million.

Business and Operating Performance

Packaged Meats

Packaged Meats delivered Smithfield’s second-highest third-quarter operating profit on record. Lower raw material costs, disciplined pricing, favorable mix and volume growth more than offset higher input costs and increased marketing investment.

Across Smithfield’s top 25 categories, industry volume declined 3.3%, while the company’s volume increased nearly 1%. Smithfield said it was the only manufacturer in its core competitive set to grow volume during the quarter, adding 0.4 percentage points of volume share.

The company gained volume share in each of its five largest categories. E-commerce volume increased 22.5%, compared with industry growth of 13.4%. Prime Fresh packaged lunch meat volume rose 17.9%, supported by higher first-time and repeat purchases.

Smithfield also completed its acquisition of Nathan’s Famous. Management expects the transaction to be immediately accretive to adjusted EPS and sees opportunities to expand the brand in retail, foodservice, adjacent categories and international markets. Approximately two months of Nathan’s results are included in the 2026 outlook.

Fresh Pork

Fresh Pork faced lower product values, weaker export economics and sharply compressed processing spreads. Average selling price declined 11.4%, while volume fell 6.3%.

Management attributed the volume decline primarily to optimization across Smithfield’s integrated operations rather than abnormal disease issues. Marinated pork volume increased 2.6%, and the company gained 2.9 percentage points of market share in that category.

Hog Production

Hog Production profitability declined as weaker pork values reduced realized hog prices. Sales to joint venture partners were $74 million lower than a year earlier.

Smithfield’s new long-term supply agreement with an existing joint venture partner is expected to remove approximately 900,000 hogs from internal annual production beginning in 2027. Management said the strategy should reduce capital and earnings exposure to commodity volatility, although it will not eliminate that volatility.

Management Guidance

The outlook includes a 53rd week, although management noted that the additional week falls after the holidays and is not comparable with a normal fourth-quarter week. The Packaged Meats forecast also includes roughly two months of Nathan’s Famous results, which management described as a modest contribution for the remainder of the year.

Smithfield continues to expect softer global pork demand to pressure its upstream businesses. Management said lower raw material costs should support Packaged Meats in the fourth quarter, but elevated freight, diesel and resin costs remain offsets.

Risks and Watch Items

• U.S. consumers remain pressured by persistent inflation, high gasoline prices and reduced SNAP benefits, according to management.
• Increased pork supply in Mexico and China, ongoing tariffs and weaker export opportunities are pressuring U.S. pork volumes and margins.
• Fresh Pork processing spreads remain below the level needed to cover processing costs.
• Transportation, diesel and resin costs remained elevated during the quarter.
• Management said the duration of the upstream downturn is uncertain and that it is too early to assess the potential recovery path in spring 2027.
• Timing for the proposed Sioux Falls facility is uncertain following the reversal of its conditional use permit. Smithfield plans to reapply and will update its schedule when approvals become clearer.

Analyst Q&A Highlights

Management said consumers remain cautious and value-conscious but continue to purchase protein for at-home meals. Smithfield believes its portfolio across premium, value and private-label price points helps it respond to shifting consumer spending patterns.

On Packaged Meats margins, management emphasized a continued shift toward higher-margin, value-added products, brand investment, innovation and productivity savings. Lower pork input costs provide a tailwind, but the company does not plan to sacrifice pricing or profitability discipline to increase promotions.

Regarding Nathan’s Famous, Smithfield said ownership provides greater flexibility to make faster and longer-term decisions. Bringing foodservice sales responsibility in-house is a key growth priority. Management also cited approximately $33 million in annual licensing costs that will effectively return to Smithfield following the acquisition.

For upstream operations, management said the current downturn is unusually prolonged. Hog inventories and farrowing intentions have declined, while feed costs are expected to remain moderate and broadly comparable with 2026. Smithfield said it remains appropriately positioned through its hedging tools but did not provide specific positions.

Management expects the new hog supply agreement to affect 2027 production numbers. It also said recent internal productivity improvements increased the number of hogs sold during the quarter despite the longer-term strategy to reduce internally produced hogs.

Full Earnings Call Transcript

Complete Earnings Call Transcript

Management Remarks

Operator

Good day, and welcome to Smithfield Foods Third Quarter 2026 Financial Results Conference Call.

[Operator Instructions]

Please note this event is being recorded. I would now like to turn the conference over to Julie MacMedan, Vice President of Investor Relations. Please go ahead.

Julie MacMedan

Thank you, operator, and good morning, everyone. Welcome to Smithfield's Third Quarter 2026 Earnings Call. Earlier this morning, we announced our results. A copy of the release, along with today's presentation, is available on our Investor Relations website.

Today's presentation contains projections and other forward-looking statements that are being provided pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all comments reflecting our expectations, assumptions or beliefs about future events or performance that do not relate to historical periods. These statements are subject to risks and uncertainties and that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, the factors identified in the release in our annual report on Form 10-K, our quarterly reports on Form 10-Q and our other filings with the Securities and Exchange Commission.

The company undertakes no obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. Please refer to our legal disclaimer on Slide 2 of the presentation for additional information. Today's presentation will also include certain non-GAAP measures, including, but not limited to, adjusted operating profit and margin, adjusted net income, adjusted earnings per share and adjusted EBITDA. 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.

Finally, all references to retail volume and market share based on Sircana-MULO+ data. With me this morning are Shane Smith, President and CEO; Mark Hall, CFO; and Steve France, President of Packaged Meats and Donovan Owens, President of North America Pork. During today's call, Shane will begin with high-level opening remarks. Mark will then review our third quarter financial results and full year outlook, and Shane will return to discuss our growth strategies.

Following our prepared remarks, all 4 executives will be available for the Q&A session. I will now turn the discussion over to Shane. Shane?

Shane Smith

Thank you, Julie. Good morning, everyone. Today, we reported total company third quarter adjusted operating profit of $145 million, which is within the range we provided in September but down from $310 million in the prior year quarter. The decrease in the year-over-year performance was driven by a sharp decline in the pork value chain due to softer domestic demand and the global oversupply of port.

U.S. consumers remain pressured due to persistent inflation and high gas prices as well as reduced SNAP benefits which has negatively impacted consumption levels. But at the same time, there has been an erosion of export opportunities due to increasing pork supply in key markets such as Mexico and China as well as ongoing tariffs. This resulted in a rapid deterioration in the pork value chain.

Additionally, transportation costs remain high due to carrier supply constraints while diesel and resin costs have been elevated since the Iran conflict began and even accelerated during the third quarter. While these commodity market-driven challenges primarily impacted our upstream fresh pork and all production segments, which reset our full year outlook our packaged meat segment demonstrated its resilience with year-over-year volume, profit and margin expansion.

In the face of these market challenges, I want to highlight progress on multiple strategies as well as our strong financial position. First, we increased volume and operating profit in packaged meats and this segment is on track to deliver its fifth consecutive year of above $1 billion in operating profit. Second, we completed the acquisition of Nathan's Famous bolstering our packaged meats portfolio, expanding our opportunities to grow this brand domestically and internationally. Third, while our upstream segments remain challenged, we entered into a new long-term supply agreement with an existing joint venture partner which will reduce the number of hogs that we produce internally by roughly $900,000 per year.

Fourth, we have a strong balance sheet and financial position that provides significant financial flexibility to support growth and create shareholder value. And fifth, we are on track to return value to shareholders through an anticipated annual dividend of $1.25 in fiscal 2026. With that, I will turn it over to Mark to review our financials in more detail. Mark?

Mark Hall

Thanks, Shane, and good morning to everyone joining the call. Turning now to our third quarter results. Consolidated sales in the third quarter were $3.4 billion, which was an 8.3% decrease compared to the prior year, reflecting lower pork complex values as Shane discussed. We delivered adjusted operating profit of $145 million at a 4.2% margin, which compared to $310 million and an 8.3% margin in the third quarter of 2025. Adjusted net income was $103 million compared to $230 million in the third quarter of 2025, and adjusted diluted EPS was $0.26 per share compared to $0.58 per share in the third quarter of 2025.

Our consolidated results reflect very different dynamics across the portfolio. Packaged meats grew volume, profit and margin, while weaker pork and hog values weighed on our upstream businesses.

Now I'll walk through those drivers, starting with packaged meats. Packaged Meats sales were $2 billion, down 5.2% and as a 5.3% decline in average sales price more than offset 0.2% volume growth. The lower average sales price primarily reflected lower pork complex values, partially offset by favorable mix. Operating profit increased $4 million to $230 million and margin expanded 80 basis points to 11.6%. The year-over-year improvement reflected disciplined pricing, lower raw material costs, volume growth and favorable mix. These benefits more than offset higher inflationary input costs and increased marketing investment.

All in, packaged meats delivered its second highest third quarter operating profit on record, demonstrating the earnings resilience of the segment in a challenging consumer environment.

Turning to Fresh port. Sales were $1.8 billion, down 17% year-over-year, reflecting an 11.4% decrease in average selling price and a 6.3% decline in volume. The segment reported an operating loss of $89 million compared with an operating profit of $10 million in the third quarter of 2025. Market conditions weakened further from the second quarter, putting pressure on both our processing spread and the margins we realize across our sales channels. On a sequential basis, the industry processing spread narrowed approximately 28%, and it was down approximately 35% below last year. This is well below the level needed to cover processing costs.

Additionally, increased global pork availability created a more competitive environment for U.S. pork exports, particularly in Mexico and Asia, which adversely impacted volume and sales margins.

Turning to hog production. Weaker pork values also flowed through to hog prices. This pressured hog production profitability at the same time, fresh pork face narrower processing spreads. Sales of $691 million decreased $122 million or 15% versus the third quarter of last year. This was driven primarily by $74 million in lower sales to joint venture partners and a 5.2% decline in average selling price, inclusive of the effects of hedging.

Operating profit was $34 million compared with $89 million in the prior year quarter, reflecting lower realized hog prices and lower sales to joint venture partners. Although current commodity conditions are masking some of the benefit, the structural improvements we've made on our retained farms have strengthened the business and improved performance across the cycle. Taken together, packaged meats profit growth was not enough to offset the pressure in fresh pork and hog production, which drove the consolidated results lower. This brings me to the balance sheet and cash flow.

We continue to generate strong cash flow while maintaining a very healthy financial position. At the end of the third quarter, our net debt to adjusted EBITDA ratio was 0.5x, well below our policy of less than 2x. We also ended the quarter with very strong liquidity of $3.5 billion, including $1.2 billion in cash and cash equivalents, comfortably above our $1 billion policy threshold. On a trailing 12-month basis, operating cash flow was $1.3 billion. We generated $365 million of operating cash flow in the first 9 months of 2026 up $244 million from the same period last year with our seasonally strongest fourth quarter ahead of us.

That cash generation gives us the flexibility to continue funding our growth priorities invest in the business and return capital to shareholders while maintaining a strong financial position. Capital expenditures for the first 9 months of 2026 were $281 million, including $37 million related to the proposed new soup Falls facility. We now expect to spend between $350 million to $375 million in capital expenditures in 2026, excluding soup falls with more than half of our planned capital investments focused on projects designed to support both top and bottom line growth.

At the same time, we continue to return capital to shareholders. To date, we've declared 3 dividends this year, and we anticipate paying $1.25 per share in annual dividends. Our dividend remains a core component of our capital allocation strategy.

Turning now to our outlook. We're updating our total company sales outlook to down low single digits versus our prior expectation of roughly flat, primarily reflecting lower pork complex values for hog production, our full year range of a loss of $25 million to a profit of $25 million primarily reflects lower hog prices in the fourth quarter. Refresh our full year range of a loss of $50 million to breakeven reflects continued pressure on product values, processing spreads and channel profitability in the fourth quarter.

Our packaged meats outlook reflects strong performance in a tough environment, underscoring the resilience of this business. We've narrowed our full year packaged meats operating profit outlook to a range of $1.09 billion to $1.14 billion, with a modest increase at the midpoint, primarily reflecting 2 months of Nathan famous results. And as previously reported, our outlook includes a 53rd week of results. At the same time, we expect continued softer global demand for pork, which will continue to pressure our upstream segments. For total company operating profit, we're expecting to report a full year adjusted range of $900 million to $1 billion.

The reset in our total company outlook is driven by fresh pork and hog production Importantly, this updated outlook does not change how we view the strength of our brands, the direction of our strategy or the long-term earnings power of the business nor does it change our capital allocation framework. We will continue to reinvest in the business, support a reliable and sustainable dividend, evaluate disciplined, synergistic M&A and maintain a balance sheet of strength.

With that, I'll turn the call back to Shane for a closer look at our businesses and growth strategy.

Shane Smith

Thanks, Mark. While we are navigating a more challenging operating environment in the near term, our 5 foundational growth strategies remain unchanged, increase our packaged meats profitability, maximize the net realizable value in Fresh pork, reduce internal hog production and drive a best-in-class cost structure on our retained forms continue to optimize our operations and to evaluate synergistic M&A.

Looking closer at the dynamics within each segment, I will begin with fresh pork since that is where we see the most near-term pressure to profitability. Despite challenging market dynamics, we remain focused on providing a consistent supply of high-quality fresh pork to our packaged meat segment and our external customers. One of our primary focus areas for 2026 has been to grow volume in the retail channel, emphasizing higher-margin value-added case-ready and marinated offerings -- during the third quarter, we grew marinated pork volumes 2.6% and gained 2.9 points of market share.

We are innovating in this category with items such as our mill ready cuts launched earlier this year. Consistent with our strategy, we remain focused on optimizing the net realizable value of each hog as well as maintaining operational discipline to achieve cost savings.

Turning to hog production. We feel good about the investments and operational improvements we have made over the past several years to materially improve the cost structure of the hogs we produce on our retained farms. Our teams remain focused on improving operating results as we move forward. We also continue to focus on our hog production optimization strategy -- as I mentioned earlier, we are pleased to announce a new long-term supply agreement with an existing joint venture partner, which will reduce the number of obs internally produced by approximately $900,000.

We continue to evaluate the optimal degree of integration plant by plant based on external hog availability, supply assurance and economic returns. This strategy will not eliminate commodity volatility, but it reduces capital and earnings exposure and improves the durability of our integrated model across the cycle. Looking ahead for our fresh pork and hog production segments, our focus remains on what we can control, maximizing whole hog value, growing higher-margin channels executing our next best sales strategy, reducing the number of internally produced hogs and maintaining a best-in-class cost structure.

Shifting gears to our packaged meat segment. Our third quarter results provide clear evidence that our strategy is working. We gained volume, unit and dollar share while protecting profitability and we did so in a market where consumers remain selective. Taking a closer look at the strong third quarter execution by packaged meats that positions us well as we enter the seasonally strongest fourth quarter.

Across our top 25 categories, industry volume declined 3.3%, while we grew volume by nearly 1%. We -- we were the only company in our core competitive set to grow volume in this quarter, driving 0.4 points increase in volume share. Most importantly, we gained volume share in each of our 5 largest categories. Snowtown was up 2.3 points. On cooked bacon was up 0.9 points. Packaged launch meat was up 0.8 points, dogs up 0.7 points and cook dinner sausage up 0.2 points.

In Q2, we defended share in a difficult retail environment. In Q3, we took share in our largest and most strategically important categories. Consumers remain selective and value conscious, and we are using the breadth of our portfolio and commercial capabilities to deliver value to them. We offer trusted brands and private label products across a range of price points, giving us multiple ways to compete while maintaining discipline around profitability.

We also remain disciplined in how we deploy promotional investment -- as you are say consistently over the past year, our preferred approach is to pay a compelling consumer value with strong retail execution that increases visibility and drives conversion with the focus on quality merchandising. That remained the primary driver of our promoted volume in the quarter.

In addition to in-store investment, e-commerce is a fast-growing and important promotional channel for us, and we are taking share. During the third quarter, we grew our e-commerce volume 22.5% against industry growth of 13.4%. And as we look ahead, we continue to view the e-commerce investment as a core momentum driver for packaged meats. We are pleased with the efficiency and the effectiveness of our omnichannel execution this quarter.

Our ability to maintain discipline around promotional profitability is underscored by the fact that third quarter packaged meat segment profit margins expanded by 80 basis points year-over-year. Strengthening omnichannel execution is 1 lever within a much broader packaged meats playbook. We are also expanding distribution, investing in our brands and bringing differentiated innovation to market.

Our ability to deploy these levers by category and customer while maintaining pricing and profitability discipline is what gives us confidence in our ability to sustain volume and share growth over time. During the third quarter, Packaged Meats profitability benefited from our strategy to increase the mix of higher-margin items such as Prime Fresh Package lunch meat, which is a premium convenient deli quality offering that continues to be one of our fastest growing brands.

We grew volume by 17.9% and with volume velocity of 12%. Repeat purchases building, first-time buyers increased 7% and repeat buyers increased 17.6% and -- we have ample runway ahead for Prime Fresh as we continue to add new stores and increase penetration per store. We also continue to innovate our Prime Fresh portfolio, including expanding our proteins beyond pork. One of our best-selling new launches for Prime Fresh this year has been rotisserie chicken, which expands our prime fresh poultry offerings. And that brings me to innovation and how we bring products to market. This is where our brand strategy is evolving the most and how we are building the next generation of Smithfield consumers. One of our core innovation pillars is flavor.

Today's consumers are demanding more variety and flavor offerings than ever before, and we have responded. In 2026, we have launched a succession of new products featuring bold flavor. For the Smithfield brand alone, we've introduced 3 new premium bacon flavors under our smokehouse reserve label. 3 new brought flavors and just in time for the holidays, Cranberry Brown Sugar glaze Boral hands. And the sales momentum continues for premium Nathan's Grass Fed hot dogs, which we launched last quarter.

Now that we have closed the acquisition, we are excited about the opportunity to accelerate innovation within the Nathan's brand. and we look forward to sharing more on that in future calls. This year, we've increased our brand investment focusing on our 3 national brands, Smithfield, Akers and Nathan. In August, we kicked off our new average marketing partnership with the Big Ten college sports conference. Partnering with Big 10 extends our reach beyond the seasonal college fill ball playoffs into multiple collegiate sports. Strengthening our year-round presence with customers and consumers. The big 10 represents more than 62 million fans and alumni who have an estimated $5.7 trillion in buying power. We will activate a new acreage campaign, a house United. This is a nominee score platform creating meaningful brand equity across our customers, consumers and our communities. As the leading packaged meats and fresh pork producer in the U.S. with a 90-year history, we believe in educating consumers about the benefits of eating pork.

Pork is well positioned for today's consumer spending environment especially with the relatively high cost of beef. Whether as a substitute for ground beef, elevating Taco nights or being the best part of breakfast, pork is very well positioned for today's protein-focused consumer without the strain on consumers' wallets relative to other proteins. Our -- campaign is highlighting these benefits and is introducing Smithfield as a modern culturally relevant brand for the next generation of consumers. The campaign's distinctive creative is increasing awareness, driving engagement and helping attract younger households to both our brand and the port category.

Early results give us confidence that strong brand building can simultaneously enhance relevance today while supporting sustainable household penetration growth over time. Foodservice is also an important channel for packaged meats of roughly 30% of our sales.

In today's economy, many food service providers are under pressure, and we are a trusted partner that provides solutions which save them time and money, such as our roasted bacon. We also help them drive traffic through innovative, limited time offers. During the third quarter, we delivered 22 new limited time offers bringing other 53 year-to-date. As we look to the fourth quarter of 2026 and longer term, we feel good about our packaged meats momentum and our market strategies.

We are gaining volume, unit and dollar share through increased distribution, successful omnichannel marketing and continuous product innovation. A key competitive advantage in today's environment is our culture of continuous improvement. During the third quarter, inflationary headwinds persisted, but we were able to partially mitigate that through operational efficiency.

In manufacturing, we continue to adapt to market conditions by simplifying, rationalizing and improving our procurement processes. The consistent capital investments we have been making are generating solid returns, and we are continuing to invest for the long term. This includes our proposed groundbreaking new processing plant. This plan will be the most modern, efficient and largest combined fresh pork and packaged meat processing plant in our network and will deliver a step change in operating efficiency.

And finally, we continue to evaluate opportunistic M&A to support our growth strategies. Yesterday, we closed the Nathan's Famous acquisition, securing our rights to this iconic brand into perpetuity. The acquisition is also immediately accretive to adjusted earnings per share, and we are excited about the opportunity to maximize Nathan's Famous brand growth.

At retail, we will accelerate our innovation pipeline, building on successful launches, such as grass-fed beef hot dogs and in rogue items. In Foodservice, we will optimize brand sales through direct management. We are looking forward to sharing more about the Nathan's Famous brand on future calls.

In closing, across the company, our teams are focused on executing our strategies. Packaged meats remains resilient. In our upstream segments, we are focused on reducing market risk by lowering the number of hogs internally produced and by optimizing our fresh pork operations. We're well positioned to navigate today's environment. Protecting package meets profitability, reducing controllable costs and executing on our updated 2026 outlook.

Beyond the near term, our confidence in Smithfield's long-term value creation model is unchanged. The strength of our balance sheet, liquidity and cash generation allows us to continue investing in our strategy, reinforce the business and return capital to shareholders, consistent with our capital allocation priorities.

Now I'll ask the operator to open the call for Q&A. Operator?

Operator

[Operator Instructions]

So our first question is Max Gumport with BNP Parabas.

Question-and-Answer Session

Max Andrew Gumport

First, I'm just curious on the demand softness for packaged meats. You called out some financial pressure that you're the consumer is feeling. I'm curious if your work is also pointing to any change in consumer preferences or also have you put into potential impacts from GLP-1 drugs on the consumer and how they are changing their consumption patterns.

Shane Smith

Max, this is Steve. So I'll take that question. So I'd say, first off, from a consumer standpoint, I'd say the consumer is still pretty cautious. They are still spending, but they're definitely focused on finding a value, which is not just the low price, and that's something that we've discussed on our previous calls that it's not just value isn't just a low price. Now although the industry volume was down, as Shannon mentioned, 3.3% in Q3, consumers are not walking away from buying. They're just buying -- they're being a lot more selective really about what they put into their basket.

Now with the solid results that we delivered in Q3 by growing our volume, volume share, profit margin and operating profit, we feel really good about how we're positioned with our extensive portfolio. So we don't have to win with just 1 price point. We can really give that consumer choices depending on what they're looking for and also, of course, what they can afford. I would say that the strength of our portfolio is obviously showing up in our results.

In Q3, we're the only manufacturer in our competitive set to grow our volume almost 1% and in our key categories, and we grew our volume share by over 40 basis points, which was more than any other manufacturer. We also continue to win with the consumer, which is why we saw increases in first-time buyers, repeat buyers and also households buying our products.

The other thing that I would add, and it kind of goes to your question about GLP-1s is that going out to eat has gotten expensive, so prepare me meal is pretty compelling. But those meals that they're preparing at home, they continue to have protein in those meals and it really fits perfectly with our product offering. So not only on the retail side of the business, but also on the food service side and the industrial side of the business, where our protein is really a component in meals that consumers are buying.

So overall, I'd say the consumer is cautious and they're still looking for value, but they're being selective and they're still buying our products. So at the end of the day, our job is to make sure that we're giving them the right products at the right price and really giving them a reason to put our products into their baskets.

Max Andrew Gumport

Okay. Very helpful. And then I realize the profit shortfall this year, it's really driven by the upstream segments that turn is driven by the commodity markets, which is very much outside of your control. Obviously, though, you're expecting this pressure to linger into 4Q, given what we're seeing in the market. You also did though expressed the view that your long-term view of the earnings power of your business hasn't changed.

So I guess I'm just curious, one, do you have a view on if this pressure can linger into beyond into '27 and then what is your view of the long-term earnings power of this business, if you could quantify it.

Unknown Executive

Max, are you speaking specifically to the long-term earning power of the packaged meat segment.

Max Andrew Gumport

Total company and definitely bucketing the upstream segments than there too, given they are filling the pressure from these commodity markets.

Unknown Executive

Yes, Max, I would tell you that undoubtedly, without question, we are seeing pressure on the upstream businesses. And as we look out, we see that this pressure is very broad-based. And so in the U.S., we know that demand is down with consumers, being stretched the way they are. And then you look globally -- and you also see that some key export markets remain really challenged right now. And so when we look at this current market, this challenging market that we're in right now, the duration of that is really uncertain.

But some of the things we're doing, the strategies that we're employing as a company across all 3 segments are really the same strategies that we've talked about since we did the IPO. And I believe that's really set us off to weather any challenges better today than we've been able to in the past. And so first, and Steve just touched on some of this. But first, we're leading with growing profitability in our packaged meats business. That business is on track for a fifth consecutive quarter of earnings that are above $1 billion. And in this environment, whether we're talking about volume growth, volume share growth in profitability and expanded margins. These guys are doing a really great job and value to the overall company.

In Fresh port, again, that's where we see some of the pressure, but we'll continue to execute the strategies that we've talked about historically -- and that's really around optimizing that net realizable of every value of every log that we bring in. And we've seen some good success in that outside of some of the spread compression that we've seen we've seen higher margins come in in our added marinated, whether that's case ready. We've seen growth in foodservice. And we've also seen growth in our e-commerce channels. And so the fresh pork business, while it is under some pressure right now is really performing well.

And then in hog production, we're continuing to execute that strategy of reducing the hogs that we grow internally and replacing those with external hogs. The announcement that we made this morning was a big announcement. That takes another 900,000 hogs out of our current operation and puts it into an independent operation, again, getting down below that 10 million hogs has been a big goal of ours.

I'm happy to say that we've achieved that. But what's important there is what the hogs that we're left with that remain on our farms, our internal production, those cost structures are just getting better and better. And so I would tell you, as a company, the earnings power of the company that we're better positioned today than we have been historically, and I would say relative to our competition. The management team that we have, I think they have proven their ability to execute through markets like we're seeing today.

And then what we're seeing in packaged meats, as Steve and his team have set us up as we go into 2027. it's just a resilient business, and we're making some really great strides in optimizing the total company. So I feel good about the direction we're heading, Max, and really optimistic about the future.

Operator

Next question is from Lee Jordan with Goldman Sachs.

Leah Jordan

Maybe just starting off for you left off there, Shane, around the resiliency packaged meats. A big driver of this into next year could be the potential margin recovery there that we started to see this quarter. So just any more color and detail you can provide on your outlook on the potential margin recovery in packaged needs as we look ahead? How do we think about the trade-offs between lower pork input versus the other inflationary pressures like freight you highlighted?

And then I think, ultimately, the question is, how do you think about potentially reinvesting some of that lower input costs on the pork side into things like promotions with the consumers still pressure here?

Shane Smith

Okay. Steve, why don't you start off with that, and then I'll jump in at the end.

Steven France

Okay. I appreciate the question. So as far as what we think about from a package meat standpoint, I think the #1 thing to really consider is that over time, we've really built this business to handle volatility. So I would say in today's environment, we're dealing with high transportation costs, extremely high diesel and also increased packaging costs due to resin.

And from a commodity standpoint, raw material markets will always move around and the consumer behaviors obviously are going to change like we've been seeing the past couple of years. But at the end of the day, our job is to keep moving the business forward regardless of what environment that we're faced with. And for us, that really starts with continuing to shift the portfolio like we've talked about several times towards more value-added, higher-margin products while reducing our reliance on more commodity-oriented categories -- so at the same time, we continue to invest behind our brands and innovation pipeline.

So we're really staying relevant with our consumers. And you can see the results that we've delivered over the last almost couple of years at this point. And finally, we really continue to focus on productivity. So whether that's from an operations standpoint or how we're approaching the business with our customers, that, along with efficiency and cost savings. So when we do that, it really helps us protect the margins and minimize the amount of pricing we need to take, and it really continues to provide us the opportunity to invest in our brands and also focus on growth opportunities without sacrificing any type of profitability.

The result of this is really you can see it in what we delivered in Q2. So as I mentioned earlier, we were able to grow our volume share profit and profit margin in Q3 despite some of these headwinds and the current environment that we're dealing with. And we really expect that to continue based on the groundwork and the business that we have laid so far this year.

Shane Smith

The only thing I would add there, Leah, is I really like the balance of our portfolio and where it is right now. So the consumers, whether they're looking for a premium product or whether it's a value product or even into private label, we have something that keeps them overall in our Smithfield family. And I think that's an advantage in this environment that we see today, where we know that consumers are continuing to move up and down and around the value spectrum.

And so going forward, as I mentioned earlier, our focus really hasn't changed. We're going to continue to build the packaged meats business through innovation. We're gaining points of distribution. We've increased our marketing support and then looking at that greater mix of how we continue to change our mix to that higher margin value-added product. And I personally think there's still a lot of opportunity ahead of us. And I think the progress that we've seen in our quarter and that we expect to see going out through this year, gives me a tremendous amount of confidence that where this business is headed.

Mark Hall

Leah, it's Mark. I would just add that closing the Nathan deal, it really secures our long-term rights to that brand the license would have expired in 2, and it really bolsters our packaged meats portfolio. we have the opportunity now to grow that brand, new opportunities in food service, and it really furthers our protein diversification. So the deal, as we noted, immediately accretive to adjusted EPS. And we're building strong momentum in that brand, as Shane mentioned, with the premium Nathan asset hot dogs, which we launched in the second quarter. So a lot of excitement behind welcoming the Nathan's brand or portfolio.

Leah Jordan

That was great color. And then maybe for a follow-up, just on hog production, as futures are implying continued pressure that segment into next year. Just any color there on your visibility for both hogs and feed? And has the current environment changed your hedging strategy at all?

Shane Smith

Yes. So we see the strip to it, and we do see what looks to be pressure out in hot production, but we also see some things in some of the public reports, whether that's hog inventories I think in the September report, we call it down about 1.6%. We see fairly intentions down. And I would just caution that when we look at the strength. Typically, this time of the year, when we're looking at the future strip, it typically implies a loss. So we're monitoring it closely.

From a fee perspective, Quorum seems to be in a good place right now. The ending stocks were, I think, in the October report about $282 million. They increased $282 million to about $1.8 billion. Raising costs will be moderate next year, probably comparative to 2026. But it's something we're watching, as you know, every day. And from a hedging perspective, we don't necessarily talk about how we're positioned other than to say that's one tool that we use, whether it's purchasing corn and soybean mill or selling hogs on the futures markets but we think we're appropriately positioned.

Operator

The next question is from Ben Theurer with Barclays.

Benjamin Theurer

Just picking up on some of the commentary just around packaged meats and Nathan. So as we look shorter term into the fourth quarter, within the range for packaged meats in particular. Can you help us quantify what's kind of like implied for, a, the 53rd week? And then b, the Nathan's accretion into this because you said it's going to be immediately accretive, so just that we can kind of like frame what the 2 months of Nathan's mean. So that would be my first question.

Shane Smith

Sure. Sure, Ben. Thanks for the question. So we're heading into what is seasonally the strongest quarter for packaged meats because it does include the Thanksgiving and Christmas holidays. And as you alluded to, it does include the 53rd week. But I would caution you that, that 53rd week is post holiday. So it's really not equal to a normal week in the fourth quarter. The Nathan's pickup is going to be approximately 2 months of earnings. So it is immediately accretive, but I'd say it's de minimis, somewhat de minimis as we close the year and it's not prime pop-dog season. But we are continuing to see increased distribution that we earned earlier in the year.

So the outlook for the fourth quarter is very strong, and we should have the tailwind of lower raw material costs, which we'll maintain pricing and profitability. But we do still see those consumer headwinds and persistent inflation in freight, diesel and resin. So those are mitigating factors, but again, looking at a very strong fourth quarter for the packaged meats business.

Benjamin Theurer

Okay. And then as for Nathan, you talked about it, it would have been a license running out. Now you own the brand, there's a lot of opportunities. So maybe as you think about like integration priorities and how we should think about the contribution into '27. What are the things that you can immediately lever? And then on the other side, I know there's like a little bit food service business attached to it. So maybe if you update us what your thoughts are around the Nathan food service business as we move into 2027.

Steven France

I Ben, this is Steve. So I'll take that question. So first off, I would say that, obviously, we're very excited that we finally have Nathan as part of the Smithfield family. And when you think about the history that we have with this brand, we've known it for a very long time. We've been making the product that we've been selling the product on the real side of the business. So kind of to your point, the difference with food service. And I'll talk about that here in a minute.

Now when you think about the -- owning the brand, one of the things that this does for us is it really provides us a lot more flexibility than we had under the current or the previous licensing agreement that we had. So we can make decisions quicker, and we can also make longer-term decisions for the brands, and we can also move faster when we see opportunities.

Now on the foodservice side, that's one area that we're very excited about. So historically, we manufacture the product for the food service side of the business, but we did not control the commercial side of that business. And we do now -- so we'll be bringing our sales -- the sales responsibility in-house and the benefit that we have is we have our direct sales force that have the relationships and they've identified opportunities since we announced this -- the opportunity to buy Nathan. And so they've been kind of canvassing the market to understand where do we see opportunities to grow that brand.

So we see it as a big opportunity as we move down the road. And then beyond that, I won't get into a lot of details or specifics. But we spent a lot of time really looking at this business. And the reality is we would not have made this investment if we didn't believe that there is substantial room to grow the business. And the bottom line is we're thrilled to own the brand, and we see a lot of opportunity not only on the retail side of the business, but also on the food service side of the business.

Operator

The next question is from Heather Jones with Heather Jones Research.

Heather Jones

I wanted to ask a question on the fresh pork segment. So the sequential deterioration was a little more than I would have thought given industry trends. But I did notice that your volumes were down over 6% year-on-year. And I think industry weights on average were higher year-on-year, so maybe has down even more than 6%. So just wondering -- and that's very different from the volume trends for the industry as a whole.

So just wondering, did you all have like more pronounced disease issues that affected your operations during the quarter? And if so, how are those tracking heading into Q4 and as we think about '27.

Shane Smith

Yes, Heather, what I would tell you is, and we've talked about this previously, we don't do a process where internally we're we're optimizing our business across all 3 segments. And so that optimization has been really to define what do we need internally to support our packaged meats business and that optimization includes, again, all the way through -- all the way back through the upstream businesses to hard production -- so you're correct.

Our volumes in fresh pork are down 6%, but that is -- I would say that's more as a result of overall optimization.

Heather Jones

Okay. Okay. Okay. So there's no disease issues and all that we need to be thinking about heading into Q4 or '27.

Shane Smith

I would say nothing abnormal.

Heather Jones

Okay. Okay. And then on Matan, just wondering if you all could give us some color on you all have been producing and selling at retail for many years, like you said, I want to say their annualized sales run rate around $160 million, $165 million but how should we be thinking about the incremental contribution to Smith from a sales and EBIT perspective? Because it seems like it's a pretty high-margin business. So just if you could give us any any quantifying around that?

Shane Smith

Yes. So the sales accretion will really come from, as Steve mentioned, the food service side of the business, where we didn't participate as holistically as we do on the retail side. But the immediate benefit, and you can go back to Nathan's prior disclosures, there's about $33 million a year in license cost that effectively, we're going to be repatriating to our side of the ledger. So that's the basis for the immediate step-up in earnings related to the Nathan's business. But again, we believe there's a lot of untapped potential to grow that business both in retail and foodservice, adjacent categories, and we'll have some some exciting news to share when we release our year-end results.

Operator

The next question is from Pooran Sharma with Stephens Inc.

Pooran Sharma

I wanted to ask about something you kind of alluded to earlier. You mentioned the duration of challenging market is uncertain. I certainly respect that - but just thinking about seasonal trends here, do you think that the spring time can be a period that can offer a little bit of relief for your upstream businesses maybe on the fact that typically, around this time, the supplies are seasonally lower. And I think around this time, you you get buyers maybe more willing to load up inventories ahead of spring or summer programs. Is that a fair assessment to kind of think about? Or is it still too early to tell?

Donovan Owens

Yes, Pooran. This is Donovan. Good question. Thank you for the question. I do think your last comment is probably the most accurate, which is it's really too early to tell about spring of 2027 from an upstream perspective. We are going through some pretty significant devaluation in our products right now. So you look at USDA cut it, as Shane pointed out earlier, the cutout is down 35% year-over-year in Q3. That's not something we significantly usually see Hans of that, Hans are down 20% and bellies are down 25%.

So we need to see exactly how bellies and hams trend over this holiday period. So Q4 is going to be critically important for the valuation to change on the front end of the business, and we need to see exactly how our holiday season runs before we can really look at the spring in 2027.

Pooran Sharma

Okay. I appreciate the color there. And just on the follow-up, just on the Sioux Falls facility. Following a recent court decision reversing the conditional use permit -- just wanted to get a sense if you're still expecting construction to begin within the first half of '27 and production by the end of 2028 or should we assume that there's some delay to that?

Unknown Executive

Yes, Pooran, the recent setback we saw in Sufal, it doesn't change our commitment to build the Falls plant, and we'll update the market timing once those approvals become more clear, but -- we do plan to reapply for the conditional use permit. And as always, we'll continue to comply with all the regulatory requirements, especially for a project like this, we represent such a major investment now -- but we'll wait till a little later until we have a little more clarity around the timing of that.

Operator

We have time for one more question. Our last question comes from Peter Galbo with Bank of America.

Peter Galbo

Just maybe 2 clarifications on the hog production business. One, Shane, the $900,000 decrease just can you give us a sense of timing? Is that a January 1 start and so we should kind of be starting to flow that in at the very beginning of next year? Is there a delayed start? So just any detail there -- and the second piece on hog production, I think there was actually an increase in the number of hogs sold this quarter, year-on-year, which again, as you're trying to work down that that number closer to the $10 million. Just want to understand kind of what drove that. And then I'll have a very quick follow-up.

Shane Smith

Yes. On the $900,000, Peter, we'll be taking that. That will be signed pretty quickly. And then it will be -- it will come out really I'm expecting it to be out for the numbers for next year. As had sold increase, we had some productivity improvements. As everyone on the call knows, we've had some initiatives in place to improve our genetic profile and health initiatives and a number of other things. And those things paid off some this year as we saw some of that benefit come through in increased productivity.

Peter Galbo

Okay. Great. And I guess as a follow-up, Shane, I know on Fresh Pork, and I think this is probably part of the prior question, but just -- can you kind of give us parameters we're maybe in a little bit of unchartered territory again, given the export situation and what's happening. But just -- like how quickly does it take to course correct that business just from a market standpoint historically? Are we looking at a couple of quarters and historically, and things would correct such that, that profitability in that business snaps back? Just any sort of guardrails you can put around it. I think as people are trying to frame out the more volatile businesses for '27.

Shane Smith

Yes. Don, do you want to come to the exports?

Donovan Owens

Yes. Thanks, Peter. You're looking for some guidance as to how long the strip or how long this the downward pressure can continue. And I would tell you that just as I answered earlier, I mean, we've been in a prolonged situation here. This is unusual. I mean, certainly, we haven't seen this type of a prolonged downturn in fresh pork values over the last 3 years. So we are in a little bit of uncharted territory as it really pertains to coming out of COVID. This is really would be a different time period for us.

So I'll tell you that just as I answered the last question, we're going to have to see how Q4 responds. I have had seasonal pressure in Q3, unseasonal downturn. As you can see, when we're talking about some of the valuation decline in bellies and hams it's pretty significant. That's something that we have not seen. And we got to hit the bottom, so to speak. I do think we're going to see that here shortly with hog prices where they're at. So I do have us really seeing some benefit as we end up Q4. And then I think as we start 2027, from a fresh pork perspective, albeit there is supply issues across the globe.

I mentioned some of the stats you've got global production up 0.7%. We've got Mexico up anywhere from 3% to 5% and we've got total global protein production up 1%, but work is not one of those. So -- that's the interesting -- that's the interesting dynamics that we're in right now, Peter. But I would tell you that I do believe work is resilient. I do think our business model itself is even better than that. And I do think that we'll see fresh pork rebound before we end the year, typically December is our strongest month, and I have no reason to believe it won't be this year.

Operator

This concludes question-and-answer session. I would like to turn the conference back over to President and CEO, Shane Smith, for closing remarks.

Shane Smith

So thank you, everyone, for joining us. Packaged meats continues to demonstrate its resilience, supported by strong brands, share gains and disciplined execution. In our upstream businesses, our teams are focused on the actions within our troll while navigating difficult poor market conditions. Our balance sheet remains strong, and we'll continue to invest in the business execute our strategy and create long-term value for our shareholders, and we look forward to updating you on our progress when we report our fourth quarter and full year results. So thank you all.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.