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Good day, and welcome to the Smithfield Foods Fourth Quarter and Fiscal Year 2024 Results Conference Call. All participants will be in listen-only mode. [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.

Thank you, operator, and good morning, everyone. Welcome to Smithfield Foods fourth quarter and fiscal year 2024 earnings call. Earlier this morning, we announced our results. A copy of the release as well as today's presentation are available on our IR website, investors.smithfieldfoods.com. 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 solely to historical periods. These statements are subject to risks and uncertainties 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, and in our annual report on Form 10-K as well as our other filings with the Securities and Exchange Commission. The company undertakes no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events or other factors. Please refer to our legal disclaimer on Slide 2 of the presentation for more 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. With me this morning are Shane Smith, President and CEO; Mark Hall, CFO; Steve France, President of Packaged Meats; and Donovan Owens, President of Fresh Pork. I will now turn the discussion over to Shane. Shane?

Thank you, Julie. It is my pleasure to welcome everyone to Smithfield's first results conference call since returning to the U.S. public equity market. Before I review our achievements in 2024 and our outlook for the future, I want to make sure everyone is familiar with today's new Smithfield. The last time we were in the public markets, we were a completely different company. Today, we are a new company, a packaged meats company with leading market share. The U.S. value-added packaged meats market represents a $46 billion opportunity and is supported by long-term trends, including consumer demand for higher-protein diets, high-quality nutrition, product versatility, and convenience. We have the #2 branded market position by volume across 25 key packaged meats categories. We hold impressive on-shelf performance with 93% ACV, and we have strong customer loyalty with an 81% repeat purchase rate. We have a broad portfolio of some of the most well-known and well-loved brands in the U.S., including our namesake Smithfield brand, as well as Eckrich and Nathan's Famous, value brands like Armour and Cook's, super regional brands such as Farmland and Farmer John, and specialty brands like Carando and Margherita. We complement our strong brand portfolio with private label offerings, creating a spectrum of price points to appeal to consumers up and down the value chain and making us a strategic partner to our customers. Over the past 10 years, we have gone through a significant transformation into a more unified, cohesive and profitable company. We've built a solid foundation that positions us well for the future with a strong balance sheet and ample cash flow to support our growth strategies and increase value for our shareholders. Today, we announced our Board declared a quarterly dividend of $0.25 per share, underscoring our commitment to return value to shareholders. We anticipate dividends for the full year 2025 will be $1 per share, subject to the discretion of our Board. Turning to our accomplishments in fiscal 2024. On a consolidated basis, we delivered adjusted operating profit of over $1 billion and adjusted operating profit margin of 7.2%. This compared to adjusted operating profit of $258 million in 2023, due to the challenging industry conditions for Hog Production. Our strong rebound reflects our resilient business model, led by another year of record profits in our Packaged Meats segment. 2024 marks the 10th year in a row, excluding 2020, which was impacted by COVID, that our Packaged Meats segment has expanded profitability. During that same timeframe, we also more than doubled Packaged Meats operating profit margins to nearly 14%. Our Fresh Pork team also executed well in 2024, representing the third consecutive year of profit expansion. The improvement was largely driven by our initiatives to drive cost savings in manufacturing and distribution as well as strong demand for U.S. pork. I'm pleased to report that both Smithfield and the hog production industry at large have moved beyond one of the most challenging economic cycles we've seen in decades. In 2024, we delivered a more than $600 million improvement in our Hog Production segment profitability. Our strategy is to further reduce volatility in our Hog Production segment to deliver more consistent profitability and cash flows in the future. At our highpoint, we produced 17.6 million hogs in 2019. In 2024, we have reduced that number to 14.6 million. And in 2025, we expect to produce about 11.5 million hogs. This marks significant progress toward our goal of reducing internally produced hogs to approximately 30% of the needs of our Fresh Pork segment in the medium term. Reducing the scale of our hog production operations will lower our exposure to commodity market risk, and we expect that this will help stabilize our earnings and our cash flows. Across the board, our teams delivered cost savings and efficiencies across operations, supply chain and in SG&A. And I want to thank and recognize the Smithfield team for successfully delivering our 2024 goals and for unlocking operational improvements and cost savings across our company. It's truly a part of our DNA to continuously improve operating efficiencies each year. Our 2024 results further strengthen our financial position. We ended the year with a net debt to adjusted EBITDA ratio of just 0.8 times, well below our cap of 2 times, and cash flow from operating activities of over $900 million. Our rock-solid balance sheet provides us with the financial flexibility to support our growth strategies and return value to our shareholders. Turning now to our outlook for fiscal 2025. We expect to deliver continued operating profit expansion driven by consistent execution of our five core growth strategies. First, in Packaged Meats. To achieve our outlook, we will continue to execute the strategies that have led to our third consecutive year of over $1 billion in Packaged Meats operating profit. In 2025, we plan to continue to expand Packaged Meats operating profit through ongoing product mix improvements, volume growth and innovation. Two key areas of product mix improvement and volume growth are: dry sausage and packaged lunch meat. In 2024, we expanded our dry sausage production capacity by 50 million pounds, positioning us well to grow this higher-margin category. Between 2019 and 2024, we increased units of dry sausage sold by 37%, demonstrating our success in growing this category. We also continue to successfully convert holiday hams into smaller, more frequently purchased, and higher-margin items. One of those items is packaged lunch meat, led by our flagship brand, Smithfield Prime Fresh, which commands a premium at retail. According to Circana, packaged lunch meat represents a $6.4 billion market opportunity. At 8% share, we hold the #5 market position. We believe this gives us a large opportunity to increase our packaged lunch meat volume, and improve our mix by converting our legacy seasonal hams into a more profitable category. Second, innovation. We have a pipeline of products that address consumer trends and new flavor profiles, creating convenient meal solutions and smaller package sizes. In 2025, we are addressing these trends with new offerings in our Armour, Nathan's, and Smithfield Anytime Favorites lines. Innovation extends to being a nimble partner at our retail and our foodservice customers. Our reputation for quality and service strengthens our customer relationships and enhances our ability to consistently drive profitable growth. I'm pleased to share that in January, Smithfield Culinary was named the overall winner of the 2025 IFDA Distributor's Choice Awards, recognizing our company as a strategic partner and a sales leader. Moving to the third core growth strategy, Fresh Pork. Maximizing the net realizable value of each hog and driving best-in-class operating efficiency, we are closely monitoring the tariff and geopolitical environment, which is very fluid. We have an experienced team that has worked together for more than 20 years and has navigated through numerous cycles. While we are not immune to the impact of tariffs, we have built flexibility into our system and established multiple outlets for our Fresh Pork products. We plan to leverage our leadership position to maximize product value across domestic and export channels, as well as in adjacent markets such as pharmaceuticals, pet food, pet treats, and skins for snacking. We also see continued opportunity to improve Fresh Pork profitability through operating efficiency, both in our plants and across our supply chain. Fourth, our growth strategy includes optimizing our operation. This starts with Hog Production, which supports our downstream Fresh Pork and Packaged Meats businesses by ensuring the right supply of consistent, high-quality protein. We are focused on operating a best-in-class cost structure on our retained farms through genetic transformation, herd health improvements, and procurement and nutrition savings. We are actively resizing the business by reducing the number of owned hogs produced from a highpoint of 17.6 million in 2019 to an expected 11.5 million in 2025. Over the medium term, we do plan to further reduce our internally produced hog volume to approximately 30% of the needs of our Fresh Pork segment. As I mentioned earlier, we drive a culture of continuous improvement. Each year, we look for new ways to improve operating efficiency and to reduce our cost basis with the goal to more than offset inflation. We achieve improvements across our manufacturing platform through initiatives such as automation. Within our supply chain, we strive to improve service to our customers while optimizing cost. And in procurement and SG&A, we are continuously looking for ways to reduce our overall spend. We expect these savings to again contribute to enhanced profitability in 2025. And then, finally, we will continue to look at opportunistic M&A in North America. In summary, we delivered outstanding profitability growth in 2024, driven by solid execution across our operations. We have a strong balance sheet and are well positioned to achieve our 2025 outlook and to continue our growth trajectory over the long term. With that, I'll turn it over to Mark to review our financials in more detail. Mark?

Thanks, Shane, and good morning to everyone joining the call. Our ability to deliver over $1 billion in 2024 operating profit reflects solid execution by our teams across each of our segments as well as improved market conditions, particularly in Hog Production. Across the organization, we continued to drive efficiency and improve our cost structure. Our strong profitability and disciplined financial management further strengthened our balance sheet. Our strong balance sheet gives us the flexibility to invest in our business and return value to our shareholders. Turning to the details of our 2024 results, starting with the consolidated results and then a review of our performance by segment. Consolidated sales in 2024 were $14.1 billion, which was a decrease of 3% compared to the prior year, primarily due to lower fresh pork harvest levels, which is consistent with our optimization strategy and lower external grain sales in our Hog Production segment. Packaged Meats and Fresh Pork sales were up slightly as higher average sales prices outpaced lower volumes. We delivered adjusted operating profit of over $1 billion and an adjusted operating margin of 7.2%. This compared to adjusted operating profit of $258 million or 1.8% in 2023, reflecting challenging industry conditions for hog production. Excluded from our 2024 adjusted operating results were $87 million of COVID era employee retention tax credits, which had been deferred until 2024. Additional adjustments to 2024 results were largely offsetting. Full year 2024 adjusted net income from continuing operations attributable to Smithfield was $714 million compared to $132 million in the prior year. Adjusted EPS of $1.88 compared to $0.35 in 2023. Now, turning to our 2024 segment results. Our Packaged Meats segment delivered another record year with adjusted operating profit of $1.1 billion, which is an increase of 6% versus last year. Margins also expanded by 70 basis points to 13.6% for the year. Packaged Meats is our cornerstone business. And as Shane noted earlier, except for 2020, when the segment's performance was negatively impacted by COVID, profitability has increased each year over the last decade and profit margins have more than doubled. Packaged Meats annual sales increased by 0.5% to $8.3 billion in 2024, a 3.1% increase in average price more than offset volume declines of 2.5%. Lower volumes reflect our strategy to decrease sales of lower-margin heritage products like seasonal hams while simultaneously increasing unit velocity of higher-margin items such as lunch meat and dry sausage. These products command a higher price by providing on-trend and innovative solutions to consumers and customers. We also saw lower volumes of bacon resulting from the group housing legislation in California and Massachusetts. Higher average selling price was driven by product mix shifts like the ones I just described as well as the pass-through of higher input costs due to an increase in the pork value chain year-over-year. For example, the USDA cutout rose 6.5% year-over-year and key inputs such as [value] (ph) surged by over 15%. Our ability to not only hold but expand margins in the face of increasing raw material costs was largely attributable to our cost improvement initiatives, driving down manufacturing, distribution and SG&A expenses. For the fourth quarter, we reported Packaged Meats adjusted operating profit of $313 million and a profit margin of 12.7%. Packaged Meats profit improvement of $7 million versus the fourth quarter of 2023 was largely driven by cost savings initiatives in our supply chain. This more than offset higher raw materials such as bellies and hams. Fourth quarter Packaged Meats segment sales of $2.5 billion increased by $54 million or 2.2% versus the fourth quarter of 2023. Stronger average sales price as we continue to improve our product mix more than offset volume declines. Turning to Fresh Pork. For the full year 2024, adjusted operating profit increased by $108 million or 93% compared with 2023. The improvement in results was largely driven by our continuous improvement initiatives to deliver cost savings in manufacturing and distribution as well as strong demand for U.S. pork, which is supported by higher relative prices for competing proteins and strength in export markets. Higher selling prices more than offset the impact of higher market prices for live hogs. Fresh Pork segment sales of $7.9 billion increased 0.5%. Our average sales price increase of 5.4% more than offset a 4.7% decrease in volume. Higher demand for pork drove the USDA market prices up year-over-year, while the decrease in fresh pork volume was largely due to our strategic plan to optimize harvest levels. And please note that 37% of the Fresh Pork segment sales were internal to our Packaged Meat segment, and those sales were eliminated on consolidation. For the fourth quarter, Fresh Pork operating profit of $70 million increased 57% versus the fourth quarter of 2023. The increase was driven by favorable sales margin led by value-added products such as case-ready and marinated in our retail sales channel. Product innovation in terms of new marinated flavors helped drive, and we continue to optimize manufacturing and distribution costs in Fresh Pork. These benefits more than offset higher hog prices and a tighter market spread. Fourth quarter Fresh Pork segment sales of $2 billion increased 9.1% versus the fourth quarter of 2023. The sales increase was primarily due to higher average sales price driven by strong demand for hams, bellies and ribs. USDA cutout was up 10% from the prior year fourth quarter. Turning now to Hog Production. This segment rebounded significantly in 2024, due to relief in commodity markets and actions we've taken to optimize our operations. For the full year 2024, we reported a Hog Production adjusted operating loss of $152 million versus a loss of $756 million in 2023. It's important to note that 2023 was the most challenging year for the hog production industry in over a decade, and 2023 represented the perfect storm, including an oversupply of pork, soft global demand and higher raising costs. These tailwinds resulted in sizable losses in our Hog Production segment last year. Looking ahead, the futures market is pointing to a return to profitability in the hog production industry in 2025. For 2024, Hog Production segment sales decreased by $315 million or 9.5% year-over-year, driven by a 7.8% decrease in the number of hogs sold due to our hog production reformation activities, and $171 million decrease in grain sales to external customers. This was partially offset by a 6.2% increase in our average hog sales price, which primarily reflected a higher CME hog market prices. And please note that over 80% of the revenue generated by our Hog Production segment represented internal sales to our Fresh Pork segment, and again, was eliminated on consolidation. Fourth quarter Hog Production operating loss narrowed to just $8 million, which is a 94% improvement versus the fourth quarter of 2023. The improvement was driven by robust hog selling prices and reduced raising costs. The CME was up 16% from the prior year quarter, while grain and other raising costs were down. Fourth quarter Hog Production segment sales of $782 million decreased 4.5% compared to the fourth quarter of 2023. The lower sales were primarily due to lower grain and feed sales to external customers. Hog sales were consistent with the prior year. A 6% decrease in the number of hogs sold due to our hog production optimization activities was offset by higher average sales price, including the impact of hedging. Turning now to our balance sheet and cash flows. Our solid profitability and disciplined financial management in 2024 further strengthened our balance sheet. We've established financial policies designed to provide us with financial and operational flexibility and the ability to weather economic downturns. The first of our two key financial policies is net debt to adjusted EBITDA. At the end of 2024, our net debt to adjusted EBITDA ratio was 0.8 times, down from 2.2 times at the end of 2023. We're well below our policy of less than 2 times net debt to EBITDA. Our second key financial policy is to maintain at least $1 billion of liquidity. At the end of 2024, our liquidity was $3.2 billion, which is well above our policy threshold. 2024 net cash flows from operating activities increased $228 million year-over-year to $916 million. Capital expenditures in 2024 were $350 million compared to $353 million in 2023. More than 50% of our CapEx investments funded projects that will drive both top line and bottom line growth. This consisted primarily of various plant expansion, automation and improvement projects. We added capacity to produce high-margin products such as dry sausage and lunch meat. Additionally, we continue to lower our manufacturing cost structure and better utilize labor with significant investments in automation. As Shane mentioned, today, we announced that our Board declared a quarterly dividend of $0.25 per share, reinforcing our commitment to return value to shareholders. Turning now to our outlook for fiscal 2025. In the face of a dynamic consumer spending and tariff environment, we expect to continue to drive margin expansion by executing on our five core strategies that Shane reviewed. First, we anticipate that total company sales to increase in the low- to mid-single-digit percent range compared to fiscal 2024. Our outlook for segment adjusted operating profit is as follows: for our Packaged Meats segment, we anticipate adjusted operating profit in the range of $1.05 billion to $1.15 billion; for Fresh Pork, we anticipate adjusted operating profit of between $150 million and $250 million; and for Hog Production, we anticipate adjusted operating profit to range between a loss of $50 million to a profit of $50 million. We anticipate that total company adjusted operating profit in the range of $1.1 billion to $1.3 billion. Total company operating profit outlook reflects the continued efforts to more than offset inflation through cost savings and efficiency initiatives. We expect capital expenditures of between $400 million and $500 million for fiscal '25. And finally, we expect an effective tax rate between 23% and 25% in 2025. In summary, our outlook for 2025 reflects continued operating profit growth with a range of outcomes that are reflective of the dynamic consumer spending and tariff environment. With respect to the first quarter of 2025, I want to point out some market-related trends. There's been strength in hog prices as well as meat prices in the first quarter. Since we play across the vertical, it benefits Smithfield as a whole. With respect to each segment, in our Packaged Meat segment, raw material prices are up and Easter is later than last year, dampening Q1 profitability versus last year. For Fresh Pork, last year in Q1, we saw an unusually strong spread between the cut-out and hog prices and the spread this year reflects a more normalized level. In Hog Production, we're seeing higher hog prices and lower grain prices this year versus last. And as a reminder, with the new external hog production ventures that both commenced in Q1 of this year, we'll see higher external grain sales and hog production this year, and these sales are at a neutral margin. In summary, these are the key market trends to think about when comparing first quarter of 2025 results to the first quarter of 2024. With that, I'll ask the operator to open up the call for Q&A.

[Operator Instructions] The first question comes from Peter Galbo with Bank of America. Please go ahead.

Hey, good morning, Shane and Mark and team.

Hey, peter.

Mark, maybe just to start, I appreciate the comments you gave on the first quarter, just year-over-year comparison, and that's very helpful. I was wondering, as it pertains to the sales guidance for the year, the low- to mid-single digits, maybe if you could just give us some additional details, how you're thinking about the moving pieces on that by segment? And to the extent that you can, just any color around kind of volume relative to price that's baked into your expectations on the sales line?

Yeah. So, in terms of top line guidance, again, low- to mid-single-digit growth. And again, we've seen appreciation in the markets in the first part of the year, and expecting that to continue. So with that, coupled with modest volume growth across the business segments, excluding Hog Production, we'll see that top line grow in that low/mid-single-digit range.

Got it. No, that's helpful. Thank you. And Shane, maybe just more broadly on hog production. I appreciate the guidance on kind of getting us a range for the year. I think through the first two months of the year, at least some of the third-party data would suggest that hog production is certainly much more profitable than last year, but maybe even running ahead of expectations. So, I think that was what you were also implying in your prepared remarks, but just wanted to understand kind of the improvements in industry profitability you're expecting this year relative to your own guidance, which I think calls for kind of breakeven profits at the midpoint. Thanks very much.

Yeah. When we look at hog production this year, one, as we think about it internally, Peter, we've done a lot of work to improve our underlying cost structures, and we're seeing the benefit of that today. Comparing to 2023, we really saw high raising costs really led by corn and soybean mill. And we saw in the back part of 2024, those come down to a more normalized level. As we've rationalized our hog production operations to get down to that 11.5 million number that I referred to, that was really a function of doing a few things. The first is as we took those farms out, we were really looking for high-cost farms. So, farms that were either just underperforming due to a number of reasons or they were geographically displaced, meaning they were in areas that just inherently had a high raising cost. And so, you can think of places like Utah and Arizona. So, moving that out of our system just inherently improved our cost structure. And so, in conjunction with that, what we've been working on is a number of things, including a genetic changeover. So, we're nearly done with what has turned out to be about a five-year genetic changeover that will have a big impact on our cost structure. Also coupled that with health and livability initiatives and feed cost initiatives. And so, those things outside of the market improvement we saw were really inherent to our system where we're seeing cost improvement. Now, to your question, when we look at our model looking forward and using the futures markets, and looking at the crush, we do see the industry returning to profitability. It is showing 2025 will be a profitable year. We still are doing things to improve our cost structure. But we believe the range we've given that negative $50 million to plus $50 million is a good range based on all the macro environment conditions that Mark referred to. And so, that's where we believe that we'll end the year based on what we see today.

Great. Thanks very much, guys. I'll pass it on.

The next question comes from Ben Theurer with Barclays. Please go ahead.

Hey, good morning. Shane, Mark, congrats on getting the first quarter out as a public company again. Two quick follow-ups. So, number one, I mean, Peter asked about like just where the sales growth is coming from, and I think I understood some modest volume growth. Can you give us maybe a few more examples in between what you've been seeing already maybe in 1Q? Because you said it's a little softer than a year ago. So just between Fresh Pork and the Packaged Meat side as to how to think about the volume drivers throughout the year? And then, my second question is really just related around, call it, global trade environment and uncertainty. Have you seen anything amongst your customers, be it in the domestic market or in the international market, i.e., the key export regions of being more hesitant putting orders in and going more to spot purchases? Just to see if there's any behavioral shift.

Yeah. Thanks, Ben, for the comment. Steve, maybe that -- maybe you can take that question.

Sure. So, this is Steve France. So, I'll talk a little bit about what we think is coming at us from 2025 on Packaged Meats. So, when you think about Packaged Meats, we have consistently outperformed key competitors in terms of profitability and also margins. And when you think about that as far as what's gotten us to this point over the last 10 years, it's really the strategies that we have in place. So, when you think about some of the strategies, some of the big benefits that we have is really the strong brand portfolio that we currently have, which really provides us a sizable competitive advantage in a challenging consumer environment when you think about the extensive portfolio of brands across the pricing spectrum, which really enables us to provide that consumer branded solutions across all economic situations. So, when you think about that, depending on their economic situation, as consumers trade either going from a premium brand down to a mid-tier or mid-tier down to value, or vice versa, the reality is we have brands. So, the way we've segmented our brands and position our brands is that we can capture that wallet share as that consumer moves up and down that pricing spectrum. The other big benefit that we have is if that consumer does decide to trade out of a brand and go into private label, there's a good chance that we can capture that consumer with some of the private label business that we do with our customers. So, we feel that we're in a really good position from that standpoint. The other strategy that you've heard us talk about over the last several months is really the mix optimization. And when you think about the optimization, that is really one of the big drivers that we have for the growth of packaged meats not only from a top line, from a unit sales standpoint, but also from a profitability standpoint. So, when you think about some of the comments that Shane has mentioned in the past about really that transition for Smithfield going from a commodity company to more value-added premium products. And a great example of that I can share here is when you think about seasonal hams or spiral hams. So, within that category, we can typically capture that consumer. They might buy one, two, maybe three times a year. So, now, we know that the trends of that category, it is declining. So, what we have positioned ourselves is we're taking that same [ham muscle] (ph) now, and now we're converting that and taking that into more value-added premium products. So, that can go into Prime Fresh that you've heard us talk about that's doing extremely well at retail or it can also go into net weight ordered hams. So, by doing that, think about the reach that we have from a consumer standpoint. So, instead of one consumer buying that seasonal ham once or twice a year, that same consumer or multiple consumers are now buying our product, and now we're moving anywhere from 10 to 15 different units instead of two to three units to that consumer. The other big initiative that we have in strategy that has got us to this point on Packaged Meats and will continue to drive our growth is from an innovation standpoint. And when you think about innovation, it's been a big part of our growth strategy, not only on the retail side, but also on the foodservice channel. And we do have a very disciplined process that starts with the consumer or foodservice operator or the foodservice distributor first. And this process has really allowed us to stay in front of changing consumer trends and also develop targeted innovation, which really increases our chance of success, and also longevity for the products that we bring out to market. And then, finally, one of the big drivers that we have has made a big difference, not only in our bottom line results, but we also have line of sight to continue to have improvements is when we think about operational efficiencies. One of the comments that you've heard us talk about is the fact that we've invested over $3 billion in CapEx since 2013, really focused on automating and then redeploying that labor into increased capacity for Packaged Meats, and that's made a big difference for us. And then, when we think about cost savings, we have extreme focus on where to take cost out of the system, whether it's through supply chain, procurement and SG&A. But all those things have made a big difference. And we expect as we go through that process is that really covers any inflationary costs that come at us from year-to-year. So, we feel that we're in a very good position with the strategies that we have in place for Packaged Meats to continue the trends that we've been delivering over the last 10 years.

So, Ben, your second question was to the geopolitical situation. Is that correct?

Yeah. Just like if you're seeing any change in behavior from your customers because of all that uncertainty, I mean, tariffs on off, on off. I mean, there seems to be a lot of confusion and if that has caused anything, particularly in your export markets?

Okay. Maybe Donovan, maybe you'll take that and talk about the global impacts on your business.

Yeah. Thanks, Ben. From a Fresh Pork perspective, the recent climate has caused some disruption as you're talking to. You've seen the adjustments in the markets that we've seen through the potential tariffs in Mexico and Canada. So, I can't say that we haven't seen any impacts from a disruption perspective, but they have been fairly minimal. So, I mean, I'll just add that from a Fresh Pork perspective, we have a very dynamic business that is impacted by global issues on a daily basis. Our business management and risk management team is responsible for analyzing all aspects that can have both short-term and long-term impact on our business. And then, the team will reshape our marketing strategies and go-to-market plan as necessary. So, I can't speculate on any specific tariff impacts, but we do have recent history with tariffs that can help us do a better job of contingency planning as we are -- as we face similar upcoming challenges. I'll also add that a huge initiative for our profitability model is to return to that best-in-class operational efficiency expectation and cost savings initiatives that were slowed by the pandemic years. This is something that we have total control of. Our focus from an operating perspective is to be the low-cost producer in the industry. And I'll end with, I'm very comfortable with our current market outlook and contingency planning models. I do believe we are uniquely positioned to weather punitive impacts with our robust Packaged Meat segment, seeing potential benefits to help neutralize the total company impact that you're referring to.

And Ben, I would just add, when you -- we think about our Fresh Pork business, we've done a really nice job over the last couple of years of really building in a lot of flexibility so that we can move with those markets. And so, we're always looking for that highest return opportunity for every part of the hog that we harvest. As Donovan said, our best customer is always to our Packaged Meats business. And then, we sell the remainder of that Fresh Pork either in the U.S. domestic market or export. But we've also developed a lot of other channels outside of the 30 different export markets that we can go to, whether that's the pet food channel, the pet treats channel, the pharmaceutical channel. And so, really kind of building in a lot of levers that we can pull so that as the global environment changes, we can react very quickly and take advantage of that or use that to our benefit in some cases. Also, Donovan mentioned Mexico. And as you know, we have operations on the ground in Mexico, which makes us a little bit different. And so, when we think about tariff impacts on a global basis, we also think there's going to be some trade-offs within our own business, that Mexican business, which is built for the Mexican market, should perform well in this environment. And we may see some profit migration across the different vertical integration or vertically integrated aspects of our company. But I think we're pretty well positioned through our scenario modeling and analysis to weather any of the tariff instances that come our way.

Okay, got it. Thank you very much. I'll pass it on.

Yeah, thanks, Ben.

The next question comes from Thomas Palmer with Citi. Please go ahead.

Good morning and thanks for the question guys.

Hey, Tom.

I wanted to make sure I understood the comment about 1Q seasonality, especially for Hog Production. I think traditionally, in the first quarter, maybe you see seasonally weaker results for Hog Production. Again, I just want to clarify, did the comments today suggest that maybe you'd see some seasonal or counter-seasonal strength to start off the year? And then, kind of for the full year, you're assuming that embedded in the outlook is that, that doesn't hold?

Yeah. In Hog Production, you're right, the seasonality aspect of it is typically in the first and fourth quarter, you're losing money. And in the second and third quarters when you tend to make money. When we look at our first quarter of this year, I would just say we believe it's going to be performed significantly better than the first quarter of last year. And again, you can look at those the future strips and other indices [indiscernible] state model, for example, would give you a good indication of where our profitability for the industry should be. I would just say that this first quarter will be much better than the first quarter of last year.

Okay. Thank you for that. And then, just on the hog supply side, just broadly in the U.S., you guys have a lot better insight, I think, than we do. Are we seeing the point where hog farmers are making enough money to justify increased production? Just anything that you're seeing?

I think -- and Donovan, you jump in here, too. I think the hog supply is in balance right now. I think the futures would indicate that there will be profitability that in any other time, we could see some expansion. But I think coming off the heels of 2023, when the industry was just under such tremendous pressure from losses, I don't think there's going to be, in my opinion, a big appetite to see a rush to expansion. Donovan, I don't know from the Fresh Pork side, if you see something.

Yeah, totally agree. We've got more than half our pigs coming from external suppliers. And so, we've got many relationships that we are working with on a daily basis. And I would agree totally with Shane's comments there that, yeah, there's still -- while things look better than they have over the last 18 months in hog production, I don't think anybody is ready to just upset the apple cart, so to speak, here and add tremendous amount of hogs to the scenario. So, I think balance is the key. And Shane alluded to that. The industry is very content staying in balance and trying to keep some -- I would say, supply and demand economics in place here for an extended period of time.

Great. Thank you for the insights.

The next question comes from Megan Clapp with Morgan Stanley. Please go ahead.

Hi, good morning. Thanks so much. I wanted to start by asking about Packaged Meats. Obviously, really strong results and a nice finish in '24. And I think one of your slides mentioned increasing profits as the priority for '25, but I guess if we look at the overall guide for Packaged Meats, I think you are looking for a slight decline in operating profit at the midpoint. So, maybe can you just -- you talked about some volatility in later Easter in terms of seasonality here in 1Q. But for the year, if we just take a step back, can you comment a little bit on the puts and takes driving that implied outlook for us?

Yeah. Steve, do you want to take that?

Sure. So, I would say that the outlook that we have really reflects our best view of the business as we see it today. So, we plan to continue to expand Packaged Meats operating profit through ongoing product mix improvements, volume growth and also innovation. So, we are providing a range of estimates that really takes into account higher input prices and a cautious consumer spending environment. That said, we believe we can mitigate some of these challenges the external market. So, when we think about the uncontrollable piece of that, what we try and do is break down that uncontrollable into pieces to understand how can we mitigate that, whether it's through the potential fluctuations of the raw material market and how do we position ourselves with our customers. So, a good example would be, say, private label. So, we work with our private label customers to put them on to formula pricing. So, by doing that, and there's different timeframes for those formula pricing, but as we do that, it helps to mitigate and smooth out over a longer period of time and takes out kind of those spikes and valleys when you think about the fluctuations of the raw material market. But as far as what we're looking at for this year, when you think about the categories that we participate in, in today's world, people are looking for a high protein, highly nutritious diet. And the products that we produce certainly fill that need. And then, when you think about one of the early comments that Shane had made, the categories that we participate in, it represents a $46 billion opportunity. And even though we have #2 share in 25 of the categories that we participate in and 10 of those categories are $1 billion-plus categories. And within that, we have a positioning of either a one or two share in those top 10 billion-dollar categories. The reality is we are focused on -- we're not satisfied by any means. And we are focused on the opportunities to not only move up on those other four categories of the billion-dollar category, but to continue to close that gap and increase the share. So, even though we might be #1 in a specific category, we definitely see a tremendous amount of white space based off the brands that we have to continue to grow within that space. So, we're very excited about not only what we're looking at in '25, based on the opportunities to grow that value-added piece, and that's a big focus of what we've been doing the last several years, which you guys can see, but also as we move forward, that's where we see the opportunity for Packaged Meats.

Great. Super helpful. And maybe for Mark, just a follow-up on some of the 1Q comments. So, I was wondering if it sounds like there's going to be some year-over-year pressure on Packaged Meats and Fresh Pork specifically, but some nice year-over-year improvement on Hog Production. So, as we think about just the total 1Q operating profit margin, is it fair to kind of put those together that the Hog Production improvement should more than -- year-over-year should more than offset any timing pressure you're expecting in Fresh Pork and Packaged Meats, such that just trying to understand whether 1Q profit can still grow year-over-year.

Yeah. No, absolutely. I think that's the right way to look at the market dynamics in terms of a strengthening year-over-year position in terms of Hog Production. With the seasonal shifts that we talked about within Packaged Meats shifting to the earlier Easter season out and higher raw material costs. Those are the dynamics at play in the first quarter.

Okay, great. Thank you.

The next question comes from Leah Jordan with Goldman Sachs. Please go ahead. Excuse me. Ms. Jordan, your line is open. Did you have a question?

Hello? Good morning.

We can hear you now. Please go ahead.

Hello. Thank you. Sorry about that. Congrats, Mark and Shane, on a great quarter first back out here. I just wanted to go back to the Packaged Meats and consumers discussion. I think you noted a couple of times in prepared remarks, a dynamic environment, and I think Steve, just called it a cautious consumer environment. So, just curious if you've actually seen any shift in behavior by your consumer over the last couple of months, maybe any shift in brands or products they're engaging with? And then just given this dynamic environment, has your view evolved at all with how you think about the tailwind from the value-added shift? Or perhaps there's any need for more trade spending as we go throughout this year?

No, thank you for the question. So, I would say it really depends on the category. So, I would say there is some shift. And again, it depends on which category or segment that you're talking about. But the reality is we are very well positioned with the brands that we have. As that consumer does shift, we're still able to capture that consumer. So that is a huge benefit for us. And then, as I mentioned, if they do decide to trade out and go into private label, we can also capture that consumer. And when you think about the private label side of the business, I would say historically, and this is going back many years, but I would say historically, private label was kind of considered a bad word. You didn't want private label business. But I would say one of the shifts that we've seen that we've actually had a big benefit as a company is that as not only retailers, but also foodservice operators and foodservice distributors as they work to elevate their private label, that's been a major benefit for us. And what I mean by that is as they want a higher-quality product, it really limits the number of manufacturers that are out there. So, I would say, historically, pretty much any manufacturer can make a low-tier value-add or a value-tiered product from a commodity standpoint for somebody's private label. And as that dynamic has shifted and as they look for more value-added premium type products, that puts us a leg up over quite a few manufacturers. So, not only the ability to provide a higher-tier, higher-quality product for our customers, but as we do that, it also has changed the dynamic that we have and the relationships that we have with those customers. And we see the benefit of that on the branded side of our business. So, as we partner with them to provide them that quality product, and again, they pick us because not only the product we can deliver, but also you start thinking about the food safety side of that. So, we have well over 600 people in our plants dedicated to food safety. So, that is a major concern when somebody is putting their name on that product. And then, the other one is the plant redundancy. So, when you put all those things together, we become a premier supplier. So, once we become that premier supplier, that provides us the opportunity to have much more strategic long-term conversations. So, those conversations are not about the next ad at that point. It's about what are we doing in the next year, two years, three years out, and that conversation revolves around the branded side of the business and also the private label side of the business. So, it has really shifted kind of where we are as far as a relationship standpoint with our customers. So, even though that consumer will shift, we can still capture that consumer because of the broad base of business that we have on the branded side and on the private label side. So, we're very comfortable with the positioning that we have, and we see a lot of opportunities in front of us because of that.

That's very helpful. Thank you. And then, just for a follow-up on the Hog Production business around your optimization plans. I heard the guide for a reduction to 11.5 million hogs this year. But just if you could provide an update on the visibility into further reductions to hit your medium-term goal? Any status update on the ongoing discussions you have there with potential partners?

Yeah. What I would tell you, Leah, is we have done a number of things, and it's really based on geographic regions. So, we grew hogs in three different regions in the U.S., and they each have their own unique profile. So, in the East Coast, our strategy has been to convert contract growers into independent hog producers. And we've been successful with two of our largest growers in the East Coast. In the Midwest, where there is a robust network of independent hog producers, I think we'll see an opportunity to convert some of our internally grown again into that independent producer model. And in Missouri, it is really an industry that was built as a company-owned facility. So, there's not a lot of independent producers. So the strategy there was to fix that 2 million hog complex, so that we could really be in the top 5% or 10% of cost structures. We -- as I mentioned at the beginning, our goal is to be down to at least 10 million hogs in the medium term. We have a number of conversations that are ongoing that we'll update our shareholders on if they develop more fully. But that's our driving force right now is to get to that 10 million hogs that 30% vertically integrated level.

Great. Thank you.

We have time for one more question. Our last question comes from Manav Gupta with UBS. Please go ahead.

Good morning. Thank you for squeezing me in. Just trying to understand the dividend payout policy here. The dividend you instituted came in better than our expectations. So, how should we think about the dividend going ahead? Would it be a percentage of your net income? And how can you grow this dividend from here? Thank you.

The dividend policy is 50% of net income, and we expect this to be a stable and growing amount paid each year. And again, with the significant cash flow generating capabilities of our business, we expect to be able to grow that again subject to approval, obviously, of the Board.

Thank you.

Thank you, [indiscernible]. So, I'd like to end today's call by thanking everyone who's joined the call today. We are excited to be back in the U.S. equity market and to be able to continue to share our story with investors. As you heard from many of the comments, we do believe we're well positioned to deliver long-term growth and increase value for our shareholders. We do look forward to sharing our first quarter results with you when we meet together again at the end of April. So thank you, everyone.