S-1/A: General form of registration statement for all companies including face-amount certificate companies
Published on January 21, 2025
As filed with the Securities and Exchange Commission on January 21, 2025.
Registration No. 333-284141
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Smithfield Foods, Inc.
(Exact name of registrant as specified in its charter)
Virginia | 2013 | 52-0845861 | ||||||
(State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification No.) |
200 Commerce Street
Smithfield, Virginia 23430
(757) 365-3000
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
C. Shane Smith
President and Chief Executive Officer
200 Commerce Street
Smithfield, Virginia 23430
(757) 365-3000
(Name, address, including zip code, and telephone number, including area code, of registrant’s agent for service)
With copies to:
Colin Diamond
Brandon Bortner
Alex Herman
Paul Hastings LLP
200 Park Avenue
New York, New York 10166
(212) 318-6000
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Andrew J. Pitts
Ryan J. Patrone
Cravath, Swaine & Moore LLP
Two Manhattan West
375 Ninth Avenue
New York, New York, 10001
(212) 474-1000
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Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement is declared effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer | ☐ |
Accelerated filer | o |
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Non-accelerated filer | ☒ |
Smaller reporting company | o |
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Emerging growth company | o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities nor a solicitation of an offer to buy these securities in any jurisdiction where the offer and sale is not permitted.
Preliminary Prospectus (Subject to completion, dated January 21, 2025)
34,800,000 Shares
Smithfield Foods, Inc.

Common Stock
This is the initial public offering of common stock of Smithfield Foods, Inc. We are offering 17,400,000 shares of our common stock, and SFDS UK Holdings Limited (the “selling shareholder”), an indirect wholly owned subsidiary of our parent company, WH Group Limited (“WH Group”), is offering 17,400,000 shares of our common stock. We will not receive any proceeds from the sale of stock by our selling shareholder.
There is currently no public market for shares of our common stock. We expect that the initial public offering price of our common stock will be between $23.00 and $27.00 per share. We have applied to list our common stock on the Nasdaq Global Select Market, under the symbol “SFD.” We will not consummate this offering of our common stock unless our common stock is approved for listing on the Nasdaq Global Select Market.
After the completion of this offering, WH Group will beneficially own approximately 91.2% of our shares of common stock eligible to vote in the election of our directors (or approximately 89.9% if the underwriters exercise in full their option to purchase additional shares of our common stock). As a result, we will be a “controlled company” within the meaning of the corporate governance standards of The Nasdaq Stock Market LLC, or Nasdaq, and qualify for, and intend to rely on, exemptions from certain corporate governance requirements as described herein. See “Management—Controlled Company Exemption.” There is no single shareholder or group of shareholders which owns 50% or more of the voting power of WH Group as of the date of this prospectus. As a result, WH Group would not be considered a controlled company within the meaning of the corporate governance standards of Nasdaq.
Investing in our common stock involves risks. See “Risk Factors” beginning on page 32 to read about factors you should consider before buying shares of our common stock.
Neither the Securities and Exchange Commission, or the SEC, nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
Per Share | Total | ||||||||||
Initial public offering price | $ |
$ |
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Underwriting discounts and commissions (1)
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$ |
$ |
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Proceeds, before expenses, to us |
$ |
$ |
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Proceeds, before expenses, to selling shareholder |
$ |
$ |
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(1)See “Underwriting” for additional information regarding underwriting compensation.
At our request, the underwriters have reserved up to 2% of the shares of our common stock offered by this prospectus for sale at the initial public offering price through a directed share program to our directors, officers and certain of our employees. See “Underwriting—Directed Share Program.”
The selling shareholder has granted the underwriters a 30-day option from the date of this prospectus to purchase up to 5,220,000 additional shares of our common stock. Such shares are offered by the selling shareholder at the initial public offering price listed on the cover page of this prospectus, less underwriting discounts and commissions.
The underwriters expect to deliver the shares on or about , 2025 through the book-entry facilities of The Depository Trust Company.
Morgan Stanley | BofA Securities | Goldman Sachs & Co. LLC |
Barclays |
Citigroup |
BNP PARIBAS |
HSBC |
Rabo Securities |
BTIG |
The date of this prospectus , 2025.







TABLE OF CONTENTS
Page | |||||
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We, the selling shareholder and the underwriters have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus, any amendment or supplement to this prospectus or any free writing prospectus prepared by us or on our behalf. We, the selling shareholder and the underwriters take no responsibility for, and cannot assure you as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares of our common stock offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so.
The information contained in this prospectus is current only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of shares of our common stock. Our business, results of operations or financial condition may have changed since that date.
We, the selling shareholder and the underwriters have not done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of our common stock and the distribution of this prospectus outside the United States.
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ABOUT THIS PROSPECTUS
Unless otherwise indicated or the context otherwise requires, references in this prospectus to “Smithfield,” “our company,” “we,” “us” and “our” refer to Smithfield Foods, Inc., a Virginia corporation and its consolidated subsidiaries.
Prior to August 26, 2024, we conducted business operations in the United States, Mexico and Europe. On August 26, 2024, we completed the carve out of our European operations, or the European Carve-out, pursuant to which we transferred our operations in Europe to WH Group. Following the European Carve-out, we principally engage in operations in the United States and Mexico. Unless otherwise expressly stated or the context otherwise requires, the description of our business included in this prospectus reflects our business after giving effect to the European Carve-out. The results of operations, assets and liabilities, and cash flows of the European operations as presented in our consolidated financial statements have been condensed into separate line items and presented in the consolidated statements of income, the consolidated balance sheets and the consolidated statements of cash flows, respectively, as discontinued operations, and this treatment has been applied retrospectively to all periods presented. Unless otherwise expressly stated, the financial information of our company included in this prospectus reflects the historical financial statements of Smithfield (which has been an indirect, wholly owned subsidiary of WH Group), as retroactively adjusted to remove the impact of the discontinued operations.
Industry and Market Data
Within this prospectus, we reference information and statistics regarding the market for our products. We have obtained some of this information and statistics from various independent third-party sources, including government agencies, independent industry publications, reports by market research firms and other independent sources. Some data and other information contained in this prospectus are also based on management’s estimates and calculations, which are derived from our review and interpretation of internal surveys and independent sources. Data regarding the industries in which we compete and our market position and market share within these industries are inherently imprecise and are subject to significant business, economic and competitive uncertainties beyond our control, but we believe they generally indicate size, position and market share within this industry. In addition, assumptions and estimates of our and our industries’ future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors. These and other factors could cause our future performance to differ materially from our assumptions and estimates. See “Forward-Looking Statements.”
The sources of certain statistical data, estimates and forecasts contained in this prospectus include the following independent industry publications or reports:
•Agriculture and Horticulture Development Board, “2022 pig cost of production in selected countries: Overview,” December 13, 2023;
•Business Research Insights, “Dry Sausage Market Size, Share, Growth, and Industry Analysis, By Type (Pork Dry Sausage, Beef Dry Sausage, Poultry Dry Sausage), By Application (Pizza, Ready to Eat Food, Meals), Regional Forecast to 2031,” last updated September 9, 2024;
•Circana Retail/Deli database, last accessed January 2025;
•Euromonitor International Limited, Global & U.S. Meat report;
•Euromonitor International Limited, Meat & Value-Added report;
•International Food Information Council, 2024 IFIC Food & Health Survey;
•Iowa State University forecasts – Study; Estimated Returns – Swine (Farrow to Finish) latest month data collected July 2024;
•Ipsos, “Nearly nine in ten Americans consume meat as part of their diet,” https://www.ipsos.com/en-us/news-polls/nearly-nine-ten-americans-consume-meat-part-their-diet, May 12, 2021;
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•Mintel Group – Reports:
•Protein and Protein Alternatives – US – 2024 (April 24, 2024);
•The Future of Foodservice – US – 2024 (January 31, 2024);
•Bacon and Lunchmeat – US – 2023 (September 30, 2023);
•Hot Dogs and Sausages – US – 2023;
•Protein and Protein Alternatives – US – 2022; and
•Grocery Retailing – US – 2024 (June 26, 2024);
•National Hog Farmer, “NHF Snapshot - Packer Capacity,” May/June 2024 Issue;
•Organization for Economic Co-operation and Development, “Indicators – Meat Consumption, OECD-FAO Agricultural Outlook,” 2023-2032;
•Progressive Grocer, “The PG 100: The Top Food Retailers in North America,” May 20, 2024;
•U.S. Department of Agriculture, “Interagency Agricultural Projections Committee,” October 2023; and
•U.S. Department of Agriculture, “USDA Agricultural Projects to 2033,” February 2024.
Trademarks, Trade Names, Service Marks and Copyrights
We own or have rights to use various trademarks, tradenames, service marks and copyrights, which are protected under applicable intellectual property laws, including, for example: Smithfield, Eckrich, Farmland, Armour, Farmer John, Kretschmar, John Morrell, Cook’s, Gwaltney, Carando, Margherita, Curly’s and Smithfield Culinary. This prospectus also contains trademarks, tradenames, service marks and copyrights of other companies, which are, to our knowledge, the property of their respective owners. Solely for convenience, certain trademarks, tradenames, service marks and copyrights referred to in this prospectus may appear without the ©, ®, and ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, tradenames, service marks and copyrights. We do not intend our use or display of other parties’ trademarks, tradenames, service marks or copyrights to imply, and such use or display should not be construed to imply a relationship with, or endorsement or sponsorship of us by, these other parties.
Presentation of Financial Information
Our fiscal year is the 52-week or 53-week period which ends on the Sunday nearest to December 31. Unless otherwise noted, all references to “2024,” “2023,” “2022” and “2021” are to the 52-week periods ended December 29, 2024, December 31, 2023, January 1, 2023 and January 2, 2022, respectively.
The consolidated financial statements in this prospectus were prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, which requires us to make estimates and use assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. It is possible that actual results could differ materially from those estimates. The information reflects all normal recurring adjustments that we believe are necessary to present fairly the financial position and results of operations for all periods included. Totals and percentages may be affected by rounding.
Non-GAAP Measures
This prospectus contains certain financial measures, including Adjusted Net Income and Adjusted Net Income Margin, EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin, Net Debt, Ratio of Net Debt to Adjusted EBITDA, Adjusted Segment Profit, Adjusted Segment Profit Margin and Free Cash Flow that are not required by, or prepared in accordance with, GAAP. We refer to these measures as “non-GAAP” financial measures. See
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“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Measures” for our definitions of these non-GAAP measures, information about how and why we use these non-GAAP measures and a reconciliation of each of these non-GAAP measures to its most directly comparable financial measure calculated in accordance with GAAP. You should be aware that our presentation of these and other non-GAAP financial measures in this prospectus may not be comparable to similarly titled measures used by other companies.
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PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before deciding to invest in our common stock. You should read the entire prospectus carefully, including “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus, before making an investment decision.
Our Mission
Good food. Responsibly.® At Smithfield, we are helping to feed a world of nearly eight billion people. Our products are found on tables everywhere. We provide families with wholesome, safe and affordable food while finding new and innovative ways to care for our people, communities, animals and planet. It is our responsibility and our promise. We make more than good food. Good is what we do.
Our Company
Smithfield is an American food company and an industry leader in value-added packaged meats and fresh pork with over $14 billion in annual sales. We employ approximately 34,000 people in the United States and approximately 2,500 people in Mexico. We maintain high-quality standards, meeting demand through our strong relationships with thousands of U.S. family farmers and blue-chip global customers. We are a market leader due to our scale, diverse portfolio of strong brands and products and reputation as a trusted partner known for quality. We market our products under a leading portfolio of iconic brands including Smithfield, Eckrich and Nathan’s Famous, among many others.
Our ambition is to be the most trusted food and protein company in North America as we feed people in the United States and around the world, while embracing a culture of responsibility, operational excellence and innovation. We produce and distribute a wide variety of packaged meats and fresh pork products both domestically and abroad. We conduct our operations through three reportable segments: Packaged Meats, Fresh Pork and Hog Production. We are a leading provider of packaged meats in the United States, with the number two branded market position by volume across the 25 key packaged meats categories in which we compete, according to Circana. These 25 key packaged meats categories represent a total addressable market opportunity of $45 billion annually, of which we had an approximate 20% market share by volume (including our private label sales) as of December 2024. We are also the largest fresh pork processor in the United States with approximately 23% market share as of Fall 2023, according to National Hog Farmer. We sell our products across diverse channels including retail and foodservice, distributing in all 50 states in the United States, as well as export markets. We are a leading exporter of pork and pork products, with export sales representing 13% of our total sales for the nine months ended September 29, 2024.
Our Packaged Meats segment is the cornerstone of our business with a value-added product portfolio and profitability that has more than doubled since 2014. Alongside our Packaged Meats segment, our Fresh Pork and Hog Production segments remain integral parts of our business, providing significant scale and operational benefits in support of our product offerings and our ability to meet demand consistently across economic cycles. We believe our emphasis on value-added packaged meats, along with our commitment to food quality, strong financial position and steadfast devotion to our stated mission, will continue delivering value for our shareholders.
Smithfield’s supply chain includes company-owned and contract farms in the United States and Mexico, as well as long-standing relationships with more than 4,000 independent U.S. family farms who meet our animal care and quality standards. Our model offers a resilient supply chain, providing us with several competitive advantages, including an assured supply of consistent, high-quality protein, the ability to innovate and lead in areas such as group-housed pork and the ability to deliver differentiated products to meet customer specifications. We operate 39 facilities producing fresh pork and packaged meats in the United States and one fresh pork facility in Mexico, and we focus on continually optimizing our operations by identifying opportunities to reduce costs and increase flexibility to meet market demand. Additionally, we remain committed to investing in innovation across our products, packaging and manufacturing processes. We seek to be the supplier of choice to our customers and maintain our reputation for high-quality, safe and delicious products.
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A New Smithfield in the Public Eye
Founded in 1936, we began as a pork processing operation named The Smithfield Packing Company. Through a series of acquisitions beginning in the 1980s, we became the largest fresh pork processor in the United States. In 2013, Smithfield was taken private and became a wholly owned subsidiary of Hong Kong-based WH Group, which is publicly traded on The Stock Exchange of Hong Kong Limited. WH Group is a limited liability company incorporated in the Cayman Islands, the shares of which have been listed on the Main Board of the Stock Exchange since August 2014. Through its subsidiaries, WH Group is principally engaged in the production and sale of packaged meats and pork.
Following the acquisition of Smithfield by WH Group, we focused on integrating our independent operating companies into a cohesive business. Our “One Smithfield” initiative unified our operations, brands and employees under one corporate umbrella, achieving synergies and enhancing profitability through disciplined cost management and balance sheet strength.
In recent years, we have transformed into a differentiated American food company with a leading position in value-added packaged meats and fresh pork, and our headquarters remains in our namesake town of Smithfield, Virginia.
In August 2024, we completed a carve-out of our European operations to focus our local management teams on the different market dynamics of North America and Europe. Pursuant to the European Carve-out, our operations in Europe were transferred to WH Group.

Led by growth in our Packaged Meats segment, our product portfolio has evolved to a higher concentration of value-added packaged meats offerings, significantly improving profitability. Additionally, we have reduced complexity and improved our cost structure in our plant operations by rationalizing our SKU count. Since 2019, we have reduced our Packaged Meats SKU count by over 40% and increased volume velocity (pounds/item) by over 60%.
The growth in our Packaged Meats segment has helped to increase our overall scale and profit margins and to stabilize our earnings and cash flows during volatile commodity cycles and economic downturns. This is the anchor of our strong financial position and fuels continued investment in our business. We have invested over $3 billion in capital expenditures since 2013, driving our organic growth strategy and improving our operations, including automating processes.
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The following table sets forth certain metrics for our business for 2014 and 2023 and highlights our strategic growth and evolution led by our Packaged Meats segment.

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(1)Based on our historical financial statements for the year ended December 28, 2014, which are not included or incorporated by reference in this prospectus. We do not believe the adoption of accounting standards after that date would have a material effect on the financial measures presented. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Measures” for more information.
(2)Ratio of Net Debt to Adjusted EBITDA is defined as net debt divided by Adjusted EBITDA. Net debt is defined as long-term debt and finance lease obligations, including the current portion, minus cash and cash equivalents. Ratio of Net Debt to Adjusted EBITDA is a non-GAAP measure that should not be considered in isolation or as a substitute for other financial measures calculated and presented in accordance with GAAP. For additional information regarding Ratio of Net Debt to Adjusted EBITDA, including a reconciliation to ratio of debt to net income, the most directly comparable GAAP measure, see “Management’s Discussion and Analysis of our Financial Condition and Results of Operations – Non-GAAP Measures.”
Packaged Meats Segment
The Packaged Meats segment produces a wide variety of value-added products and sells them primarily in the United States. For the nine months ended September 29, 2024, the segment had $5.9 billion in sales, comprising 58% of our total sales, $855 million in segment profit, comprising 109% of our total operating profit and a 15% operating profit margin. For the year ended December 31, 2023, we sold approximately 2.9 billion pounds of packaged meats products. The segment has achieved strong growth with a fiscal year 2014 to fiscal year 2023 segment profit compound annual growth rate, or CAGR, of 9.8%.
Our Packaged Meats portfolio is diversified across product categories, brands and channels and spans all meal occasions. For the nine months ended September 29, 2024, 63% of the segment sales were conducted through the retail channel, 31% through the foodservice channel and 6% through the industrial channel (i.e., other protein processors) and other.
We serve 100% of the top 10 ranked national grocery retailers, as identified by Progressive Grocer based on 2023 annual sales, including blue-chip customers, such as Walmart, Sam’s Club, Costco, Kroger and Albertsons. In the foodservice industry, we serve approximately 70% of the top 50 ranked national foodservice chains, including McDonald’s, Subway, IHOP and Jersey Mike’s, as well as all of the top foodservice distributors, including Sysco, U.S. Foods and Performance Food Group. Within the foodservice industry, we leverage our reputation for high-
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quality products through our Smithfield Culinary brand, and we are the most recognized pork processor by chefs and foodservice operators, with 49% unaided awareness based on a 2024 study by Datassential.
We produce a wide variety of packaged meats products, including bacon, sausage, hot dogs, deli and lunch meats, dry sausage products (such as pepperoni and genoa), ham products, ready-to-eat products and prepared foods (such as pre-cooked entrees, bacon and sausage). We address all dayparts, with our products featured during breakfast, weekday school lunches, football weekends, holiday dinners and at snack time. While pork is our primary protein offering, approximately 17% of the volume utilized in our Packaged Meats segment for the nine months ended September 29, 2024 was non-pork products made with other proteins—primarily poultry and beef.
Our Packaged Meats segment’s branded retail offerings generated $3.2 billion, or 22% of consolidated sales, in 2023. Our products are available at most major food retailers where we continue to drive penetration and have strong on-shelf performance with attractive dollar velocities for our largest categories relative to competition.
Led by our flagship Smithfield brand, our portfolio of brands has strong consumer recognition and robust brand equity, and we target on-trend product categories for growth. We market our domestic packaged meats products under a strategic set of core brands, including national, super-regional, value and specialty brands that deliver value to our ultimate consumers across a wide range of price points.
The following table illustrates the percentage of our Packaged Meats segment’s branded sales in the retail channel in 2023 for each of our top brands, along with the relevance these brands represent across dayparts:

Additionally, private label represented 38% of our packaged meats retail channel sales volume in 2023. Our private label products make our offerings more valuable to blue-chip retail customers by providing consumers quality selections up and down the value chain. In addition, our private label business helps to optimize our manufacturing footprint and increases the efficiency and profitability of our plants.
Fresh Pork Segment
As the largest fresh pork processor in the United States, our Fresh Pork segment produces a wide variety of primal, sub-primal and offal products, such as bellies, butts, hams, loins, picnics and ribs. Our Fresh Pork segment had $5.9 billion in sales for the nine months ended September 29, 2024, comprising 58% of our total sales, $196 million in segment profit, comprising 25% our total operating profit and a 3% operating profit margin. For the year ended December 31, 2023, we processed approximately 29 million head through the Fresh Pork segment. Approximately one-third of our fresh pork products, including the majority of hams, bellies and trimmings, is transferred to our Packaged Meats segment, providing it with approximately 80% of its raw material requirements for the nine months ended September 29, 2024.
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Our strategy is to drive our Fresh Pork segment’s profitability to exceed commodity meat values by maximizing the use of our raw materials. This includes offering value-added products, such as marinated fresh pork, a category in which we hold the leading position, and case-ready fresh pork. The export strategy is particularly important to our ongoing initiative to maximize hog utilization by selling byproducts to drive profitability.
Vertically Integrated Supply Chain and Hog Production Segment
Our supply chain, supported by our upstream businesses, is differentiated from our competitors’ supply chains and provides benefits that we believe are hard to replicate. Nearly all of the Hog Production segment’s sales are intercompany sales of live hogs to our Fresh Pork segment. Our Fresh Pork segment sources hogs from a mix of company-owned and contract farms, which raise company-owned hogs, comprising our Hog Production segment. Our Fresh Pork segment further supplements our supply by sourcing hogs from independent farmers with whom we partner across the United States through multi-year agreements. Contract farms and independent farms are held to the same animal care and quality standards as our company-owned farms and thereby form a key part of our integrated supply chain.
We have unmatched scale in hog production, which enables us to consistently supply high-quality raw materials for our Fresh Pork segment and, ultimately, our Packaged Meats segment. Today, we internally supply approximately 50% of the raw material needs of our Fresh Pork segment. We believe that it is important to maintain a certain level of internal production to enable supply to our Fresh Pork processing facilities, particularly to support our East Coast processing operations. Our scale has also enabled us to be an early mover in group-housing for pregnant sows on company-owned farms with the result that these farms supply the majority of our group-housed pork needs which is a differentiated product for which our customers pay a premium.
Beyond scale, our internally supplied hog production is geographically diverse, with locations in the East Coast, Midwest, Missouri and Utah, whereas our largest competitors are located predominantly in the Midwest. Our geographic diversity reduces risk by mitigating the impact of a potential disease outbreak in one part of the country. In addition, our East Coast hog production operations provide an efficient supply to two of our largest Fresh Pork and Packaged Meats processing facilities co-located in North Carolina. Our East Coast location provides us with a significant strategic advantage in our ability to export to more than 30 countries, because it gives us close proximity to East Coast ports, unlike our competitors who need to transport product from the Midwest more than 1,000 miles to either the East or West Coast ports.
In recent years, we embarked on a strategy to optimize the size of our hog production operations and procure a larger percentage of hogs from independent suppliers under long-term, market-based supply agreements. Our Hog Production segment’s transformation strategy is integral to our ongoing objective to further transition our business toward an increased mix of value-added, high-margin products. This transformation allows us to reduce our capital investment and exposure to more volatile areas of the value chain. We plan to reduce the size of the segment’s production from approximately 50% of fresh pork supply today to approximately 30% in the medium term, which is still significantly higher than our competitors. We have made material progress in executing our strategy, reducing the size of our segment’s production from a peak of 17.6 million head in 2019, and we continue to further optimize production levels. In the year ended December 31, 2023, we produced approximately 15.8 million head through the Hog Production segment. We ended 2024 at 14.6 million head, and we expect to end 2025 at approximately 11.5 million head. We believe this strategy will maintain an appropriate supply of high-quality inputs to meet business needs and improve our cost structure while achieving flexibility in our retained hog production business. See also “Risk Factors—Risks Relating to Our Business and Operations—An inability to realize savings and efficiency gains could adversely affect profitability and we may be unable to achieve any or all of our financial and operational targets.”
Our Financial Performance
We believe the rebound in our 2024 performance following a challenging year for our industry demonstrates the resilience of our business model, effectiveness of our strategy and operational discipline, while our stable cash flows and strong balance sheet allow us to invest in our continued operations and return value to shareholders.
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The charts below depict our recent financial performance:

We believe maintaining a healthy financial position is critical to the execution of our strategy, efficiency of our operations and our ability to manage effectively through industry and macroeconomic headwinds. We are committed to maintaining investment-grade credit ratings and target the following metrics:
•Ratio of Net Debt to Adjusted EBITDA of 2.0x. As of September 29, 2024, our Ratio of Net Debt to Adjusted EBITDA for the last twelve months was 1.4x and our ratio of debt to net income from continuing operations for the last twelve months was 4.5x. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Measures” for our definitions of Ratio of Net Debt to Adjusted EBITDA, information about how and why we use this non-GAAP measure and, for historical periods, a reconciliation of this non-GAAP measure to ratio of debt to net income from continuing operations, its most directly comparable financial measure calculated in accordance with GAAP. For a quarterly presentation of results of operations that includes the four quarters ended September 29, 2024, see “Management's Discussion and Analysis of Financial Condition and Results of Operations—Unaudited Quarterly Financial Information.”
•Minimum liquidity of $1.0 billion. As of September 29, 2024, our liquidity was $2,569 million. We define liquidity as cash and cash equivalents plus available borrowing capacity under our credit facilities.
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In addition, the charts below depict our segment profit over time:

The evolution of our business to value-added products with higher margins supports stronger cash flow generation, which is allocated toward investment in growth and shareholder return. Our capital allocation strategy is focused on:
•Driving top-line growth and achieving operational efficiencies by allocating $400 million to $500 million annually towards capital expenditures.
•Returning excess capital to shareholders in the form of a regular dividend after funding investments in our strategic priorities. We initially expect to pay annual dividends in an amount equal to 50% of our net income, subject to the discretion of the board.
•Conducting opportunistic and financially disciplined acquisitions, primarily focused on growing our Packaged Meats segment, with assets and capabilities that complement our robust manufacturing platform and strong brands and product offerings.
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Our Industry
We operate in the large and growing global packaged and fresh meats market, which includes value-added fresh, refrigerated and frozen proteins. Our business operations are primarily concentrated in North America, but, as a leading exporter to major international markets, we also benefit from significant global demand for our products. According to Euromonitor, the global meat market reached $1.1 trillion in 2024 and is projected to grow at a 5.7% CAGR between 2024 and 2029. Per Euromonitor, U.S. value-added packaged meats represented a $46 billion market in 2024 and is forecasted to grow at a 3.0% CAGR between 2024 and 2029. Value-added packaged meats refers to the processed meats category as defined by Euromonitor and includes meat products that have undergone additional processing, such as adding an additional ingredient or characteristic, and are sold pre-packaged via retail and foodservice outlets.
The following table sets forth information about size of the U.S. value-added packaged meat market:

Consumer Trends in U.S. Packaged Meats and Fresh Pork
The U.S. packaged meats market is supported by long-term secular tailwinds, including consumer demand for high-protein diets, high-quality nutrition, product versatility and convenience. We expect these tailwinds to continue to drive increases in overall meat consumption. Consumers associate protein with healthiness and energy. A 2024 International Food Information Council consumer survey reported that a high-protein diet is the most popular diet type in the United States. According to market research firm Ipsos, 89% of Americans include animal protein in their diets as of 2021. Data from the Organization for Economic Co-operation and Development shows that pork represented 24% of all meat protein consumed in the United States in 2023.
According to Mintel, many packaged meats products are household staples for U.S. consumers, including bacon, lunch meat, hot dogs, fresh sausage and dry sausage. Mintel reports that, as of September 2023, U.S. bacon and lunch meat represented an estimated $27.0 billion market in 2023 that is expected to grow at a 4.2% CAGR between 2023 and 2028, and U.S. hot dogs and sausages were estimated to represent a $12.3 billion market in 2023 that is expected to grow at a 1.0% CAGR between 2023 and 2027. According to Business Research Insights, U.S. dry sausage for charcuterie, snacking, sandwiches, pizza toppings and other uses, typically higher margin products, represented a $4.7 billion market in 2023 that is expected to grow at a 3.9% CAGR between 2023 and 2030.
Mintel reports that 86% of U.S. consumers anticipate eating the same amount of pork or more pork in the coming year according to a survey conducted in February 2024, and pork consumption is distributed relatively equally across income groups. According to Mintel, packaged pork products benefit from growing demand for convenience, as consumers value marinated, ready-to-cook and ready-to-eat options. Mintel reports that pork is an affordable and convenient protein.
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Pork is also a highly versatile protein, with a wide variety of cuts and flavor profiles. Use occasions for pork products benefit from strong daypart distribution, which is unique relative to all other meat proteins. Products like bacon, sausage and ham appear on tables at every meal. According to the National Pork Board, bacon is by far the most beloved packaged meats product, and pork is a highly snacked meat protein and the most popular pizza topping in the United States.
Additionally, increased U.S. demand for global cuisines supports the domestic pork market. Asian and Mexican cuisines, for which pork is a leading protein, continue to gain popularity with U.S. consumers, particularly among Generation Z (the generational cohort aged 12 to 27 years) and Millennials (the generational cohort aged 28 to 43 years). We believe that the continued growth of global cuisines in the United States introduces consumers to different pork preparations and flavor profiles and serves as an incremental long-term tailwind for pork.
According to Mintel, most U.S. consumers are concerned about the environmental impact of meat production, and health and nutrition are important factors to consumers of meat. Many cuts of pork offer lower levels of cholesterol and saturated fat relative to cuts of beef. Lean cuts of pork, including pork tenderloin, offer a superior nutritional profile to chicken breast. Additionally, relative to beef, pork production generally has a lower carbon footprint and lower rate of land usage. Nevertheless, changes in market trends and consumer preferences could adversely affect our results of operations. For more information, see “Risk Factors—Risks Relating to Our Business and Operations—Changes in consumer preferences and failure to maintain favorable consumer perception of our brands could negatively impact our business.”
Our Competitive Strengths
We attribute our track record of success to a combination of the following competitive strengths. We believe these strengths are central to our business model and position us well for long-term success.
Leader in Packaged Meats with Diverse Portfolio of Strong Brands
We have grown our Packaged Meats business to become a leading provider of value-added pork and other protein products for U.S. customers and consumers. Consumers choose our products for consistent high-quality and delicious taste, helping us achieve an 81% repeat purchase rate as of December 2024. Our Net Promoter Scores, a gauge of brand affinity, are superior to peers across key categories, including smoked ham, fresh pork, Italian specialty, hot dogs, everyday ham and bacon. We continue to see increasing loyalty and unaided awareness across our key brands and categories. Our longstanding commitment to our values and corporate heritage resonates with consumers who share our ideals, including our commitment to sustainability and American agriculture.
Our trusted brands have made us one of the country’s leading food companies. Led by our flagship Smithfield brand, we have a diverse portfolio of national, super-regional, value and specialty brands with strong customer loyalty. We complement our national brands with super-regional brands to capitalize on each brand’s history and strong consumer affinity. Our value brands offer consumers choices across price points, and our specialty brands address various on-trend categories such as dry sausage and convenient preparation items, including barbecue and meatballs.
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As a branded player across the United States, we have a leading position in 15 of the 25 key categories in which we compete. We have a significant presence in 10 categories each over $1 billion in size, including the number one or two position by volume in uncooked bacon, smoked ham, deli meat, cooked dinner sausage and portable meals as shown in the table below:

We market our products to customers and consumers across multiple categories and price points. We have a balanced sales mix with approximately 64% branded and 36% private label in the retail channel as of September 2024. Our participation in both branded and private label helps us attract and retain consumers as they move across the value spectrum, enabling us to meet shifting consumer preferences during periods of economic downturn and to capture wallet share when they trade up to premium brands.
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For example, in the packaged lunch meat category, almost 98% of the volume is sold on average in the $2.00-$9.00 price per pound range. Our packaged lunch meat offering exemplifies how we cover a wide range of retail price points from our best value with Gwaltney (at approximately $2.50 average retail price per pound) to our premium Smithfield Prime Fresh (at approximately $8.50 average retail price per pound) as of December 2024.
While some of our competitors may choose to focus on consumers at only the high or low end of the value spectrum, our strategy enables us to meet consumer demand across various price points, as shown in the chart below:

For information about challenges we face in the highly-competitive food market, see “Risk Factors—Risks Relating to Our Business and Operations—The food industry in which we operate is highly competitive, and our inability to compete successfully, or the effects of such competition, could adversely affect our business, financial condition and results of operations.”
Trusted and Scaled Partner Known for Quality
We have a nearly 90-year history of providing great tasting, quality products across the United States and abroad. We pride ourselves on producing safe, wholesome and high-quality protein, and we continually train our team members in the latest animal welfare and food safety and quality best practices across our supply chain. Producing Good food. Responsibly.® is at the core of our purpose-driven culture. Consumers trust our high-quality brands and products, and we are a trusted partner to customers, suppliers and farmers across the value chain.
Through years of investment and growth, we have created an asset base that we believe would be hard to replicate. Our scale and integrated operating model enable us to reliably meet demand across economic cycles and offer a differentiated value proposition to our customers and consumers. We believe that we are a preferred supplier to our partners because we consistently provide comprehensive end-to-end support and reliably deliver high-quality products on time. Our commitment and reputation for high-quality products and service is evidenced by the numerous awards received from our retail and foodservice customers, recognizing Smithfield as a supplier of choice.
Leveraging our scale and global distribution channels, we are also a leading exporter of pork and pork products, with sales to export markets representing 13% of our total sales for the nine months ended September 29, 2024. Export markets promote whole hog utilization due to differentiated demand for parts of the animal across the globe, which helps us to operate sustainably while supporting American agriculture.
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Strong Financial Profile Marked by Robust Growth and Profitability Metrics
We are focused on delivering long-term sustainable results and have built our business to generate resilient growth, profitability and cash flow. Our track record of sales and earnings growth reflects strong demand for our products and successful management of commodity volatility across economic cycles. In 2024, we demonstrated a strong rebound in our results after a challenging 2023 for our industry.
The resilience of our business model is underscored by our history of maintaining a strong balance sheet and moderate leverage. Sustaining a healthy financial position creates operational flexibility and helps to insulate us from industry and macroeconomic headwinds. We are committed to a target Ratio of Net Debt to Adjusted EBITDA of < 2.0x and a target minimum liquidity of $1.0 billion, as well as maintaining investment grade ratings.
We have a strong track record of disciplined capital allocation, generating higher profitability and cash flows by executing projects that drive organic growth and unlock operational efficiencies. While organic growth has been the backbone of our growth strategy over the past decade, we will continue to supplement our organic growth with a disciplined acquisition strategy. Our acquisition strategy primarily focuses on packaged meats assets and capabilities that complement our manufacturing platform, strong brands and product offerings.
Innovative Sustainability Initiatives
Sustainability has been a key focus for our business for over twenty years. Our strategy today is built around three objectives: being good stewards of the environment and our animals; doing good work in the communities where our employees live and work; and producing good food with a commitment to food safety, quality and nutrition. We have been at the forefront of the industry in achieving sustainability milestones, including becoming the first major protein company to adopt and publicly report a comprehensive sustainability program, to achieve International Standards Organization 14001 certification globally, to develop and adopt a comprehensive animal care management program, to begin reporting antibiotics usage in 2007 and to publish an online ingredient glossary.
We leverage on-the-ground resources to strive to achieve our sustainability goals. We co-founded Align RNG, LLC, or Align, as well as Monarch Bioenergy LLC, or Monarch, to advance developments in methane capture and manure-to-energy conversion. In 2022, TPG Rise Climate invested in Monarch, helping us to further scale the business.
Our sustainability activities have been recognized externally. We were awarded the prestigious “Profit with a Purpose” award by the World Sustainability Awards, or WSA, in 2021 for our innovative renewable natural gas programs. These programs convert methane from hog manure into clean energy, creating new income opportunities for family farmers. Additionally, we received a “Highly Commendable” mention in the WSA’s External Partnership category in 2021 for our collaboration with a leading environmental organization to implement sustainable farming practices within our supply chain.
We are consistently recognized as an employer of choice for U.S. veterans. We have a long history of supporting veterans and military families through monetary and food donations, employee volunteerism and partnerships. We honor the service and sacrifice of American veterans and their families through the Helping Our Heroes program, which focuses on hiring initiatives, career development and strengthening the community and family support systems veterans rely on every day.
Proven, Execution-Oriented Management Team and Culture
We are an iconic American food company with a management team based in Smithfield, Virginia. We employ approximately 34,000 people in the United States and approximately 2,500 people in Mexico. Our energetic and highly experienced management team, whose dedication and commitment to our mission permeates throughout our business, has made us one of the world’s foremost protein companies, sets the tone for our success and drives the agility necessary to continue to transform Smithfield into a leading packaged food company. We foster a culture of responsibility, operational excellence and innovation that serves as the foundation for the transformation in our business.
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C. Shane Smith, President and Chief Executive Officer since 2021, is a veteran of our company and has served in a wide range of roles during his 21-year tenure. He previously served as President of Smithfield’s European operations and as our Chief Strategy Officer, and he has held other roles in finance and our Hog Production segment. He has been instrumental in overseeing the continued execution of our “One Smithfield” vision, fortifying our position as a leading food company and improving operational efficiency to enhance market competitiveness.
Mark L. Hall, our Chief Financial Officer, has 26 years of experience in the food industry and leads our finance, accounting, treasury, tax, mergers and acquisitions, data analytics and risk management functions. Since joining Smithfield in 2014, Mark has played a crucial role in developing and executing our strategy, including during his tenure as head of finance within the Packaged Meats segment.
Our senior leadership team has extensive food industry experience. Steven France, Donovan Owens and Kraig A. Westerbeek lead our Packaged Meats, Fresh Pork and Hog Production segments, respectively, and have nearly a century of combined industry experience, including over 80 years of experience at Smithfield. Our leadership, combined with our integrated operating structure, solid financial foundation and the support of over 36,000 employees, create a cohesive and coordinated platform to further Smithfield’s growth as a leading food company creating value for a range of stakeholders.
Our Growth Strategies
Since the last time we were a public company in 2013, we have grown sales to $14.6 billion while significantly improving our profitability and leverage position. The strategic initiatives we are executing across our segments are complemented and enabled by our strong balance sheet and ongoing operational investments, positioning us for future growth.
Drive Growth of Packaged Meats
Our Packaged Meats segment is core to our growth strategy and has been a major driver in transforming our business since 2014. We have methodically shifted our business mix to focus on this higher-margin segment over time. The segment contributed 58% of our sales and 109% of our overall operating profit for the nine months ended September 29, 2024.
We plan to accelerate the growth of our Packaged Meats segment through several strategic initiatives, including:
•continuing to shift our portfolio toward a higher mix of value-added and premium products, such as:
•converting one-time seasonal commodity bone-in ham purchase occasions to increased unit sales of everyday, convenient products such as quarter-weight ham, Anytime Favorites ham and Prime Fresh sliced lunch meat, which is underscored by our ability to generate a 19% increase in ham units sold from 2019 to 2023 while volume increased only by 2% for that same period; and
•increasing penetration of higher-margin dry sausage products through expanding distribution points and manufacturing capacity, as evidenced by a 29% increase in dry sausage units sold from 2019 to 2023 and the recent acquisition of a dry sausage plant;
•harnessing our powerful brands to continue to expand product offerings and drive awareness, loyalty and increased market share;
•leveraging the breadth of our platform and national and specialty brands to further penetrate dayparts and households;
•expanding in under-indexed geographical locations and moving into new categories;
•attracting new consumers, particularly younger demographics, through product and packaging innovation and effective and appealing marketing strategies while maintaining our promise to consumers to offer high-quality products for every budget; and
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•deepening our presence across our distribution channels through our integrated sales force, which leverages our scale and breadth to provide a unified, reliable and consistent customer experience.
We believe that these proven strategies will drive profitable organic growth in our Packaged Meats segment. As an example, we see significant potential for our Packaged Meats segment to generate continued growth through our distribution expansion opportunities across brands to expand unit count within our existing product portfolio.

Further Enhance Fresh Pork
We continually seek greater efficiencies as we manufacture and market fresh pork products. Our capabilities and supply chain allow us to provide differentiated products and high service levels to our customers. We deliver a high-quality, consistently available supply to our Packaged Meats segment and maximize the value of our raw materials. We will seek to enhance the profitability of our Fresh Pork segment by:
•maximizing the value of each hog and expanding use of raw materials, including unprocessed fresh and value-added pork, snacks, pharmaceuticals and pet food treats and ingredients;
•capitalizing on export markets as an outlet for increasing the value of raw materials through whole-hog utilization, and appealing to differentiated, global tastes and preferences;
•leveraging our relationship with WH Group to inform product development opportunities for the Asian market and to benefit from WH Group’s distribution network; and
•appealing to ever-changing consumer preferences and demand for flavor enhancements through ongoing product innovation.
As we seek to grow our fresh pork business profitably, we remain committed to demonstrating that profitability can go hand-in-hand with sustainable operations. We will further our mission of producing good food the right way by seeking new and unique ways to use our raw materials.
Continue Investing in Innovation
We will continue to invest in product, packaging and operational innovations in our Packaged Meats and Fresh Pork segments to drive growth, enhance our profitability and expand our total addressable market. We are focused on strengthening relationships with customers and consumers by being first-to-market with new products and solutions.
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Within our branded packaged meats portfolio, we are introducing more value-added and premium innovations. We see a significant opportunity to increase distribution of our innovative Smithfield Prime Fresh packaged lunch meat offering. Smithfield Prime Fresh embodies the quality of bulk deli meat but is displayed in the packaged lunch meat section of the retail wall. This enables our retail partners to increase average revenue per pound and reduce in-store labor costs while providing a convenient lunch meat option for consumers.
In addition, our Smithfield Double Thick/Double Smoked bacon and Smithfield Maple Thick Cut bacon demonstrate our ability to introduce premium, higher-margin offerings with new cut and flavor characteristics. These products sell at a higher velocity than the category average.
In the Fresh Pork segment, we are investing in value-added products and adding new cuts and flavors, such as Sweet & Smokey BBQ, Chipotle and Lemon & Garlic marinated fresh pork loin filet.
Innovation does not stop with our products. In our plants, we are committed to advancing automation and strategically redeploying labor. On our farms, innovative approaches to animal nutrition are increasing feed conversion and lowering our cost basis. Byproducts that were once considered waste are now used to create renewable natural gas through our biogas joint ventures and lifesaving pharmaceuticals through our bioscience business.
Our culture of responsibility, operational excellence and innovation serves as a catalyst for our ongoing business transformation. We conduct company-wide competitions and recognition events for grassroots projects that drive innovation throughout our organization. By fostering this entrepreneurial spirit, we will seek to drive growth in our top- and bottom-line results and build on Smithfield’s competitive advantage.
Optimize Our Operations and Supply Chain to Decrease Our Cost Basis
We have implemented many initiatives over the past several years to reduce costs and realize operational efficiencies. These initiatives have enabled us to offset inflation and enhance margins across our entire business.
We continue to optimize the size of our company-owned hog production operations and procure a greater mix of hogs from independent suppliers with market-based supply agreements. Additionally, we continue to implement cost-saving initiatives in our retained hog production operations to improve our cost structure.
We employ automation in all of our plants to redeploy labor to higher value tasks, improve yields and drive efficiency by reducing complexity to lower our cost basis and help offset inflationary pressures.
In our logistics and distribution network, we have reduced transportation and warehousing costs through transportation efficiencies, maximizing utilization of our storage and trucking assets, improving supply and demand planning and optimizing inventory levels. These actions increase profitability and improve customer service levels, which we believe is essential to being a supplier of choice.
We remain committed to optimizing our operations and supply chain through a series of targeted actions, which in the past have supported meaningful margin improvement:
Hog Production | Packaged Meats & Fresh Pork | Logistics | ||||||
“Reform and Rationalize” | “Best-In-Class Lean Manufacturing” |
“Improve Service at Optimal Cost” |
||||||
•Optimize number of company-owned hogs
•Improve herd health
•Transform genetics
•Drive procurement and nutrition savings
|
•Offset inflation with cost savings programs
•Employ automation
•Improve yields and maximize raw material usage
•Reduce complexity
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•Be the supplier of choice
•Maximize assets (reduce transport miles, warehouse utilization)
•Improve supply and demand planning
•Optimize inventory levels
|
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Implementation of our growth strategies requires us, in particular, to continue to grow our Packaged Meats segment and to reduce our exposure to commodity price volatility through optimization and continued reduction of the size of our company-owned hog production operations. For information about challenges that we face in implementing this strategy and our other growth strategies, please see “Risk Factors—Risks Relating to Our Business and Operations—Our results of operations are cyclical and could be adversely affected by fluctuations in the commodity prices for meat, livestock (primarily hogs) and feed ingredients,” and “—Disruption of our supply chain could adversely affect our business, financial condition and results of operations.”
Execute Synergistic M&A in North America
We intend to execute opportunistic, complementary M&A to bolster our value-added product portfolio and production capacity in North America. While acquisitions are not a primary growth driver for us, our team is experienced in identifying strategic acquisition targets and integrating them successfully into our business. We believe our integration expertise allows us to capture both cost synergies and incremental revenue opportunities. We will remain disciplined in our acquisition approach and maintaining our investment grade ratings, while pursuing opportunities that we believe will prove accretive to earnings and enhance our operational profile. For example, we recently acquired a dry sausage plant in Nashville, Tennessee from Cargill Meat Solutions Corporation, or Cargill, which is strategically located and offers important capacity for some of our fast-growing, higher margin packaged meats products. This acquisition will help serve the growing demand for high-quality pepperoni, deli, charcuterie and other dry sausage products.
Recent Developments
Monarch Bio Energy, LLC Sale Notice
On January 17, 2025, TPG Rise Climate, one of the other two equal joint venture partners in Monarch, delivered a sale notice under the joint venture agreement, pursuant to which Monarch must pursue a sale of the joint venture. In the event that a sale of Monarch is not consummated before January 18, 2026, TPG Rise Climate may require that Monarch purchase TPG Rise Climate’s ownership interests in Monarch.
Murphy Family Farms Investment
On December 27, 2024, we became a member of a North Carolina-based company, Murphy Family Farms LLC, by contributing $3 million in cash in exchange for a 25% minority interest. We additionally sold approximately 150,000 sows located on company-owned and contract farms in North Carolina to Murphy Family Farms. On December 30, 2024, we sold the commercial hog inventories associated with such sows to Murphy Family Farms. Murphy Family Farms is now a hog supplier to us and will supply approximately 3.2 million hogs annually. We will supply animal feed and provide certain support services to Murphy Family Farms.
VisionAg Hog Production Investment
On December 20, 2024, we entered into an agreement to become a member of a North Carolina-based company, VisionAg Hog Production, LLC, whereby we will contribute $450,000 in cash in exchange for a 9% minority interest in VisionAg Hog Production, with the existing owner retaining a 91% interest. As part of the agreement, we will sell to VisionAg Hog Production approximately 28,000 sows and the associated commercial hog inventories located on certain company-owned and contract farms in North Carolina. VisionAg Hog Production will become a hog supplier to us, expected to supply approximately 600,000 hogs annually. In addition, we will supply animal feed and provide certain support services to VisionAg Hog Production. The transaction is expected to close during the first quarter of 2025. Closing of the transaction is subject to satisfaction of customary closing conditions.
Sale of Utah Hog Production Assets.
On December 17, 2024, we sold our hog production assets in Utah, excluding the live animals, for $58 million. The transaction resulted in a gain of $32 million, which was recognized in operating gains in the fourth quarter of fiscal year 2024. As part of the agreement, we will lease back certain farm and feed properties, which we will continue to operate.
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Sale of Missouri Hog Farms
On November 26, 2024, we sold certain hog farms in Missouri, most of which were previously inactive, for $32 million. The transaction resulted in a loss of $4 million, which was recognized in cost of sales in the fourth quarter of fiscal year 2024.
Preliminary Results for the Three Months Ended December 29, 2024
We have set forth below our preliminary estimates of selected unaudited financial information for the three months ended December 29, 2024 and actual unaudited financial results for the three months ended December 31, 2023. We have provided estimates and ranges of certain preliminary results below because our closing procedures for the three months ended December 29, 2024 are not yet complete.
Our preliminary estimates of the financial results set forth below are based solely on information available to us as of the date of this prospectus and are inherently uncertain and subject to change. Our actual results for the three months ended December 29, 2024 remain subject to the completion of management’s final review and our other closing procedures as well as the effects of potential subsequent events. Accordingly, you should not place undue reliance on these preliminary financial results set out below, which may differ from actual results. See “Forward-Looking Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and accompanying notes included elsewhere in this prospectus.
The preliminary estimated unaudited financial results included in this prospectus have been prepared by, and are the responsibility of, our management. Our independent registered public accounting firm, Ernst & Young LLP, has not audited, reviewed, compiled or performed any procedures with respect to the preliminary financial results. Accordingly, Ernst & Young LLP does not express an opinion or any other form of assurance with respect thereto.
The preliminary estimates and actual results provided below do not represent a comprehensive statement of our financial results and should not be viewed as a substitute for full quarterly financial statements prepared in accordance with GAAP. In addition, the preliminary estimates and actual results provided below are not necessarily indicative of the results to be achieved in any future period. The unaudited actual results for the three months ended December 31, 2023 have been derived from the books and records of our company. For additional information regarding the presentation of our financial information, see “Note 1: Summary of Significant Accounting Policies—Basis of Presentation,” in the consolidated financial statements and accompanying notes included elsewhere in this prospectus.
Additionally, the estimates and actual results reported below include certain financial measures that are not required by, or presented in accordance with, GAAP. Management believes that investors’ understanding of our performance is enhanced by including these non-GAAP financial measures as a reasonable basis for comparing our ongoing results of operations. These non-GAAP financial measures have limitations as analytical tools, are not measurements of our performance under GAAP and should not be considered as alternatives to net income or any other performance measures derived in accordance with GAAP and should not be used by investors or other users of our financial statements in isolation for formulating decisions, as such non-GAAP measures exclude a number of important cash and non-cash charges. A reconciliation of EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin to net income and net income margin is provided below. See also “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Measures.” You should be aware that our presentation of these and other non-GAAP financial measures in this prospectus may not be comparable to similarly titled measures used by other companies.
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The following table reflects certain preliminary results for the three months ended December 29, 2024 and actual results for the three months ended December 31, 2023:
Three Months Ended | |||||||||||||||||
December 29, 2024
(estimated)
|
December 31, 2023
(actual)
|
||||||||||||||||
Low |
High | ||||||||||||||||
(in millions except margin data) | |||||||||||||||||
Consolidated Statements of Income Data: | |||||||||||||||||
Sales | $ | 3,873 | $ | 3,953 | $ | 3,998 | |||||||||||
Gross profit | 515 | 543 | 285 | ||||||||||||||
Operating profit (loss) | 307 | 335 | (116) | ||||||||||||||
Net income (loss) from continuing operations | $ | 195 | $ | 223 | (131) | ||||||||||||
Net income (loss) margin from continuing operations | 5.0 | % | 5.6 | % | (3.3) | % | |||||||||||
Consolidated Balance Sheet Data (at end of period): | |||||||||||||||||
Cash and cash equivalents | $ | 924 | $ | 962 | $ | 687 | |||||||||||
Current portion of long-term debt and finance lease obligations | — | 6 | 27 | ||||||||||||||
Long-term debt and finance lease obligations | 1,979 | 2,019 | 2,006 | ||||||||||||||
Non-GAAP Financial Measures: | |||||||||||||||||
EBITDA from continuing operations | $ | 404 | $ | 424 | $ | (24) | |||||||||||
Adjusted EBITDA from continuing operations | $ | 383 | $ | 403 | $ | 279 | |||||||||||
Adjusted EBITDA margin from continuing operations | 9.9 | % | 10.2 | % | 7.0 | % |
________________
(1)We define working capital as current assets less current liabilities.
For the three months ended December 29, 2024, we estimate that our sales will range from $3,873 million to $3,953 million, as compared to $3,998 million for the three months ended December 31, 2023. The decrease year-over-year was primarily due to lower sales in our Mexico operations and lower external hog and grain sales. These decreases were largely offset by higher sales in our Packaged Meats and Fresh Pork segments attributable to higher average sales prices.
For the three months ended December 29, 2024, we estimate that our gross profit will range from $515 million to $543 million, as compared to $285 million for the three months ended December 31, 2023. The increase in gross profit was primarily due to a decrease in cost of sales, which outweighed the decrease in sales. The decrease in cost of sales was primarily attributable to the following factors:
•a reduction in raw material costs driven by fewer hogs produced, lower feed ingredient prices and a reduction of grain sales to external customers, partially offset by higher live hog costs.
•a reduction in costs associated with our West Coast Exit and Hog Production Reform activities.
•manufacturing and distribution cost improvements.
For the three months ended December 29, 2024, we estimate that our operating profit will range from $307 million to $335 million, as compared to an operating loss of $116 million for the three months ended December 31, 2023. In addition to the increase in gross profit, operating results improved from a decrease in selling, general and administrative expenses, or SG&A, and an increase in operating gains year-over-year. The decrease in SG&A was primarily driven by a decrease in accruals for litigation matters, partially offset by an increase in variable compensation expense attributable to the improvement in profitability. Operating gains increased year-over-year primarily due to the sale of our hog production assets in Utah in the fourth quarter of 2024.
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For the three months ended December 29, 2024, we estimate that our net income from continuing operations will range from $195 million to $223 million, as compared to a net loss from continuing operations of $131 million for the three months ended December 31, 2023. The improvement was primarily due to the increase in operating results and an improvement in results from our equity method investments. The improvement in results from equity method investments was primarily due to the recognition of $49 million in charges and costs in the prior year in connection with the West Coast Exit and Hog Production Reform activities.
The following table reflects certain preliminary segment results for the three months ended December 29, 2024 and actual results for the three months ended December 31, 2023:
Three Months Ended | |||||||||||||||||
December 29, 2024
(estimated)
|
December 31, 2023
(actual)
|
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Low |
High | ||||||||||||||||
(in millions) |
|||||||||||||||||
Segment Sales: | |||||||||||||||||
Packaged Meats | $ | 2,421 | $ | 2,471 | $ | 2,404 | |||||||||||
Fresh Pork | 1,972 | 2,013 | 1,836 | ||||||||||||||
Hog Production | 769 | 784 | 819 | ||||||||||||||
Other (1)
|
119 | 122 | 178 | ||||||||||||||
Intersegment | (1,408) | (1,437) | (1,240) | ||||||||||||||
Consolidated | $ | 3,873 | $ | 3,953 | $ | 3,998 | |||||||||||
Segment Profit: | |||||||||||||||||
Packaged Meats | $ | 301 | $ | 317 | $ | 306 | |||||||||||
Fresh Pork | 65 | 73 | 45 | ||||||||||||||
Hog Production | (8) | — | (127) | ||||||||||||||
Other (1)
|
12 | 17 | 13 |
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(1)Consists of our Mexico and Bioscience operations.
Packaged Meats
Sales
We estimate that our Packaged Meats segment sales for the three months ended December 29, 2024 will range from $2,421 million to $2,471 million, as compared to $2,404 million for the three months ended December 31, 2023. The increase was primarily attributable to a higher average sales price partially offset by lower sales volume. Our average sales price increased by approximately 3.7% primarily due to higher raw material costs, which translated into higher sales prices of our packaged meats products, as well as strong customer demand and an improvement in product mix. Sales volume decreased by approximately 1.4% year-over-year driven by a decline in holiday ham business.
Segment Profit
We estimate that our Packaged Meats segment profit for the three months ended December 29, 2024 will range from $301 million to $317 million, which is largely consistent with the $306 million for the three months ended December 31, 2023. The increase in sales and operational cost improvements were largely offset by higher raw material costs.
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Fresh Pork
Sales
We estimate that our Fresh Pork sales for the three months ended December 29, 2024 will range from $1,972 million to $2,013 million compared to $1,836 million for the three months ended December 31, 2023. The increase was primarily attributable to a higher average sales price driven by strong demand. During the fourth quarter of 2024, fresh pork cut-out values reported by the USDA averaged $0.96 per pound, up 10% from the same period in 2023.
Segment Profit
We estimate that our Fresh Pork segment profit for the three months ended December 29, 2024 will range from $65 million to $73 million compared to $45 million for the three months ended December 31, 2023. The increase was primarily attributable to the increase in sales and manufacturing and distribution cost improvements, partially offset by higher live hog costs.
Hog Production
Sales
We estimate that our Hog Production segment sales for the three months ended December 29, 2024 will range from $769 million to $784 million compared to $819 million for the three months ended December 31, 2023. The decrease was primarily attributable to lower grain sales to external customers. Hog sales were consistent with the prior year as a decrease in the number of hogs sold of approximately 6% was offset by a higher average sales price including the impact of hedging. The decrease in the number of hogs sold by the segment was largely attributable to Hog Production Reform activities aimed at reducing the number of hogs we produce.
Segment Profit
We estimate that our Hog Production segment results for the three months ended December 29, 2024 will range from breakeven to a loss of $8 million compared to a loss of $127 million for the three months ended December 31, 2023. The improvement was primarily attributable to a decrease in raw material costs, lower hog raising costs and lower SG&A, partially offset by the decline in sales. The decrease in raw material costs was attributable to fewer hogs produced, lower feed ingredient prices and a reduction of grain sales to external customers. Hog raising costs were lower as a result of our Hog Production Reform activities.
Other
We estimate that the profit from our Other operating segments for the three months ended December 29, 2024 will range from $12 million to $17 million, which is largely consistent with the three months ended December 31, 2023. We expect improvements in the results of our Mexico operations to be partially offset by a decrease in our results from our Bioscience operations.
Non-GAAP Measures
EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP measures that should not be considered in isolation or as a substitute for other financial measures calculated and presented in accordance with GAAP. For our definitions of EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin and information about how and why we use these non-GAAP measures, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Measures.”
The following table provides a preliminary reconciliation of preliminary estimated net income, the most directly comparable financial measure calculated in accordance with GAAP, to preliminary estimated EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin for the three months ended December 29, 2024, and a reconciliation of
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actual net income and actual net income margin to actual EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin for the three months ended December 31, 2023:
Three Months Ended | |||||||||||||||||
December 29, 2024
(estimated)
|
December 31, 2023
(actual)
|
||||||||||||||||
Low |
High | ||||||||||||||||
(in millions except margin data) | |||||||||||||||||
Net income (loss) from continuing operations | $ | 195 | $ | 223 | $ | (131) | |||||||||||
Interest expense, net | 14 | 14 | 17 | ||||||||||||||
Income tax expense (benefit) | 108 | 100 | (42) | ||||||||||||||
Depreciation and amortization | 87 | 87 | 131 | ||||||||||||||
EBITDA from continuing operations | $ | 404 | $ | 424 | $ | (24) | |||||||||||
Litigation Charges (1)
|
— | — | 196 | ||||||||||||||
West Coast Exit and Hog Production Reform (2)
|
(21) | (21) | 106 | ||||||||||||||
Incremental costs from destruction of property | — | — | 2 | ||||||||||||||
Adjusted EBITDA from continuing operations | $ | 383 | $ | 403 | $ | 279 | |||||||||||
Net income (loss) margin from continuing operations | 5.0 | % | 5.6 | % | (3.3) | % | |||||||||||
Adjusted EBITDA margin from continuing operations | 9.9 | % | 10.2 | % | 7.0 | % |
________________
(1)Consists of accruals for the antitrust price-fixing and antitrust wage-fixing litigation matters that are described in “Note 17: Regulation and Contingencies” in the consolidated financial statements and accompanying notes included elsewhere in this prospectus.
(2)Consists of costs related to the closure of our Vernon, California processing facility, the sale or closure of certain farms in Arizona, California, Missouri and Utah and certain residual operating and restructuring expenses, including the termination of a number of agreements with contract farmers workforce reduction, due to discontinuation of operations in the West Coast and efforts to improve the cost structure of our Hog Production segment. Also includes gains and losses on the sale of certain farms.
Summary of Risk Factors
Investing in our common stock involves a high degree of risk. You should carefully consider the risks described in “Risk Factors” before making a decision to invest in our common stock. If any of these risks actually occurs, our business, consolidated results of operations and consolidated financial condition, including cash flows, may be materially adversely affected. In such case, the trading price of our common stock may decline and you may lose part or all of your investment. Below is a summary of some of the principal risks we face.
•Our results of operations are cyclical and could be adversely affected by fluctuations in the commodity prices for meat, livestock (primarily hogs) and feed ingredients.
•Disruption of our supply chain could adversely affect our business, financial condition and results of operations.
•An inability to realize savings and efficiency gains could adversely affect profitability and we may be unable to achieve any or all of our financial and operational targets.
•The food industry in which we operate is highly competitive, and our inability to compete successfully, or the effects of such competition, could adversely affect our business, financial condition and results of operations.
•Changes in consumer preferences and failure to maintain favorable consumer perception of our brands and products could negatively impact our business.
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•Outbreaks of disease among or attributed to livestock can significantly affect production, the supply of raw materials, demand for our products and our business.
•Our operations are subject to the general risks associated with the food industry, including perceived or real health risks related to our products or the food industry generally and risks associated with government regulations.
•If our products become contaminated, we may be subject to product liability claims and product recalls. Such product liability claims or product recalls can adversely affect our business reputation, expose us to increased scrutiny by federal and state regulators and may not be covered by insurance.
•Any disruption of operations at one or more of our production facilities, distribution centers or cold storage facilities, including as a result of natural disasters, public health crises, political crises and instability, civil unrest and other catastrophic events or events outside of our control, could adversely affect our business, financial condition and results of operations.
•Our reliance on third-party service providers can have an adverse effect on our business.
•Due to seasonality or changes in our promotional activities, our revenue and operating results may vary from quarter to quarter.
•Significant increases in the cost of distribution could adversely affect our business, financial condition and results of operations.
•We are increasingly dependent on information technology, and our business and reputation could suffer if we are unable to protect our information technology systems against, or effectively respond to, cyberattacks, other cyber-incidents or security breaches or if our information technology systems are otherwise disrupted.
•We are subject to risks associated with our international sales.
•The consolidation of customers and/or the loss of our customers could adversely impact our business.
•We face risks associated with the long-term trend toward increased activism against companies in the food products industry.
•We are subject to extensive governmental regulations, which require significant compliance expenditures.
•Governmental authorities may take further action restricting our ability to produce and/or sell livestock or adopt new regulations impacting our production or processing operations, which could adversely affect our business.
•We are, and could become, subject to legal proceedings and regulatory investigations that may result in significant expenses, fines and reputational damage.
•Government antitrust and foreign investment policies and regulations may limit our strategic growth opportunities, including certain acquisitions and joint ventures.
•Climate change, or legal, regulatory, voluntary or market measures to address climate change, may negatively affect our business, operations or reputation.
•We will be a “controlled company” within the meaning of the rules of Nasdaq and, as a result, qualify for, and intend to rely on, exemptions from certain corporate governance requirements.
•You will not have the same protections afforded to shareholders of other companies that are subject to such requirements.
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Corporate History
Smithfield Foods, based in Virginia since its founding in 1936, started as a pork processing operation called The Smithfield Packing Company. Through a series of acquisitions beginning in the 1980s, we have become the largest fresh pork processor in the United States. In 2013, we were acquired by Hong Kong-based Shuanghui International Holdings Limited, which subsequently changed its name to WH Group Limited, and we are currently its indirect wholly owned subsidiary. WH Group’s shares are publicly traded on The Stock Exchange of Hong Kong Limited.
Relationship with WH Group
Upon completion of this offering, WH Group will beneficially own approximately 91.2% of our shares of common stock eligible to vote in the election of our directors (or approximately 89.9% if the underwriters exercise in full their option to purchase additional shares). Accordingly, WH Group will generally be able to control, whether directly or indirectly through its ability to remove and elect directors, and subject to applicable law, substantially all matters affecting us. See “Risk Factors—Risks Relating to Our Relationship with WH Group—WH Group controls us, and their interests may conflict with ours or yours in the future” for more information.
Corporate Reorganization
Prior to August 26, 2024, we conducted business operations in the United States, Mexico and Europe. On August 26, 2024, we completed the European Carve-out, pursuant to which we transferred our operations in Europe to WH Group. Following the European Carve-out, we principally engage in operations in the United States and Mexico. Unless otherwise expressly stated or the context otherwise requires, the description of our business included in this prospectus reflects our business after giving effect to the European Carve-out. The results of operations, assets and liabilities, and cash flows of the European operations as presented in our consolidated financial statements have all been condensed into separate line items and presented in the consolidated statements of income, the consolidated balance sheets and the consolidated statements of cash flows as discontinued operations, and this treatment has been applied retrospectively to all periods presented. Unless otherwise expressly stated, the financial information of our company included in this prospectus reflect the historical financial statements of Smithfield Foods, which has been an indirect, wholly owned subsidiary of WH Group, as retroactively adjusted to remove the impact of the discontinued operations.
Corporate Information
Our principal offices are located at 200 Commerce Street, Smithfield, Virginia 23430. Our telephone number is 757-365-3000, and our corporate website address is www.smithfieldfoods.com. Upon completion of this offering, we are required to file annual, quarterly and current reports, proxy statements and other information with the SEC. You may obtain any of the documents filed by us with the SEC at no cost from the SEC’s website at http://www.sec.gov. Any information contained on, or that can be accessed through, our website or the SEC’s website is not incorporated by reference into, nor is it in any way part of this prospectus and should not be relied upon in connection with making any decision with respect to an investment in our securities.
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THE OFFERING
Common stock offered by us
|
17,400,000 shares. |
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Common stock offered by the selling shareholder
|
17,400,000 shares (or 22,620,000 shares if the underwriters exercise in full their option to purchase additional shares of our common stock). |
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Common stock to be held by the selling shareholder upon completion of this offering
|
362,669,232 shares (or 357,449,232 shares if the underwriters exercise in full their option to purchase additional shares of our common stock). |
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Common stock to be outstanding after this offering
|
397,469,232 shares. |
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Option to purchase additional shares of common stock
|
The selling shareholder has granted the underwriters a 30-day option from the date of this prospectus to purchase up to 5,220,000 additional shares of our common stock. Such shares are offered by the selling shareholder at the initial public offering price listed on the cover page of this prospectus, less underwriting discounts and commissions. |
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Use of proceeds
|
We estimate that the net proceeds to us from this offering will be approximately $400.4 million based on an assumed initial public offering price of $25.00 per share of our common stock, which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.
Certain of the shares of common stock offered by this prospectus are being sold by the selling shareholder. We will not receive any of the proceeds from the sale of shares by the selling shareholder in this offering, including any such proceeds received by the selling shareholder from any exercise by the underwriters of their option to purchase additional shares. For information about the selling shareholder, see “Principal and Selling Shareholders.”
We intend to use the net proceeds to us from this offering for general corporate purposes, including capital investments in infrastructure, automation and capacity expansion. See “Use of Proceeds.”
|
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Controlled company
|
Upon completion of this offering, WH Group will beneficially own approximately 91.2% of our shares of common stock eligible to vote in the election of our directors (or approximately 89.9% if the underwriters exercise in full their option to purchase additional shares of our common stock). As a result, we will be a “controlled company” as defined under the corporate governance rules of Nasdaq and, therefore, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements of Nasdaq. See “Management—Controlled Company Exemption.” There is no single shareholder or group of shareholders which owns 50% or more of the voting power of WH Group as of the date of this prospectus. As a result, WH Group would not be considered a controlled company within the meaning of the corporate governance standards of Nasdaq. |
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As long as WH Group beneficially owns a majority of the voting power of our outstanding shares of common stock, WH Group will generally be able to control the outcome of matters submitted to our shareholders for approval, including the election of directors, without the approval of our other shareholders. See “Risk Factors—Risks Relating to Our Relationship with WH Group—WH Group controls us, and their interests may conflict with ours or yours in the future.” | ||||||||
Dividend policy
|
We have historically paid dividends to WH Group annually, along with special dividends in some years. We initially expect to pay annual dividends in an amount equal to 50% of our net income, subject to the discretion of the board. The payment of any dividends in the future to our shareholders, and the timing and amount thereof, will fall within the discretion of the board. The board’s decisions regarding the payment of dividends will depend on many factors, such as our financial condition, earnings, capital requirements, debt service obligations, restrictive covenants in the agreements governing our indebtedness, general economic business conditions, industry practice, legal requirements and other factors that the board may deem relevant.
We cannot assure you that we will pay our anticipated dividend in the same amount or frequency, or at all, in the future. You should not purchase shares of our common stock with the expectation of receiving cash dividends. See “Risk Factors—Risks Relating to This Offering—We expect to continue paying regular dividends to our shareholders, but our ability to do so is subject to the discretion of our board and may be limited by our financial condition, our credit facilities, the indentures governing the notes we previously issued and applicable law” and “Dividend Policy.”
|
25
Directed share program
|
At our request, the underwriters have reserved up to 2% of the shares of our common stock offered by this prospectus for sale, at the initial public offering price, to directors, officers and certain employees of our company. If purchased by our directors or officers, these shares will be subject to certain lock-up agreements. See “Underwriting” for a description of these lock-up agreements. The number of shares of our common stock available for sale to the general public will be reduced to the extent these individuals purchase such reserved shares. Any reserved shares that are not so purchased will be offered by the underwriters to the general public on the same basis as the other shares offered by this prospectus. Morgan Stanley will administer our directed share program. See “Underwriting—Directed Share Program.” |
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Risk factors
|
Investing in shares of our common stock involves a high degree of risk. See “Risk Factors” for a discussion of factors you should carefully consider before investing in shares of our common stock. |
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Trading symbol
|
We have applied to list our shares of common stock on the Nasdaq Global Select Market under the symbol “SFD.” |
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Assured entitlement distribution
|
Pursuant to Practice Note 15 under The Rules Governing The Listing of Securities on The Stock Exchange of Hong Kong Limited, in connection with this offering, WH Group is required to make available to its shareholders an “assured entitlement” to a certain portion of shares of our common stock. WH Group intends to effect the “assured entitlement” by providing to its shareholders a “distribution in specie” of a certain portion of shares of our common stock held by WH Group, which we refer to as the Assured Entitlement Distribution. The distribution will be made without any consideration being paid by WH Group’s shareholders. WH Group’s shareholders who are entitled to fractional shares of our common stock who elect to receive cash in lieu of shares of our common stock, who are located in the United States or are U.S. persons, or are otherwise ineligible holders, will only receive cash in the Assured Entitlement Distribution. WH Group currently intends that the Assured Entitlement Distribution will represent approximately 0.35% to 0.45% of our outstanding shares following the completion of this offering. The Assured Entitlement Distribution will only be made if this offering is completed. The distribution in specie of shares of our common stock by WH Group is not part of this offering. |
Unless otherwise indicated or the context otherwise requires, references in this prospectus to the number and percentage of shares of our common stock to be outstanding upon completion of this offering are based on shares of
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our common stock outstanding as of December 29, 2024. This amount, and, unless otherwise indicated, other information presented in this prospectus, excludes:
•19,873,461 shares of common stock reserved for issuance under our equity incentive plan under which no awards had been granted prior to the pricing of this offering; and
•1,987,346 shares of common stock reserved for issuance under our employee stock purchase plan.
In connection with the pricing of this offering, we intend to grant to our directors and certain of our employees and certain directors and employees of WH Group
•options to purchase 8,370,000 shares with an exercise price equal to the initial public offering price and an aggregate grant date value of $37.5 million;
•1,500,000 restricted stock units with an aggregate grant date value of $37.5 million; and
•21,600 restricted stock units with an aggregate grant date value of $540,000, which are being granted to our three independent directors pursuant to our director compensation program, as described under “Executive and Director Compensation--Director Compensation”.
Of these grants, our directors and executive officers will receive options to purchase 3,917,160 shares and 723,600 restricted stock units.
The foregoing numbers of options and restricted stock units to be granted are estimates calculated using the midpoint of the estimated public offering price range set forth on the cover of this prospectus as applied to the intended aggregate grant date value of the awards. The final numbers to be granted, which will not be known with certainty until the pricing of this offering, will be calculated using the initial public offering price, with the number of restricted stock units calculated by dividing the aggregate grant date value by the initial public offering price and the number of options calculated by dividing the aggregate grant date value by the computed Black-Scholes value.
Unless otherwise indicated, the information presented in this prospectus:
•gives effect to a 380,069.232-for-1 stock split of our common stock effected on January 17, 2025;
•gives effect to the adoption of our amended and restated articles of incorporation and our amended and restated bylaws, which will be in effect prior to the completion of this offering and forms of which are filed as exhibits to the registration statement of which this prospectus is a part;
•assumes an initial public offering price of $25.00 per share of our common stock, which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus;
•assumes no purchase of shares of our common stock in this offering, including pursuant to our directed share program, by our directors, officers or existing shareholder; and
•assumes no exercise of the underwriters’ option to purchase additional shares of our common stock.
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SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND OTHER INFORMATION
The following tables set forth summary consolidated financial and other information as of and for the fiscal years ended December 31, 2023, January 1, 2023 and January 2, 2022. The summary consolidated financial information for the fiscal years ended December 31, 2023, January 1, 2023 and January 2, 2022, and as of December 31, 2023 and January 1, 2023 has been derived from our audited consolidated financial statements included in this prospectus. The summary consolidated unaudited financial information for the fiscal nine months ended September 29, 2024 and October 1, 2023 and the summary consolidated balance sheet data as of September 29, 2024 were derived from our unaudited financial statements included elsewhere in this prospectus.
The summary consolidated financial information below is only a summary and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included in this offering memorandum. The summary financial information set forth below does not purport to indicate our financial condition or results of operations as of any future date or for any future period. Totals may be affected by rounding.
Nine Months Ended |
Fiscal Year Ended | ||||||||||||||||||||||||||||
September 29,
2024
|
October 1,
2023
|
December 31, 2023 |
January 1, 2023 |
January 2,
2022
|
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(in millions except per share and share data) |
|||||||||||||||||||||||||||||
Consolidated Statements of Income Data: | |||||||||||||||||||||||||||||
Sales | $ | 10,190 | $ | 10,642 | $ | 14,640 | $ | 16,199 | $ | 15,009 | |||||||||||||||||||
Cost of sales | 8,826 | 10,038 | 13,751 | 14,704 | 13,437 | ||||||||||||||||||||||||
Gross profit | 1,364 | 604 | 889 | 1,495 | 1,572 | ||||||||||||||||||||||||
Selling, general and administrative expenses | 594 | 643 | 1,050 | 807 | 1,095 | ||||||||||||||||||||||||
Operating gains |
(12) | (99) | (105) | (429) | (44) | ||||||||||||||||||||||||
Operating profit (loss) | 783 | 60 | (56) | 1,117 | 521 | ||||||||||||||||||||||||
Interest expense, net |
52 | 59 | 76 | 87 | 93 | ||||||||||||||||||||||||
Non-operating (gains) losses |
(13) | 3 | (3) | (18) | (30) | ||||||||||||||||||||||||
Income (loss) from continuing operations before income taxes | 745 | (2) | (129) | 1,047 | 458 | ||||||||||||||||||||||||
Income tax expense (benefit) | 165 | — | (41) | 231 | 97 | ||||||||||||||||||||||||
(Income) loss from equity method investments |
(1) | — | 46 | 6 | (28) | ||||||||||||||||||||||||
Net income (loss) from continuing operations | $ | 581 | $ | (2) | $ | (133) | $ | 811 | $ | 389 | |||||||||||||||||||
Weighted average number of shares outstanding - basic and diluted |
380,069,232 | 380,069,232 | 380,069,232 | 380,069,232 | 380,069,232 | ||||||||||||||||||||||||
Net income (loss) attributable to Smithfield per common share from continuing operations |
$ | 1.51 | $ | 0.00 | $ | (0.36) | $ | 2.10 | $ | 1.02 |
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As of September 29, 2024 |
As of Fiscal Year Ended | ||||||||||||||||
December 31, 2023 |
January 1, 2023 |
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As Adjusted (1)
|
Actual |
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(in millions) | |||||||||||||||||
Consolidated Balance Sheet Data: | |||||||||||||||||
Cash and cash equivalents | $ | 679 | $ | 687 | $ | 547 | |||||||||||
Working capital (2)
|
2,612 | 2,470 | 2,954 | ||||||||||||||
Total assets | 11,051 | 13,317 | 13,847 | ||||||||||||||
Long-term debt and finance lease obligations |
2,005 | 2,006 | 2,029 | ||||||||||||||
Total shareholder’s equity |
6,001 | 7,241 | 7,374 |
________________
(1)As adjusted reflects the issuance and sale of 17,400,000 shares of our common stock by us at an assumed initial public offering price of $25.00 per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
(2)We define working capital as current assets less current liabilities.
Nine Months Ended |
Fiscal Year Ended | ||||||||||||||||||||||||||||
September 29,
2024
|
October 1,
2023
|
December 31, 2023 |
January 1, 2023 |
January 2,
2022
|
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(in millions) | |||||||||||||||||||||||||||||
Consolidated Cash Flows Data: | |||||||||||||||||||||||||||||
Net cash flows from operating activities of continuing operations | $ | 233 | $ | (6) | $ | 688 | $ | 521 | $ | 755 | |||||||||||||||||||
Net cash flows from investing activities of continuing operations | (305) | (60) | (194) | 274 | (204) | ||||||||||||||||||||||||
Net cash flows from financing activities of continuing operations | (290) | (270) | (353) | (567) | (434) |
Non-GAAP Measures
The table below includes Adjusted Net Income, Adjusted Net Income Margin, EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Net Debt, Ratio of Net Debt to Adjusted EBITDA, Adjusted Segment Profit, Adjusted Segment Profit Margin and Free Cash Flow, which are financial measures that are not required by, or prepared in accordance with, GAAP. We present Adjusted Net Income, Adjusted Net Income Margin, EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Net Debt, Ratio of Net Debt to Adjusted EBITDA, Adjusted Segment Profit, Adjusted Segment Profit Margin and Free Cash Flow as we believe that the presentation of these non-GAAP financial measures enhances an investor’s understanding of our financial performance. We believe Adjusted Net Income is a useful measure for investors because it excludes the effects of discontinued operations, non-operating gains and losses, and other items that are unusual in nature, infrequent in occurrence or otherwise stem from strategic decisions to restructure our operations. We believe that Adjusted Net Income Margin is a useful measurement of operating profitability for investors for the same reasons we find Adjusted Net Income useful and also because it provides a period-to-period comparison of our after-tax operating performance. We believe EBITDA is a useful measure to our stakeholders because it excludes the effects of financing and investing activities by eliminating interest and depreciation costs to provide a comparable year-over-year analysis. We believe Adjusted EBITDA is a useful measure as it excludes the effect of discontinued operations, non-operating gains and losses, and other items that are unusual in nature, infrequent in occurrence or otherwise stem from strategic decisions to restructure our operations. We believe Adjusted EBITDA Margin is a useful measure as it evaluates overall operating performance, ability to pursue and service possible debt opportunities and possible future investment opportunities. We believe Net Debt is a useful measure as it helps to give investors a clear understanding of our financial position. Net Debt is also used to calculate certain leverage ratios. We believe Ratio of Net Debt to Adjusted EBITDA is a useful measure as it monitors the sustainability of our debt levels and our ability to take on additional debt against Adjusted EBITDA, which is used as an operating performance measure. We believe Adjusted Segment Profit is a useful measure because it provides a more complete understanding of underlying
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operating results and trends of established, ongoing operations of our segments, excluding the impact of employee retention in tax credits, which were not applicable to periods before 2024. We believe Adjusted Segment Profit Margin is a useful measure for the same reasons we find Adjusted Segment Profit useful. We believe Free Cash Flow is a useful measure as it offers supplemental information and insight regarding the liquidity of our operations and our ability to generate sufficient cash flow to, among other things, repay debt and pursue business opportunities and investments. Although non-GAAP measures such as Adjusted Net Income, Adjusted Net Income Margin, EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Net Debt, Ratio of Net Debt to Adjusted EBITDA, Adjusted Segment Profit, Adjusted Segment Profit Margin and Free Cash Flow are frequently used by investors and securities analysts in their evaluations of companies in industries similar to ours, these non-GAAP measures have limitations as analytical tools, are not measurements of our performance under GAAP and should not be considered as alternatives to operating profit, net income or operating cash flow or any other performance measures derived in accordance with GAAP and should not be used by investors or other users of our financial statements in isolation for formulating decisions, as such non-GAAP measures exclude a number of important cash and non-cash charges. A reconciliation of Adjusted Net Income, Adjusted Net Income Margin, EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin to net income and net income margin, Ratio of Net Debt to Adjusted EBITDA to ratio of debt to net income, Net Debt to debt, Adjusted Segment Profit and Adjusted Segment Profit Margin to segment profit and segment profit margin and Free Cash Flow to net cash flows from operating activities is provided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Measures.” You should be aware that our presentation of these and other non-GAAP financial measures in this prospectus may not be comparable to similarly titled measures used by other companies.
Nine Months Ended |
Fiscal Year Ended | ||||||||||||||||||||||||||||
September 29,
2024
|
October 1,
2023
|
December 31, 2023 |
January 1, 2023 |
January 2,
2022
|
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(in millions except for margin data) |
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Consolidated GAAP and Non-GAAP Data: | |||||||||||||||||||||||||||||
Net income (loss) from continuing operations |
$ | 581 | $ | (2) | $ | (133) | $ | 811 | $ | 389 | |||||||||||||||||||
Net income (loss) margin from continuing operations |
5.7 | % | — | % | (0.9) | % | 5.0 | % | 2.6 | % | |||||||||||||||||||
Adjusted net income from continuing operations attributable to Smithfield |
$ | 518 | $ | 14 | $ | 132 | $ | 591 | $ | 650 | |||||||||||||||||||
Adjusted net income margin from continuing operations attributable to Smithfield |
5.1 | % | 0.1 | % | 0.9 | % | 3.7 | % | 4.3 | % | |||||||||||||||||||
EBITDA from continuing operations | $ | 1,050 | $ | 353 | $ | 329 | $ | 1,569 | $ | 910 | |||||||||||||||||||
Adjusted EBITDA from continuing operations | $ | 976 | $ | 331 | $ | 610 | $ | 1,197 | $ | 1,257 | |||||||||||||||||||
Adjusted EBITDA margin from continuing operations | 9.6 | % | 3.1 | % | 4.2 | % | 7.4 | % | 8.4 | % | |||||||||||||||||||
Cash flows from operating activities from continuing operations |
$ | 233 | $ | (6) | $ | 688 | $ | 521 | $ | 755 | |||||||||||||||||||
Free cash flow from continuing operations | $ | (35) | $ | (249) | $ | 334 | $ | 183 | $ | 548 | |||||||||||||||||||
Fiscal Year Ended | |||||||||||||||||||||||||||||
December 31, 2023 |
December 28,
2014
|
||||||||||||||||||||||||||||
(in millions except for ratios) |
|||||||||||||||||||||||||||||
Net income (loss) from continuing operations |
$ | (133) | $ | 437 | |||||||||||||||||||||||||
Debt (1)
|
$ | 2,033 | $ | 2,676 |
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Cash and cash equivalents |
(687) | (378) | |||||||||||||||||||||||||||
Net debt |
$ | 1,345 | $ | 2,298 | |||||||||||||||||||||||||
Ratio of debt to net income (loss) from continuing operations |
(15.3x) | 6.1x | |||||||||||||||||||||||||||
Ratio of net debt to Adjusted EBITDA from continuing operations |
2.2 | x | 2.3x | ||||||||||||||||||||||||||
Nine Months Ended |
Fiscal Year Ended | ||||||||||||||||||||||||||||
September 29,
2024
|
October 1,
2023
|
December 31, 2023 |
January 1, 2023 |
January 2,
2022
|
|||||||||||||||||||||||||
Segment Results (2)
|
(in millions) | ||||||||||||||||||||||||||||
Segment Sales: | |||||||||||||||||||||||||||||
Packaged Meats | $ | 5,861 | $ | 5,876 | $ | 8,280 | $ | 9,262 | $ | 8,515 | |||||||||||||||||||
Fresh Pork | 5,871 | 5,996 | 7,832 | 9,190 | 9,145 | ||||||||||||||||||||||||
Hog Production | 2,220 | 2,499 | 3,317 | 4,456 | 3,866 | ||||||||||||||||||||||||
Other | 350 | 380 | 559 | 524 | 247 | ||||||||||||||||||||||||
Intersegment | (4,111) | (4,108) | (5,348) | (7,234) | (6,765) | ||||||||||||||||||||||||
Consolidated | $ | 10,190 | $ | 10,642 | $ | 14,640 | $ | 16,199 | $ | 15,009 | |||||||||||||||||||
Segment Profit (Loss) |
|||||||||||||||||||||||||||||
Packaged Meats | $ | 855 | $ | 760 | $ | 1,066 | $ | 1,047 | $ | 879 | |||||||||||||||||||
Fresh Pork | 196 | 73 | 118 | 32 | (5) | ||||||||||||||||||||||||
Hog Production | (135) | (627) | (754) | (133) | 69 | ||||||||||||||||||||||||
Other (3)
|
18 | (17) | (4) | 53 | 68 | ||||||||||||||||||||||||
Nine Months Ended September 29, 2024 |
Packaged Meats | Fresh Pork | Hog Production | ||||||||||||||||||||||||||
(in millions except for margin data) |
|||||||||||||||||||||||||||||
Segment profit |
$ | 855 | $ | 196 | $ | (135) | |||||||||||||||||||||||
Employee retention tax credits |
(38) | (41) | (8) | ||||||||||||||||||||||||||
Adjusted segment profit |
$ | 816 | $ | 156 | $ | (143) | |||||||||||||||||||||||
Segment profit margin |
14.6 | % | 3.3 | % | (6.1) | % | |||||||||||||||||||||||
Adjusted segment profit margin |
13.9 | % | 2.6 | % | (6.4) | % |
________________
(1)Debt is defined as long-term debt and finance lease obligations, including the current portion.
(2)Additional information about our reportable segments is included in “Note 2: Reportable Segments” in the consolidated financial statements and accompanying notes included elsewhere in this prospectus.
(3)Consists of our Mexico and Bioscience operations.
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RISK FACTORS
Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, as well as the financial and other information set forth in this prospectus, before deciding to invest in our common stock. If any of the following risks actually occurs, our business, results of operations and financial condition may be materially adversely affected. In such case, the trading price of our common stock could decline, and you may lose all or part of your investment. The risks described below are not the only ones facing us. Additional risks and uncertainties of which we are unaware, or that we currently deem immaterial, also may become important factors that affect us.
Risks Relating to Our Business and Operations
Our results of operations are cyclical and could be adversely affected by fluctuations in the commodity prices for meat, livestock (primarily hogs) and feed ingredients.
We are significantly impacted by the cyclical nature of commodity prices for meat, livestock (primarily hogs) and feed ingredients such as grains, as well as the selling price of our products and competing animal protein products on the market (especially beef and chicken), all of which are determined by constantly changing and volatile market forces of supply and demand. These fluctuations can be significant, as shown in recent years, with average lean hog prices published by the Chicago Mercantile Exchange, Inc., or CME, decreasing from $98 per hundredweight in 2022 to $81 per hundredweight in 2023 and then increasing to $85 per hundredweight in the first nine months of 2024. Further, hog raising costs are largely dependent on the fluctuations of commodity prices for corn, grains, soybean meal, wheat and other feed ingredients. Our Hog Production segment generally generates higher profits when hog prices are high and feed ingredient prices are low, and lower profits (or losses) when hog prices are low and feed ingredient prices are high. When hog prices are lower than our hog production costs, our non-vertically integrated competitors (i.e., those without significant hog production operations) may have a cost advantage over us.
Other factors that may impact commodity prices and our results of operations include, but are not limited to:
•competing demand for feed ingredients, such as competing demand for corn for use in the manufacture of ethanol or other alternative fuels;
•environmental regulations;
•changes in governmental agricultural programs;
•tariffs and other import and export restrictions, such as trade barriers resulting from, among other things, developments in international relations and food safety concerns;
•transportation interruptions or increases in diesel fuel costs;
•an increase in pork processing capacity, adversely impacting fresh meat values;
•adverse weather conditions, including the impact of climate change and weather on our water supply and the availability and pricing of feed ingredients;
•energy prices, including the effect of changes in energy prices on our transportation costs and the cost of feed;
•contamination with mold or bacteria;
•the impact of COVID-19 pandemic and other similar disruptions in the future; and
•labor strikes, industrial accidents, occupational health and safety issues and animal welfare or food safety issues (including the real or perceived outbreak of food-borne illnesses or outbreaks of diseases among livestock).
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Profitability in our industry is materially affected by the commodity prices of animal feed ingredients, such as grain, corn and soybean meal and wheat. The production of feed ingredients is positively or negatively affected due to various factors, primarily by the global level of supply inventories and demand for feed ingredients, the agricultural policies of the United States and other countries and weather patterns and climatic conditions throughout the world. Market prices for feed ingredients remain volatile. High prices for animal feed ingredients may have a material adverse effect on our operating results. A significant decrease in pork prices for a sustained period of time could have a material adverse effect on our consolidated sales.
Given the volatility of the commodity prices, we have sought to reduce our reliance and exposure to commodity markets by entering into supply contracts that offer price and supply stability and implementing cost-saving programs to offset rising commodity costs. For example, we have been reducing the number of hogs we own and raise and increasing the number of hogs we purchase from contract farmers under market agreements. However, if we are not able to continue to execute and maintain marketing and purchasing contracts with independent growers or supply contracts with our contract farmers on attractive terms, or if our counterparties are unable to perform their obligations under such agreements, our results of operations would be negatively affected.
We attempt to manage certain of these risks through the use of our risk management and hedging programs. However, we may not be effective in doing so and, in any case, these programs may also limit our ability to realize gains from favorable commodity fluctuations. Additionally, a portion of our commodity derivative contracts are marked-to-market, such that the unrealized gains and losses are reported in earnings as incurred. This accounting treatment may cause significant volatility in our earnings. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosures About Market Risk” and “Note 7: Derivative Financial Instruments” in the consolidated financial statements and accompanying notes for the year ended December 31, 2023 included elsewhere in this prospectus for the effects of derivative instruments on our consolidated statements of income.
Furthermore, we may be unable to price our products to cover increased costs. Competitive considerations and customer resistance to price increases may delay or make us unable to adjust our selling prices. To the extent we are unable to either re-engineer or otherwise offset increased costs or are unwilling or unable to build price increases into a higher quoted price or negotiating higher prices, our margins will be negatively affected. Conversely, when raw materials prices decline, we may receive customer pressure to reduce our sales prices.
Disruption of our supply chain could adversely affect our business, financial condition and results of operations.
The primary raw materials used in our business are hogs, fresh pork, raw beef, poultry and animal feed ingredients, including corn, grains, soybean meal and wheat. Disruption to our raw material supply due to adverse weather conditions, climate change, crop conditions, natural disaster, fire, terrorism, pandemic or epidemic, changes in governmental agricultural programs, strikes, import restrictions, transportation interruptions, increases in diesel fuel costs, increases in handling and storage costs, cold chain market fluctuations, contamination with mold or bacteria, the real or perceived outbreak of food-borne illnesses or outbreak of diseases among livestock, water shortage, industrial accidents and other occupational health and safety issues or other events beyond our control could impair, and in some cases have impaired, our ability to produce and sell our products.
In addition, we rely on specific suppliers for the provision of certain ingredients and materials, including sodium for our hogs and sourcing of carbon dioxide. We purchase most of the seasonings for our Packaged Meats segment from a single company, Saratoga Food Specialties, LLC, or Saratoga, with which we have entered into an exclusivity agreement regarding such seasonings. Saratoga also has a right of first refusal to supply us with any new seasoning or sauce products we need. We believe that we carry sufficient inventory of finished product and seasonings to overcome an interruption in the supply of seasonings from Saratoga; however, this may not be the case if alternate sources are unavailable or inadequate.
Any disruption in supply of ingredients or materials could affect our ongoing operations and our ability to fulfill demand. A disruption in our supply chain may require significant costs and resources to restore and may also force us to buy material at higher prices, which can substantially increase our costs. We may not be able to pass on all or part of the increased costs to customers in the form of price increases, in a timely manner or at all. Even if we are
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able to increase our selling prices, sustained price increases for our products may lead to sales declines and loss of market share, particularly if our competitors do not increase their prices.
An inability to realize savings and efficiency gains could adversely affect profitability and we may be unable to achieve any or all of our financial and operational targets.
We are currently implementing multiple savings opportunities across the areas of production, procurement, commercial and logistics, which we expect will deliver productivity savings and help us effectively manage margins and profitability. In addition, we have ongoing initiatives to improve profitability and efficiency gains of the Hog Production segment, including genetic transformation, herd health improvements, procurement and nutrition savings.
However, our cost-savings expectations are based upon several assumptions and estimates that are difficult to predict, necessarily speculative in nature and subject to significant business, operational, economic and competitive uncertainties and contingencies. A variety of factors could affect the realization of some or all of the expected cost savings and efficiency gains, including, but not limited to, our anticipated business strategies, our marketing strategies, our product development and licensing strategies, our ability to anticipate and react to business trends, general economic conditions, lack of sustainability in cost savings over time, unexpected costs associated with operating our business and other developments in our industry. The actual results of implementing the various cost savings and efficiency initiatives may differ materially from our current estimates. Moreover, we may not be able to identify or implement further cost savings and efficiency initiatives in the future. In addition, our continued efforts to implement cost savings and efficiency initiatives may divert management attention from the rest of our business and may preclude us from seeking attractive new product opportunities or pursuing other initiatives, any of which may materially and adversely affect our business. We may be unable to achieve or improve all of these cost savings and efficiency gains within the expected timeframe, or at all, and we may incur additional or unexpected costs in order to realize them.
The food industry in which we operate is highly competitive, and our inability to compete successfully, or the effects of such competition, could adversely affect our business, financial condition and results of operations.
The food industry in which we operate is highly competitive. Numerous brands and products compete for shelf space and sales, with competition in our Packaged Meats and Fresh Pork segments based primarily on taste, product quality, nutritional profile and dietary attributes, product availability, convenience, price, brand recognition and loyalty and the ability to identify and satisfy emerging consumer preferences. Our ability to compete effectively depends on our capacity to execute across these criteria.
Although we regularly conduct research and development activities to develop new products that meet our standards for quality and appeal to consumer preferences, the success of our innovation and product development efforts is affected by our ability to anticipate changes in consumer preferences, the technical capability of our employees in developing and testing product prototypes, our ability to comply with applicable governmental regulations, and the success of our management, sales and marketing teams in introducing and marketing new products, including through current and new product categories.
The protein industry is highly competitive. We compete with large multi-brand packaged foods businesses, as well as fresh meat companies, private, category-focused companies and pork processing companies. Our products compete with many other protein sources, including chicken, beef and seafood, but our principal competition comes from other pork processors. Additionally, we face competition for export sales from both domestic and international suppliers.
Some of our competitors have greater scale, marketing resources, name recognition, research and development capabilities and/or other resources (financial and otherwise) than we do, and some of the companies may be more innovative and able to bring new products to market faster and more quickly exploit and serve niche markets or new or burgeoning consumer preferences than us.
There can be no assurance that we will successfully develop and market new products or successfully introduce products in new categories. The development and introduction of new products requires substantial marketing
34
expenditures, which we may be unable to recoup if the new products do not gain widespread market acceptance. If we introduce new or improved products that ultimately do not meet objectives for such products, it could impact our growth, sales and profitability. Any failure to successfully develop, market and launch future products or successfully enter into new product categories may lead to decreased growth, sales and profitability.
Further, our competitors could increase their promotional spending or market and sell their products more successfully than we do. Our competitors could also offer lower prices to customers, which could pressure us to lower prices to our customers and to achieve additional cost savings to offset these reductions. We may be unable to change our cost structure and pricing practices rapidly enough or sufficiently to successfully compete in such an environment.
We may be unable to compete successfully with any or all of these companies. Competitive pressures or other factors could cause us to lose sales, which may require us to lower prices, increase the use of discounting or promotional programs, or increase marketing expenditures, each of which would adversely affect our margins and could result in a decrease in our operating results and profitability.
Changes in consumer preferences and failure to maintain favorable consumer perception of our brands and products could negatively impact our business.
The food industry in general is subject to changing consumer trends, demands and preferences. Trends within the food industry change often, and failure to identify and react to changes in these trends could lead to, among other things, reduced demand and price reductions for our brands and products. We strive to respond to consumer preferences and social expectations, but we may not be successful in our efforts.
We have a number of widely recognized brands with significant value. Maintaining and continually enhancing the value of these brands is critical to the success of our business. Brand value is based in large part on consumer perceptions. Success in promoting and enhancing brand value depends in large part on our ability to provide high-quality products. Brand value could diminish significantly due to a number of factors, including consumer perception that we have acted in an irresponsible manner, adverse publicity about our products (whether or not valid), our failure to maintain the safety and quality of our food products or ingredients (or the food safety system generally), the failure of our products to deliver consistently positive consumer experiences or the products becoming unavailable to consumers.
Prolonged negative perceptions concerning the health implications of certain food products or ingredients or loss of confidence in the food safety system generally could influence consumer preferences and acceptance of our products and marketing programs. Prolonged negative perceptions and failure to satisfy consumer preferences could materially and adversely affect our business, financial condition and results of operations.
The use of social and digital media by consumers has greatly increased the speed and extent that information or misinformation can be shared. Individuals and organizations have in the past used social media platforms to publicize information and perceptions about the food production industry in general and our company in particular. Such publications could damage our reputation. A negative perception by consumers of one or more of our brands or a shift in consumer preferences away from animal-based products may result in reduced sales of our products, which could have a material adverse effect on our business, results of operations and financial condition.
Outbreaks of disease among or attributed to livestock can significantly affect production, the supply of raw materials, demand for our products and our business.
We are subject to risks relating to our ability to maintain animal health and control diseases. Real or perceived livestock health problems could adversely impact our production, our supply of raw materials and consumer confidence in all of our operating segments.
From time to time, we have experienced outbreaks of livestock diseases, and we may experience additional occurrences of livestock disease in the future. For example, there have been recent outbreaks of both high- and low-pathogenic strains of avian influenza in the United States. The outbreaks of both high- and low-pathogenic strains of avian influenza are a fairly common occurrence in Mexico. Adverse publicity concerning any disease or health
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concern could also cause customers to lose confidence in the safety and quality of our food products. Outbreaks of disease, including African Swine Fever, or ASF, Bovine Spongiform Encephalopathy, Foot and Mouth Disease and Highly Pathogenic Avian Influenza, or HPAI, can have a significant impact on our financial results. In recent years, ASF has impacted hog herds in Asia (including in China), Europe and the Caribbean; and, if an outbreak of ASF were to occur in the United States, our supply of hogs and pork could be materially impacted. In 2024, HPAI was detected in the United States in dairy cattle, wild birds, mammals, and farm workers directly exposed to infected dairy or poultry. The U.S. pork market was significantly impacted by the spreading of Porcine Epidemic Diarrhea Virus in 2014 and Porcine Reproductive and Respiratory Syndrome Virus in 2015, which affected our herds in several regions. The spread of these diseases in the United States reduced hog supplies, leading to higher meat prices. In 2015, the hog herds recovered and supply increase yielded lower market prices. Neither of these diseases or the corresponding fluctuations to market prices had a material adverse impact on our financial condition or results of operations. However, we cannot guarantee that the outbreak of any such diseases would not have a material adverse impact on our financial condition or results of operations in the future.
The outbreak of such diseases could adversely affect our supply of raw materials, increase the cost of production, reduce the number of livestock offspring produced, hamper the growth of livestock to finished size, result in expensive vaccination programs and require in some cases the destruction of infected livestock, any of which could adversely affect our operating margins. Additionally, the real or perceived outbreak of disease may hinder our ability to market and sell products both domestically and internationally. Any real or perceived outbreak of disease, including contamination of other livestock of our competitors, could also reduce consumer confidence in the meat products affected by the particular disease, generate adverse publicity, depress market conditions for our hogs internationally and/or domestically and result in the imposition of import or export restrictions.
Our operations are subject to the general risks associated with the food industry, including perceived or real health risks related to our products or the food industry generally and risks associated with government regulations.
We are subject to risks affecting the food industry generally, including risks posed by the following:
•food spoilage;
•food contamination;
•food allergens;
•consumer nutritional and health-related concerns;
•consumer product liability claims;
•product tampering;
•product labeling errors;
•the expense and possible unavailability of product liability insurance; and
•the potential cost and disruption of a product recall or withdrawal.
Adverse publicity concerning any perceived or real health risk associated with our brands or our products could cause customers to lose confidence in the safety and quality of our food products, which could adversely affect our reputation, business, financial condition and results of operation, particularly as we expand our branded products business. We could also be adversely affected by perceived or real health risks associated with similar products produced by others to the extent such risks cause customers to lose confidence in the safety and quality of such products generally and, therefore, lead customers to opt for other options that are perceived as safe.
Our manufacturing facilities and products, including the processing, packaging, storage, distribution, advertising and labeling of our products, are subject to extensive federal, state and foreign laws and regulations in the food safety area, including regular government inspections and governmental food processing controls. Loss of
36
or failure to obtain necessary permits and registrations could delay or prevent us from meeting current product demand, introducing new products, building new facilities or acquiring new businesses and could adversely affect operating results. If we are found to be out of compliance with applicable laws and regulations, particularly if it relates to or compromises food safety or animal welfare, we could be subject to civil remedies, including fines, injunctions, recalls or asset seizures, as well as potential criminal sanctions, any of which could have a material adverse effect on our business, financial condition, results of operations and prospects. In addition, future material changes in food safety and animal welfare regulations could result in increased operating costs or could be required to be implemented on schedules that cannot be met without interruptions in our operations.
Product liability claims or product recalls can adversely affect our business reputation, expose us to increased scrutiny by federal and state regulators and may not be covered by insurance.
Pork and poultry products may be subject to contamination by foreign materials, exposure to chemicals of concern from packaging or environmental exposure, or disease-producing organisms or pathogens, such as Listeria monocytogenes, Salmonella, Campylobacter and generic E.coli, Yersinia enterocolitica and Staphylococcus aureus. Because these pathogens are generally found in the environment, there is a risk that, as a result of food processing, they could be present in our products. We cannot assure you that our food safety monitoring systems, even when working effectively, will eliminate all such risks related to food safety. These risks cannot be eliminated entirely even with adherence to good manufacturing practices and finished product testing. We license our brand abroad and have little, if any control, over the products sold under such licenses. Any quality issues with such products could cause reputational damage to us. We also have little, if any, control over proper handling once the product has been shipped. Illness and death may result if the pathogens are not eliminated at the further processing, food service or consumer level. Even an inadvertent shipment of contaminated products is a violation of law and may lead to increased risk of exposure to product liability claims, product recalls and increased scrutiny by federal and state regulatory agencies and may have a material adverse effect on our business, reputation and/or prospects. The packaging, marketing and distribution of food products entail an inherent risk of product liability and product recall and the resultant adverse publicity. We may be subject to significant liability if the consumption of any of our products causes injury, illness or death.
We could be required, and in some instances have in the past been required to, recall certain products due to such products being mislabeled, contaminated, spoiled, tampered with or damaged, whether caused by us or someone in our supply chain. A widespread product recall or market withdrawal could result in significant losses due to the cost of a recall or withdrawal, the destruction of product inventory, potential customer claims, lost sales due to the unavailability of product for a period of time. The costs associated with product recalls could be exacerbated by issues encountered in tracing affected products either within our facilities or in the hands of third parties. In addition, such a product recall or withdrawal could also result in adverse publicity, damage to our reputation and a loss of consumer confidence in our products, which could have a material adverse effect on our business results. Any product contamination or mislabeling also could subject us to, and in some instances has subjected us to, product liability claims, adverse publicity or government scrutiny, investigation or intervention, resulting in increased costs and decreased sales as customers lose confidence in the safety and quality of our food products.
In addition, we purchase ingredients, commodities and other raw materials from third-party suppliers. If these materials are alleged or prove to include contaminants that affect the safety or quality of our products or are otherwise rumored to have adverse effects, we may need to find alternate materials for our products, delay production of our products, or discard or otherwise dispose of our products, which could adversely affect our results of operations. Additionally, if this occurs after the affected product has been distributed, we may need to withdraw or recall the affected product and we may experience adverse publicity or product liability claims. We cannot assure you that we will not be required to perform product recalls, or that product liability claims will not be asserted against us, in the future. Any claims that may be made may create adverse publicity that would have a material adverse effect on our ability to market our products successfully or on our business, reputation, prospects, financial condition and results of operations.
Moreover, claims or liabilities of this type might not be covered by our insurance or by any rights of indemnity or contribution that we may have against others. We do not currently maintain any product recall insurance and we
37
cannot be sure that we will not incur claims or liabilities for which we are not insured or that exceed the amount of our insurance coverage. A product liability judgment against us or a widespread product recall could have a material adverse effect on our business, financial condition, results of operations or liquidity. To date, product recalls have not had a material adverse impact on our financial condition or results of operations.
Any disruption of operations at one or more of our production facilities, distribution centers or cold storage facilities, including as a result of natural disasters, public health crises, political crises and instability, civil unrest and other catastrophic events or events outside of our control, could adversely affect our business, financial condition and results of operations.
Our production and distribution network consists of 39 processing plants and five distribution centers that are either company-owned or rented, and numerous third-party cold storage facilities in North America. Any disruption in, or the loss of operations at, one or more of these facilities, even on a short-term basis, could delay or postpone production or distribution of our products, which could adversely affect our business, financial condition and results of operations.
Natural disasters, such as fires, earthquakes, power shortages or outages, floods or monsoons, public health crises, such as pandemics and epidemics, political crises, such as terrorism, war, civil unrest, political instability or other conflict, or other events outside of our control have in the past, and may in the future, adversely impact our results of operations.
Such disruption could be caused by a number of different events, including:
•maintenance outages;
•regulatory actions;
•prolonged power failures;
•equipment or software failure;
•widespread contamination of our equipment;
•fires, floods, earthquakes or other natural disasters; or
•other events beyond our control.
Any material malfunction or prolonged disruption in the operations of any of our facilities, including our manufacturing facilities, farms, distribution facilities, stores of our wholesale partners or the facilities of our suppliers, distributors or any of our other third-party service providers, could prevent us from fulfilling orders to existing customers and could limit our ability to sell products to new customers. Any of these events could adversely affect our business, financial condition and results of operations.
A meaningful portion of our packaged meat and fresh pork products are distributed through our facility in Kansas and disruption to operations at this facility would require us to change our overall distribution activities which would likely have an adverse impact on our operations. We also utilize third-party warehouse and transportation providers through which a meaningful portion of our product is distributed. A disruption in storage or transportation services could be caused by a number of factors, including:
•labor issues;
•port and shipping capacity;
•failure to meet customer standards;
•acts of war;
•terrorism;
38
•fire, earthquakes, extreme temperatures, flooding or other natural disasters; or
•bankruptcy or other financial issues affecting the third-party providers of such services.
A disruption in storage or transportation services could result in an inability to supply materials to our facilities or finished products to our distribution centers or customers. Alternatives may not be available on short notice or could result in higher transportation costs. Any disruption in the distribution chain of our products or an increase in the cost of these services could have a material adverse effect on our business, financial condition and results of operations.
Our reliance on third-party service providers can have an adverse effect on our business.
We rely on third-party service providers for many areas of our business, including transportation and cold storage. Failure by these third parties, including independent growers, to meet their contractual, regulatory and other obligations to us, or our failure to adequately monitor their performance, have in the past resulted in and could in the future result in additional costs to remediate errors made by such service providers. Depending on the function involved, such errors have in the past led to and can in the future lead to business disruption, systems performance degradation, processing inefficiencies or other systems disruptions, the loss of or damage to intellectual property or sensitive data through security breaches or otherwise, incorrect or adverse effects on financial reporting, litigation or remediation costs, damage to our reputation, all of which can adversely affect our business. For example, should the refrigeration system fail at one of our third-party cold storage facilities, we could suffer the loss of some, or all, of our inventory. Should our contract manufacturers go out of business or suffer major equipment failure, we may lose the ability to produce sufficient quantities of our products for a period of time before establishing production with a new manufacturer. Any number of similar failures suffered by our service providers could prove damaging to our ongoing operations and our ability to fulfill demand.
Due to seasonality or changes in our promotional activities, our revenue and operating results may vary from quarter to quarter.
We have experienced, and expect to continue to experience, fluctuations in our quarterly results of operations due to the seasonal nature of our business. Hog supply and consumer purchasing patterns are impacted by seasonal factors, including weather and holidays. Seasonality could cause our results of operations for an interim financial period to fluctuate and not be indicative of our full-year results. Seasonality also impacts relative net sales and profitability of each quarter of the year, both on a quarter-to-quarter and year-over-year basis. If we fail to effectively manage our inventories or fluctuations in business as a result of promotional activities or other factors, seasonality could have a material adverse effect on our business, financial condition and results of operations.
Significant increases in the cost of distribution could adversely affect our business, financial condition and results of operations.
Our distribution costs primarily include freight and cold storage. Significant increases in these distribution costs could adversely affect our business, financial condition and results of operations. We use a core group of contract carriers that have established rates based on mileage to regions or destination states. A fuel surcharge addendum is a component of all rates to offset the fluctuating price of diesel fuel, primarily to limit the contract carrier’s exposure. If these surcharges rise significantly and we do not have effective hedges in place, or if we are unable to pass increased distribution costs on to our customers in the form of higher prices for our products, our business, financial condition and operating results could be adversely affected. In addition, if we increase prices to offset higher transportation and distribution costs, we could experience lower demand for our products, decreased ability to attract new customers and lower sales volumes.
We use in-house and third-party cold storage vendors to store our finished goods. A major component of cold storage operations expense is electricity cost. Any significant increase in electricity rates for the vendor are passed along to us in the form of higher storage rates. If our storage rates or electricity rates for in-house cold storage increase significantly, we may be unable to pass these costs on to our customers, which could adversely affect our business, financial condition and results of operations.
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We are increasingly dependent on information technology, and our business and reputation could suffer if we are unable to protect our information technology systems against, or effectively respond to, cyberattacks, other cyber-incidents or security breaches or if our information technology systems are otherwise disrupted.
Information technology is an important part of our business operations, and we increasingly rely on information technology systems to manage business data and increase efficiencies in our production and distribution facilities and inventory management processes. We also use information technology to process financial information and results of operations and to comply with regulatory, legal and tax requirements. In addition, we depend on information technology for digital marketing and electronic communications among our facilities, personnel, customers and suppliers. Like other companies, our information technology systems are vulnerable to a variety of disruptions, including, but not limited to, the process of upgrading or replacing software, databases or components thereof, natural disasters, terrorist attacks, telecommunications failures, computer viruses, cyberattacks, hackers, unauthorized access attempts and other security issues. Cyberattacks and other cyber-incidents are occurring more frequently, constantly evolving in nature, becoming more sophisticated and being made by groups and individuals with a wide range of motives and expertise. Our security initiatives and disaster recovery plans to mitigate our exposure to these risks may not be adequate. Any significant failure of our systems, including failures that prevent our systems from functioning as intended or our failure to timely identify or appropriately respond to cyberattacks or other cyber-incidents, could cause transaction errors, processing inefficiencies, loss of customers and sales, have negative consequences on our employees and our business partners, have a negative impact on our operations and business reputation and expose us to liability, litigation and regulatory enforcement actions.
In addition, targeted cyberattacks or those that result from a security incident directed at a third-party vendor that we rely on have in the past created and can in the future create a risk of compromise to our internal systems, products and offerings, which have in the past resulted in and could in the future result in interruptions or delays that could disrupt our business operations. If our supply chain cybersecurity is compromised as a result of third-party action, employee error, malfeasance, stolen or fraudulently obtained log-in credentials or otherwise, our business may be harmed and we could incur significant liabilities. For example, we were informed by the third-party provider for our previously hosted consumer facing website that a security incident occurred on the third-party website hosting provider’s IT systems in which an unauthorized party obtained certain information about certain of our customers who made purchases on its websites.
The costs to address cybersecurity risks or risks on information technology failure, both before and after an incident, have in the past been and could in the future be significant, regardless of whether incidents result or resulted from an attack on us directly, or on third-party vendors upon which we rely. If we are unable to prevent security breaches, we may suffer financial and reputational damage or penalties because of the unauthorized disclosure of confidential information belonging to us or to our business partners, customers, consumers or suppliers. Finally, the disclosure of non-public information through external media channels could lead to the loss of intellectual property or damage our reputation and brand image. Any such incidents could subject us to government investigations and regulatory enforcement actions, litigation, potential liability, and damage to our brand and reputation or otherwise harm our business and operations.
Our operations are subject to the risks associated with acquisitions, investments in joint ventures and divestitures.
From time to time, we review opportunities for strategic growth through acquisitions. We have also pursued and may in the future pursue strategic growth through investment in joint ventures. These acquisitions and investments may involve large transactions or realignment of existing investments. These transactions present financial, managerial and operational challenges, including:
•diversion of management attention from managing our existing business;
•difficulty with integrating businesses, operations, personnel and financial and other systems;
•lack of experience in operating in the geographical or product markets of the acquired business;
•new or additional regulatory requirements;
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•failure to realize any or all of the anticipated benefits, including cost synergies;
•increased levels of debt potentially leading to associated reduction in ratings of our debt securities and adverse impact on our various financial ratios;
•the requirement that we periodically review the value at which we carry our investments in joint ventures and, in the event we determine that the value at which we carry a joint venture investment has been impaired, the requirement to record a non-cash impairment charge, which charge could substantially affect our reported earnings in the period of such charge, would negatively impact our financial ratios and could limit our ability to obtain financing in the future;
•potential loss of key employees and customers of the acquired business;
•assumption of and exposure to unknown or contingent liabilities of acquired businesses;
•potential disputes with the sellers; and
•for our investments, potential lack of common business goals and strategies with, and cooperation of, our joint venture partners.
Product sales and our manufacturing facilities are subject to the U.S. Department of Agriculture, or the USDA, and the U.S. Food and Drug Administration, or the FDA, regulation in the United States and comparable regulatory requirements outside the United States. Failure to satisfy such regulatory requirements may impact our ability to manufacture and sell such products or may subject us to regulatory or judicial enforcement actions that could be costly and time consuming and could divert the attention of management, as well as negatively impact our reputation and brand. We may experience financial or other setbacks if any of the businesses that we have acquired or may acquire in the future have problems of which we are not aware or liabilities that exceed expectations.
Additionally, from time to time, we may divest businesses that do not meet our strategic objectives or do not meet our growth or profitability targets. We may not be able to complete desired or proposed divestitures on terms favorable to us. Gains or losses from the sales of, or lost operating profit from, those businesses may adversely affect our profitability and margins. Moreover, we may incur asset impairment charges related to divestitures that reduce our profitability. Our divestiture activities may present financial, managerial and operational risks, and could adversely affect our business, financial condition and results of operations.
We are subject to risks associated with our international sales.
We export our products to 35 countries, and we are engaged in a joint venture in Mexico. For the nine months ended September 29, 2024, U.S. export sales accounted for 13% of our total sales. Because of the growing market share of U.S. pork products in the international markets, U.S. exporters are increasingly being affected by measures taken by importing countries to protect local producers.
Our international sales and investments operations are subject to various risks related to economic or political uncertainties, including, but not limited to, the following risks:
•general economic and political conditions;
•imposition of tariffs, quotas, trade barriers and other trade protection measures by various countries;
•import or export licensing requirements imposed by various countries;
•the closing of borders by foreign countries to the import of our products due to, among other things, animal disease or other perceived health or safety issues;
•difficulties and costs associated with complying with, and enforcing remedies under, a wide variety of complex domestic and international laws, treaties and regulations, including anti-corruption laws, export controls and sanctions laws and anti-money laundering laws;
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•the risk that the parties with which we do business, including parties that may resell our products in foreign countries, may not comply with all applicable laws, treaties and regulations, including import and export licensing requirements, anti-corruption laws (including, but not limited to, the U.S. Foreign Corrupt Practices Act, due to our operations in Mexico), sanctions laws, anti-bribery laws and anti-money laundering laws, and that any such non-compliance may have direct or indirect consequences on us, such as reputational harm and subjecting us to government investigations or penalties;
•different regulatory structures and unexpected changes in regulatory environments;
•tax rates that may exceed those in the United States and earnings that may be subject to withholding requirements and incremental taxes upon repatriation;
•potentially negative consequences from changes in tax laws;
•increased distribution costs, disruptions in shipping or reduced availability of freight transportation; and
•disruptions or halts in operations at ports in the United States.
Furthermore, our foreign operations are subject to the risks described above as well as additional risks and uncertainties including:
•fluctuations in currency values, which have affected, among other things, the costs of our investments in foreign operations;
•translation of foreign currencies into U.S. dollars;
•foreign currency exchange controls; and
•unstable political environments.
Negative consequences relating to these risks and uncertainties could jeopardize or limit our ability to export our products to one or more of those markets and could adversely affect our business, financial condition and results of operations.
We depend on availability of, and satisfactory relations with, our employees.
As of December 31, 2024, we had approximately 34,000 employees in the United States and approximately 2,500 in Mexico, with approximately 46% of our total workforce covered by collective bargaining agreements or are members of labor unions. Our operations depend on the availability, retention and relative costs of labor and maintaining satisfactory relations with employees and the labor unions. Further, employee shortages can and do occur, particularly in rural areas where some of our operations are located. Labor relations issues arise from time to time, including issues in connection with union efforts to represent employees at our plants and with the negotiation of new collective bargaining agreements. If we fail to maintain satisfactory relations with our employees or with the labor unions, we may experience labor strikes, work stoppages or other labor disputes. Negotiation of collective bargaining agreements also could result in higher ongoing labor costs.
Immigration reform continues to attract significant attention in the public arena and the U.S. Congress. If new immigration legislation is enacted, such laws may contain provisions that could increase our costs in recruiting, training and retaining employees, increase our costs of complying with federal law in reviewing employees’ immigration status and create employee shortages. Furthermore, increased enforcement efforts with respect to existing immigration laws by governmental authorities may disrupt a portion of our workforce or our operations. There can be no assurance that these activities or consequences will not adversely affect our business, financial condition or results of operations in the future.
We also rely on an adequate supply of skilled employees in the farming and corporate areas. Trained and experienced personnel in our industry are in high demand, and we have experienced high turnover and difficulty retaining employees with appropriate training and skills. We cannot predict whether we will be able to attract,
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motivate and maintain an adequate skilled workforce necessary to operate our existing and future facilities efficiently, or that labor expenses will not increase as a result of a shortage in the supply of skilled personnel, thereby adversely impacting our financial performance. While our industry generally operates with high employee turnover, any material increases in employee turnover rates or any widespread employee dissatisfaction could also have a material adverse effect on our business, financial condition and results of operations.
We are subject to various risks relating to worker employment and health and safety.
Given the nature of our operations, the type of work performed by our employees and the number of plants and employees that we have, we are subject to various risks relating to employment eligibility and worker safety. We cannot assure you that no accidents will occur. Workplace accidents have previously resulted in lawsuits, regulatory or administrative investigations and inquiries and fines and penalties, and we may become subject to additional such lawsuits, investigations and inquiries, and fines and penalties in the future, and our business, financial condition and results of operations may be adversely affected.
Allegations or findings that we, our suppliers, third-party staffing agencies or other business partners are not complying with applicable workplace and labor laws, including child labor laws, or regarding illegal employment of foreign workers, could negatively affect our overall reputation and brand image, which in turn could have a negative impact on our relationships with customers, consumers and our brand license partners, as well as subject us to increased regulatory and political scrutiny. In addition, the discovery by us or governmental authorities of undocumented workers could result in our having to attempt to replace those workers, which could be disruptive to our operations or may be difficult to do. Moreover, failure or perceived failure to comply with legal or regulatory requirements applicable to our business could expose us to litigation, governmental inquiries and substantial fines and penalties, as well as costs and distractions, that could adversely affect our business, results of operations, financial condition and cash flows.
Following a 2023 investigation of our plant in St. James, the Minnesota Department of Labor and Industry alleged that we had employed 11 underage employees during the two-year audit period. During the hiring process, we use the federal E-Verify system and trained human resources professionals to scrutinize identity documents for I-9 purposes carefully, but our process may be circumvented by underage individuals with fake documentation. Since this investigation, we have put in place new risk-based measures designed to recognize identity fraud, including visual inspection protocols, internal auditing and enhanced I-9 training. In November 2024, we entered into a consent order with the Minnesota Department of Labor and Industry relating to these allegations. Although we did not admit liability in connection with this consent order, we are required to pay a $2 million administrative penalty. Under the consent order, we are required to conduct industry outreach related to underage labor compliance, contractually require underage labor compliance with our labor staffing agencies and sanitation contractors, and take other steps to enhance our compliance practices.
In addition, one of our sanitation contractors, Packers Sanitation Services Inc., was featured prominently in the news in 2022 and 2023 because of a federal investigation that found underage employees in its workforce. We have sought to address the risk of our contractors utilizing underage employees by increasing our efforts to monitor compliance by these third parties; however, we cannot provide any assurance that companies that provide services to us will comply with such laws and that our monitoring efforts will timely identify non-compliance, if any occurs. In addition, we cannot give any assurance that our reputation will not be adversely affected by non-compliance, governmental investigations or other inquiries in the future.
We depend upon the continued services of certain key members of our senior management team, without whom our business operations could be significantly disrupted.
Our success depends, in part, on the continued contributions of our executive leadership team and key members of our senior management. Our management team has significant industry experience, as well as in-depth knowledge of our company, and could be difficult to replace. Any loss or extended interruption in the service of one or more of our senior officers could adversely affect our business, financial condition and results of operations. In addition, we do not have key-man insurance on the life of any of our officers. The unexpected loss of the services of our key personnel could have a detrimental effect on us. Moreover, the market for qualified individuals may be
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highly competitive and we may not be able to attract and retain qualified personnel to replace or succeed members of our senior management, should the need arise. In addition, our compensation arrangements may not always be successful in attracting new employees or retaining our existing team members.
The consolidation of customers and/or the loss of our customers could adversely impact our business.
Continued consolidation within the retail industry, including among supermarkets, warehouse clubs and food distributors, has resulted in an increasingly concentrated retail base and increased our exposure to loss of certain customers. These consolidations have produced large, sophisticated customers with increased buying power who are more capable of operating with reduced inventories, opposing price increases, and demanding lower pricing, increased promotional programs and specifically tailored products. These customers also may use shelf space currently used for our products for their own private label products. Because of these trends, our volume growth could slow or we may need to lower prices or increase promotional spending for our products, any of which could adversely affect our financial results. Additionally, these large customers may demand more favorable terms that may expose us to greater risks, including uncapped indemnification and no limitation of liability provisions. Such terms may obligate us to pay significant amounts in connection with potential losses arising from claims and related legal proceedings, and any such claims could also affect our reputation and our relationship with customers.
Our ten largest customers represented approximately 37% of net sales of fiscal year 2023. We generally do not have long-term sales agreements or other contractual assurances as to future sales to our customers, including these major customers. Our business could be materially adversely affected and suffer significant decreases in sales and operating profit from the loss of one or more of our larger customers or if our larger customers’ plans, markets, and/or financial condition should change significantly. For example, if our customers cannot access sufficient funds or financing, then they may delay, decrease, or cancel purchases of our products, or delay or fail to pay us for previous purchases. The loss of a significant customer or a material reduction in sales to, or adverse change to trade terms with, a significant customer could materially and adversely affect our product sales, financial condition and results of operations.
Impairment in the carrying value of goodwill or intangible assets could negatively impact our consolidated results of operations and net worth.
As of December 31, 2023, we had $2.9 billion of goodwill and intangible assets, which represented approximately 22% of total assets. Goodwill was allocated to our reporting units as follows: Packaged Meats, $1,503 million; Mexico, $83 million; Fresh Pork, $34 million; Hog Production, $4 million; and Bioscience, $4 million. Under GAAP, goodwill and identified intangible assets with indefinite lives must be evaluated for impairment annually or more frequently if events indicate it is warranted.
Goodwill is the excess amount of purchase consideration over the fair value of net assets acquired in a business combination. In evaluating the potential for impairment of goodwill, we make assumptions regarding future operating performance, business trends, and market and economic conditions. Such analyses further require us to make judgmental assumptions about sales, operating margins, growth rates, and discount rates. There are inherent uncertainties related to these factors and to management’s judgment in applying these factors to the assessment of goodwill recoverability. Goodwill reviews are prepared using estimates of the fair value of reporting units based on market multiples of EBITDA and/or on the estimated present value of future cash flows. For indefinite life intangible assets, an impairment loss is recognized if the carrying amount of an indefinite life intangible asset exceeds the estimated fair value of that intangible asset. Identified intangible assets with definite lives are tested for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.
Events and conditions that could result in impairment in the value of our goodwill and other intangible assets include changes in the industry in which we operate, particularly the impact of a downturn in the global economy or the economies of geographic regions or countries in which we operate, as well as competition, adverse changes in the regulatory environment, or other factors leading to reduction in expected long-term sales or profitability. We could be required to evaluate the recoverability of goodwill and indefinite life intangible assets prior to the annual
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assessment if we experience disruptions to the business, unexpected significant declines in operating results, divestiture of a significant component of our business or market capitalization declines.
In addition, our equity investments in joint ventures, partnerships and other entities, both within and outside the United States, are periodically involved in modifying and amending their credit facilities and loan agreements. The ability of these entities to refinance or amend their facilities on a successful and satisfactory basis, and to comply with the covenants in their financing facilities, affects our assessment of the carrying value of any individual investment. As of December 31, 2023, none of our equity investments represented more than 5% of our total consolidated assets. If we determine in the future that an investment is impaired, we would be required to record a non-cash impairment charge, which could substantially affect our reported earnings in the period of such charge. In addition, any such impairment charge would negatively impact our financial ratios and could limit our ability to obtain financing in the future. See Note 8: “Equity Method Investments” in our annual audited consolidated financial statements, included in this prospectus, for a discussion of the accounting treatment of our equity investments.
The loss of any trademark or other intellectual property right could enable other companies to compete more effectively with us.
We utilize intellectual property in our business. Our registered and unregistered trademarks are valuable assets that reflect the goodwill of our brands and consumers’ favorable perception of our products. We have invested a significant amount of money in establishing, promoting and protecting our brands. We also rely on patented and unpatented proprietary methods, processes and techniques in our manufacturing operations and copyright protection in our sales and marketing materials to develop and maintain our competitive position. Our continued success depends, to a significant degree, upon our ability to protect and preserve our intellectual property rights. In certain jurisdictions, we receive access to third-party intellectual property. In particular, we have a license agreement with Nathan’s Famous for the exclusive right to manufacture, distribute, market and sell “Nathan’s Famous” branded hot dogs and sausages in refrigerated consumer packages to be resold through retail channels within the United States until March 2032. We cannot assure you that we will be able to maintain or renew the license agreement with Nathan’s Famous or enter into new license agreement with third-party owners of intellectual property on reasonable terms, or at all. We also license certain of our trademarks and other intellectual property for use by third parties. In an effort to preserve our trademark rights, we enter into license agreements with these third parties that govern the use of our trademarks and contain limitations on their use. We cannot assure you that our efforts to police the use of our trademarks by our licensees will be sufficient to ensure that our licensees abide by the terms of their licenses. In the event that our licensees fail to do so, our trademark rights could be diluted.
We rely primarily on confidentiality agreements and intellectual property law to protect our proprietary rights. Our confidentiality agreements with our employees and certain of our consultants, contract employees, suppliers, vendors and independent contractors, including some of our co-manufacturers who use our formulations to manufacture our products, generally require that all non-public information made known to them be kept strictly confidential. Further, some of our formulations have been developed by or with our suppliers and co-manufacturers. As a result, we may not hold exclusive rights to some formulations or be able to prevent others from using similar formulations.
We cannot be certain that the steps we have taken to protect our intellectual property rights are adequate, that our intellectual property rights can be successfully defended and asserted in the future or that third parties will not infringe upon, misappropriate or challenge any such rights. In addition, our trademark rights and related registrations may be challenged in the future and could be canceled or narrowed. Failure to protect our trademark rights could prevent us in the future from using certain brands or from challenging third parties who use names and logos similar to our trademarks, which may in turn cause consumer confusion or negatively affect consumers’ perception of our brands and products. We may not be successful in enforcing our trademarks or challenging confusingly similar trademarks used by third parties. Moreover, intellectual property disputes and proceedings and infringement claims may result in a significant distraction for management and significant expense, which may not be recoverable regardless of whether we are successful. Such proceedings may be protracted with no certainty of success, and an adverse outcome could subject us to liabilities, force us to cease use of certain trademarks or other intellectual
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property, or force us to enter into licenses with others. Any one of these occurrences may have an adverse effect on our business, financial condition and results of operations.
Deterioration of economic conditions could negatively impact our business.
Our business and results of operations have in the past been and may continue in the future to be adversely affected by changes in national or global economic conditions, including inflation, interest rates, availability of and access to capital markets, volatility in financial markets, declining consumer spending rates, recessions, decreased energy availability and increased energy costs (including fuel surcharges), supply chain challenges, labor shortages, geopolitical conflicts (including the ongoing conflicts between Russia and Ukraine and Israel and Hamas), the negative impacts caused by pandemics, epidemics and public health crises and the effects of governmental initiatives to manage economic conditions.
Any such changes could adversely affect the demand for our products or the cost and availability of our needed raw materials, cooking ingredients and packaging materials, thereby negatively affecting our financial results. Disruptions and instability in credit and other financial markets and deterioration of national and global economic conditions, could, among other things:
•make it more difficult or costly for us to obtain financing for our operations or investments or to refinance our debt in the future;
•cause our lenders to depart from prior credit industry practice and make more difficult or expensive the granting of any technical or other waivers under our credit agreements to the extent we may seek them in the future;
•impair the financial condition of some of our customers, suppliers or counterparties to our derivative instruments, which could result in challenges in collecting accounts receivable or non-performance by suppliers;
•lead customers and consumers to delay or reduce purchases of our products as a result of unfavorable economic conditions;
•negatively impact global demand for our products, which could result in a reduction of sales, operating profit and cash flows;
•decrease the value of our investments in equity and debt securities, including our company-owned life insurance and pension plan assets, which could result in higher pension cost and statutorily mandated funding requirements; and
•impair the financial viability of our insurers.
Furthermore, inflation has and may continue to increase our operational costs, including labor costs and feed ingredient costs, and continued increases in interest rates in response to concerns about inflation may have the effect of further increasing economic uncertainty and heightening these risks. As a result, instability and weakness of the U.S. and global economies, and the negative effects on consumers’ spending, may materially negatively affect our business and results of operations. A prolonged period of reduced consumer spending could have an adverse effect on our business and our results of operations.
If tax laws change or we experience adverse outcomes resulting from examination of our tax returns or disagreements with taxing authorities, it could adversely affect our business, financial condition and results of operations.
We are subject to federal, state, and local tax laws and regulations in the United States. The application and interpretation of these laws in different jurisdictions affect our operations in complex ways and are subject to change, and some changes may be retroactively applied. Our future effective tax rates and the value of our deferred tax assets could be adversely affected by changes in tax laws, including impacts of the Tax Cuts and Jobs Act of Public Law No. 115-97, and the Coronavirus Aid, Relief and Economic Security Act. In addition, in August 2022,
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the Inflation Reduction Act, or the IRA, was signed into law. The IRA, among other things, includes a 15% corporate minimum tax as well as a 1% excise tax on corporate stock repurchases, subject to certain exceptions. Furthermore, the European Carve-out may result in incremental tax liability to us. There have also been prior proposals in U.S. Congress to limit the recognition of losses resulting from certain transactions including, potentially, transactions such as European Carve-out. Any such proposals could, potentially, increase our tax obligations. The United States and U.S. states and localities are also actively considering changes to existing tax laws that, if enacted, could increase our tax obligations or require us to change the manner in which we operate our business.
In addition, we are subject to the examination of our income and other tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from such examinations to determine the adequacy of our provision for income taxes. Although we believe we have made appropriate provisions for taxes in the jurisdictions in which we operate, changes in the tax laws, or challenges from tax authorities under existing tax laws could adversely affect our business, financial condition and results of operations.
We face risks associated with the long-term trend toward increased activism against companies in the food products industry.
The treatment of animals and related standards of care in the food products industry have been subject to increasing focus by animal rights groups. We and many of our customers face pressure from animal rights groups to operate our respective businesses in a manner that treats animals in conformity with certain standards developed or approved by these groups. Some of our customers also require us to comply with specified animal rights standards and audits of our facilities. Animal rights groups have also engaged in legislative efforts to ban any form of gestation crates in various states. Conforming to requirements imposed on our business by animal rights groups has caused us and may in the future cause us to incur increased costs.
Animal rights groups have in the past:
•used pressure tactics in an effort to generate adverse publicity regarding our company;
•trespassed on and otherwise damaged our properties; and
•sought to disrupt our business operations or those of our suppliers and customers through protests.
These groups have, and may continue to, coordinate their actions with other groups, threaten strikes or boycotts or enlist the support of well-known persons or organizations in order to increase the pressure on us to achieve their stated aims. Future activist actions could include one or more of the following:
•property damage;
•disruptions to our business operations;
•contamination of our hogs and food supply;
•outbreak of disease;
•cyberattacks;
•legal challenges or lawsuits;
•negative publicity about our business or the food products industry in general;
•reduction in demand for our products; and
•other adverse effects on our ability to develop our properties and expand our operations.
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These actions could have a material adverse effect on our reputation and, in turn, our business, results of operations, financial condition and prospects. We may need to incur significant costs associated with responding to these or other initiatives, and there is no guarantee that our responses will produce favorable outcomes.
Risks Relating to Government Regulations
We are subject to extensive governmental regulations, which require significant compliance expenditures.
We are subject to extensive federal, state and local regulations. Our food processing facilities and products are subject to frequent inspection by the USDA, the FDA and various state and local health and agricultural agencies. Applicable statutes and regulations governing food products include rules for labeling the content of specific types of foods, the nutritional value of that food and its serving size, as well as rules that protect against contamination of products by food-borne pathogens. Many jurisdictions also require that food producers adhere to good production practices (the definition of which may vary by jurisdiction) with respect to production processes. Recently, the food safety practices and procedures in the meat processing industry have been subject to more intense scrutiny and oversight by the USDA and state authorities and future outbreaks of diseases among cattle, poultry or pigs could lead to further governmental regulation. In addition, our production facilities and distribution centers are subject to various federal, state and local laws and regulations relating to workplace safety and workplace health. Our exported products are often inspected by foreign food safety authorities, and any violation discovered during these inspections may result in a partial or total return of a shipment, partial or total destruction of the shipment and costs due to delays in product deliveries to our customers.
Our Bioscience operations are also subject to regulations from various government authorities, including the FDA, USDA and EPA. Compliance with these and other agency requirements, which are subject to change, affect our operations and may impact our results at one or more of our facilities. Additionally, the loss of or failure to obtain necessary permits or registrations, or failure to comply with these regulations, at any of our facilities could result in (i) the suspension or restriction of our heparin operations, (ii) administrative penalties and injunctive relief, (iii) civil penalties such as fines, injunctions and product recalls and/or (iv) negative publicity.
We seek to comply with applicable regulations through using internationally recognized management systems to manage our regulatory and compliance programs, employing data analytics to monitor food safety indicators and taking corrective action if necessary, and working with the USDA and the FDA on projects aimed at improving food safety and increasing consumer protection. Failure by us, our contract farms or our co-manufacturers to comply with applicable laws and regulations or maintain permits, licenses or registrations relating to our or our co-manufacturers’ operations could subject us to civil remedies or penalties, including fines, injunctions, recalls or seizures, warning letters, restrictions on the marketing or manufacturing of products, or refusals to permit the import or export of products, as well as potential criminal sanctions, which could result in increased operating costs resulting in a material effect on our operating results and business.
In addition, developments or changes in the regulatory environment may have a material impact on our business. For example, President Biden issued an executive order in July 2021 that, among other things, directed federal agencies to enforce antitrust laws more vigorously than past administrations, which may, among other things, make acquisition transactions more challenging. As a subsidiary of a public company based outside of the United States, we may also face heightened scrutiny in respect of potential acquisition transactions. See the section titled “Business—Quality Assurance and Food Safety—Regulation” for further information on the regulations to which we are subject.
Governmental authorities may take further action restricting our ability to produce and/or sell livestock or adopt new regulations impacting our production or processing operations, which could adversely affect our business.
A number of states have adopted legislation that prohibits or restricts the ability of meat packers, or in some cases corporations generally, from owning livestock or engaging in farming. In addition, the U.S. Congress has in the past considered federal legislation that would ban meat packers from owning livestock. We cannot assure you that such or similar legislation affecting our operations will not be adopted at the federal or state levels in the future. Such legislation, if adopted and applicable to our current operations and not successfully challenged or settled, could have a material adverse impact on our operations and our financial statements.
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Other states have adopted legislation that prohibits or limits nonresident aliens, foreign business entities, or foreign governments from acquiring or owning an interest in private agricultural land within the boundaries of their state. We cannot assure you that such or similar legislation affecting our operations will not be adopted in additional states in the future. Such legislation, if adopted and applicable to our current operations and not successfully challenged or settled, could have a material adverse impact on our operations and our financial statements.
In addition, the State of California enacted the Farm Animal Confinement Initiative, or Proposition 12, which became enforceable on July 1, 2023. Proposition 12 prohibits the sale within the state of certain uncooked pork produced from breeding sows or their offspring unless the animals have been housed in confinement systems that meet certain minimum standards and other conditions are met. Similarly, Massachusetts Question 3 prohibits the sale of certain pork products within the State of Massachusetts, as well as the shipment of certain pork products through the state, unless the products came from animals that were also housed in confinement systems that meet certain minimum standards. The volume of such pork sold into California and into or through Massachusetts accounted for approximately 1% of our sales for the year ended December 31, 2023.
In fiscal year 2008, North Carolina enacted a permanent moratorium on the construction of new hog farms that use the lagoon and sprayfield system. The moratorium limits us from expanding our North Carolina hog production operations. This permanent moratorium replaced a 10-year moratorium on the construction of hog farms with more than 250 hogs or the expansion of existing large farms. This moratorium may over time lead to increased difficulties in our ability to contract with independent growers.
We are, and could become, subject to legal proceedings and regulatory investigations that may result in significant expenses, fines and reputational damage.
We are involved on an ongoing basis in litigation arising in the ordinary course of business or otherwise. For example, we have been named as one of 16 defendants in a series of purported class actions alleging antitrust violations in the pork industry. The plaintiffs in all of these cases also challenge the defendant pork producers’ use of benchmarking reports from defendant Agri Stats, Inc., alleging that the reports allowed the pork producers to share proprietary information and monitor each producer’s compliance with the supposed agreement to reduce supply. Payments in an aggregated amount of $194 million were made by us to settle all class claims against us by the direct purchasers, commercial and institutional indirect purchasers and consumer indirect purchasers. In addition to the class actions, we have been named as a defendant in similar claims and suits brought by a number of individual purchasers who opted out of their class and three states or commonwealths. We have entered into negotiations with many of these claimants and has settled certain of the pending non-class cases and related claims. Currently, 22 opt-out cases and one case by the State of New Mexico remain pending against us.
We intend to vigorously defend against these claims, but we cannot assure you that we will be successful or that additional similar claims will not arise in the future. We established a reserve for these claims, however we cannot assure you that the reserve will not have to be increased, as applicable.
Trends in litigation may include class actions involving consumers, shareholders, employees or injured persons and claims related to commercial, labor, employment, antitrust, securities or environmental matters. Moreover, the process of litigating cases, even if we are successful, may be costly, and may approximate the cost of damages sought. These actions could also expose us to adverse publicity, which might adversely affect our brands, reputation and/or customer preference for our products and distract management from other tasks. Litigation trends and expenses and the outcome of litigation cannot be predicted with certainty and adverse litigation trends, expenses and outcomes could adversely affect our business, financial condition and results of operations. See “—Risks Relating to Government Regulations—Environmental regulation and related litigation and commitments could have a material adverse effect on us” for further information regarding ligation involving environmental matters.
Government antitrust and foreign investment policies and regulations may limit our strategic growth opportunities, including certain acquisitions and joint ventures.
The United States and many non-U.S. jurisdictions have laws designed to protect national security or to restrict foreign direct investment. In the United States, the Committee on Foreign Investment in the United States, or CFIUS, has the authority to review transactions that afford foreign investors the ability to “control” a U.S. business,
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as well as certain non-controlling investments. If CFIUS identifies a national security risk arising from a particular transaction, it can impose mitigation measures and can also intervene to prohibit the transaction or order a divestment if the transaction has already closed. Many non-U.S. jurisdictions restrict foreign investment in assets important to national security by taking steps including, but not limited to, placing limitations, restrictions or conditions on foreign equity investment, implementing investment screening or approval mechanisms and restricting the employment of foreigners as key personnel. These U.S. and foreign laws could limit our ability to invest in certain businesses or joint ventures or impose burdensome notification requirements, operational restrictions or delays in pursuing and consummating transactions.
Certain of our acquisitions or investments may be subject to review and approval by CFIUS or any non-U.S. equivalents thereof based on our ownership structure and scope of operations. This may have outsized impacts on transaction certainty, timing, feasibility and cost, and could prevent us from maintaining or pursuing acquisition or investment opportunities that we otherwise would have maintained or pursued. CFIUS or any non-U.S. equivalents thereof may seek to impose limitations, conditions or restrictions on or prohibit one or more of our acquisitions or investments, which may adversely affect our flexibility in structuring or financing certain acquisition transactions. In addition, CFIUS is actively pursuing transactions that were not notified to it voluntarily and may ask questions regarding, or impose restrictions, conditions or limitations on, transactions post-closing. Although CFIUS reviews (and in some cases mitigates) foreign investment originating from various countries, it has placed significant focus on reviews involving investors either directly or indirectly controlled by individuals or entities based in the People’s Republic of China, or the PRC. As a result, acquisitions or investments undertaken by us could be subject to heightened CFIUS scrutiny compared to acquisitions or investments made by other foreign investors. These risks have increased and may continue to increase due to geopolitical, policy or regulatory developments, particularly with regard to U.S.-PRC relations.
In addition, the U.S. Department of Justice Antitrust Division and the Federal Trade Commission, the two agencies responsible for enforcing federal antitrust and competition laws, issued new Merger Guidelines in December 2023, designed to invigorate enforcement of the antitrust and competition laws. These initiatives are expected to increase scrutiny of mergers and acquisitions subject to premerger review and those already consummated. As a result, the review process from U.S. antitrust agencies and other non-U.S. antitrust authorities for mergers and acquisitions undertaken by us is expected to become more challenging, more time consuming and more expensive. We may even be required to undergo investigations concerning previously closed transactions. If certain proposed acquisitions are delayed or rejected by antitrust enforcers, or if previously closed transactions are investigated, it could have an adverse impact on our business, as well as limit our opportunities for future strategic growth through acquisitions. In addition, competition rules from other U.S. federal agencies, including the USDA, as well as state competition laws could create additional hurdles.
Furthermore, complying with these laws imposes potentially significant costs and complex additional burdens, and any failure by us to comply with them could expose us to significant penalties, sanctions, loss of future investment opportunities, additional regulatory scrutiny and reputational harm.
Environmental regulation and related litigation and commitments could have a material adverse effect on us.
Our past and present business operations and properties are subject to extensive and increasingly stringent federal, state, local and foreign laws and regulations pertaining to protection of the environment, including:
•the treatment of hazardous materials and the discharge of such materials into the environment;
•the handling and disposition of manure and liquid and solid wastes; and
•air emissions.
We have incurred and expect to continue to incur significant costs complying with environmental laws and regulations. Failure to comply with, and liabilities under, these laws and regulations in the future may result in significant additional consequences to us, including administrative, civil and criminal penalties, cleanup and other environmental damages, negative publicity and increased compliance costs. Some requirements applicable to us, including the Clean Water Act and the Clean Air Act, may also be enforced by citizen groups or other third parties.
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Natural disasters, such as flooding and hurricanes, can cause the discharge of effluents or other waste into the environment, which have in the past and may in the future result in litigation and governmental enforcement actions against us or new or additional governmental regulations applicable to our operations. See “Business—Quality Assurance and Food Safety—Regulation” for further discussion of regulatory compliance as it relates to environmental risk. We have incurred, and will continue to incur, significant capital and operating expenditures to comply with these laws and regulations.
We also face the risk of lawsuits even if we are operating in compliance with applicable regulations. For example, in recent years various nuisance suits were filed against us and our subsidiary Murphy-Brown LLC, or Murphy Brown, in North Carolina. Several of these lawsuits resulted in unfavorable outcomes to us. We resolved all then-existing filed cases in July 2019 pursuant to a settlement agreement, however we have since been involved in other pending and threatened nuisance suits and claims related to both farms and other facilities. We cannot assure you that additional or similar claims relating to our farming operations (whether sounding in nuisance or other torts or causes of action) will not arise in the future.
In addition, new environmental issues could arise that would cause currently unanticipated investigations, assessments or expenditures. U.S. federal, international, state and local authorities may, from time to time, adopt revisions to environmental rules and regulations with which we must comply. New or more stringent laws or regulations that impose additional requirements on our operations or on us could increase the cost of doing business for us. For example, in January 2024, the EPA published draft revised Effluent Limitations Guidelines, or ELGs, for wastewater discharges of meat and poultry facilities. The draft proposal includes a number of options for revised ELGs that the EPA is evaluating. For existing direct dischargers of wastewater, including meat processors such as us, the EPA’s preferred option is the imposition of more stringent effluent limitations for nitrogen and ammonia and, for the first time, limitations for phosphorus. This option would also establish, for the first time, pretreatment standards for oil and grease, total suspended solids and biochemical oxygen demand for these dischargers. In addition, the EPA is proposing an amendment to add E. coli bacteria limitations for direct dischargers. Another option the EPA is considering would extend the nitrogen and phosphorus limitations to indirect dischargers, which would also cover many of our facilities.
The EPA conducted a number of public hearings on the proposed ELGs in January and March 2024. It is unclear when the EPA will issue final ELGs or to what extent they will differ from what the EPA has proposed. In addition, the new U.S. administration may elect to change, or abandon, the ELGs. Significant upgrades related to our direct and indirect wastewater discharge streams, including to treatment systems at our Sioux City and Denison, Iowa, Sioux Falls, South Dakota and Tar Heel, North Carolina centers, would be required to meet the standards as proposed, which we estimate would require material capital expenditures in the aggregate.
Additionally, increased public interest in farm animal welfare could result in additional government regulation and additional or unplanned capital expenditures. Further, the regulation or taxation of carbon or other greenhouse gas, or GHG, emissions to address climate change concerns could result in increased compliance costs and capital expenditures and may also affect the prices of commodities, energy and other inputs to our business. It is not possible at this time to predict the complete structure or outcome of any future legislative or regulatory efforts to address GHG emissions and climate change or whether costs of compliance with such efforts will have a material adverse effect on our financial position or results of operations.
Climate change, or legal, regulatory, voluntary or market measures to address climate change, may negatively affect our business, operations or reputation.
There is growing concern that carbon dioxide and other GHGs in the atmosphere have an adverse impact on global temperatures, weather patterns, and the frequency and severity of extreme weather and natural disasters. In the event that climate change has a negative effect on agricultural productivity, we may be subject to decreased availability or less favorable pricing for certain commodities that are necessary for our products, such as grains. We may also be subject to decreased availability or less favorable pricing for water as a result of climate change, which could impact our farming, manufacturing and distribution operations. In addition, natural disasters and extreme weather conditions may disrupt the productivity of our facilities or the operation of our supply chain.
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The increasing concern over climate change also has resulted and may continue to result in more regional, federal, and/or global legal and regulatory requirements including changes to energy policies, increased mandatory climate-related disclosure, carbon pricing regulations or carbon taxes. For example, in March 2024 the SEC published its final rules to enhance and standardize climate-related disclosures, requiring covered entities, including us, to disclose certain climate-related metrics and GHG emissions data, information about climate-related targets and goals and climate-related risks and obtain attestation requirements. The rules are currently stayed pending the resolution of litigation challenging the rules. At this time, we cannot predict the costs of implementation or any potential adverse impacts resulting from the new rules, should they become effective. However, we may incur increased costs relating to the assessment and disclosure of climate-related risks and targets. We may also be subject to increased litigation risks related to disclosures made pursuant to the new rules or voluntary climate-related reporting, which could materially and adversely affect our future results of operations and financial condition.
Collecting, measuring and analyzing information relating to our GHG emissions or impacts of climate change on our business is costly, time-consuming, dependent on third-party cooperation and such information may ultimately be unreliable. Furthermore, methodologies for measuring, tracking and reporting on such matters are evolving, and may be ambiguous and subject to rapid change, which may require our processes, benchmarks, baselines and controls for such data to evolve as well. Organizational changes may result in data recalculations. Quantifying GHG emissions within the boundaries of a business is a relatively nascent exercise, and we, like other companies in our industry, have refined and updated our methodologies following prior publication of data. For example, there have been inconsistent practices across many U.S. pork/poultry and dairy producers in quantifying our GHG emissions where biogas eligible for carbon reduction credits is also produced on farms. We have revised baselines and previously reported GHG emissions for our U.S. operations, as well as our carbon reduction goals, as a result of guidance clarifying the accounting of biogas credits in this context. Our GHG footprint has also changed as a result of closure or sale of plants, acquisition of new plants and reduction of farm operations. Furthermore, like many peer companies, our data collection, analysis and reporting capabilities have developed from a starting point with very limited established guidance or methodology. See “Business—Sustainability.” We have engaged a third-party consultant to conduct a review of the GHG emissions attributable to our worldwide businesses, our energy use and our value chain, and that analysis is ongoing. We expect additional changes to the methodologies to quantify our GHG emissions and possibly our climate-related goals as a result of this work.
Like many companies, our quantification of GHG emissions attributable to our business and our carbon reduction goals have been voluntary to date. The process of quantifying our GHG emissions and setting carbon reduction goals, as well as a perceived or actual lack of progress in these endeavors, can subject companies such as ours to criticism, investigations, regulatory enforcement, litigation and other risks. In addition, failure to achieve our GHG emissions reduction goals could harm our reputation, which could have a material adverse effect on our results of operations, financial condition and liquidity. We may also face increased pressure from customers, consumers, investors, activists and other stakeholders to modify our products or operations to exclude ingredients or activities that are considered to have a greater impact on climate change.
Our ability to achieve any of our climate-related strategies, expectations, goals and targets is also subject to factors and conditions that are outside of our control. Examples of such factors include, but are not limited to, evolving regulatory and other standards, processes and assumptions, the pace of scientific and technological developments, increased costs and the availability of requisite financing, market trends that may alter business opportunities, the conduct of third-party manufacturers and suppliers, constraints or disruptions to our supply chain and changes in carbon markets or carbon taxes. We may be required to expend significant resources in the near or long-term future to achieve these strategies and expectations, which could significantly increase our operational costs and, despite such efforts, may be unable to achieve such strategies or meet customer or investor expectations.
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Risks Relating to our Capital Structure
We may require additional financing to achieve our goals, and the failure to obtain this necessary capital when needed on acceptable terms, or at all, may force us to delay, limit, reduce or terminate our product manufacturing and development, and other operations.
We have funded our operations primarily through equity financing, long-term senior unsecured notes, committed revolving credit facilities, commercial paper and sales of our products. We have incurred and expect to continue to incur significant capital expenditures related to the expansion and automation of our processing capacity and maintenance of our facilities. We believe that we will continue to expend substantial resources for the foreseeable future as we consider additional markets to pursue and other growth opportunities. In addition, our operating performance and cash flow may not be sufficient to meet all our debt service requirements, return value to shareholders such as through payment of dividends or repurchase of shares of our common stock, and achieve our target Ratio of Net Debt to Adjusted EBITDA or our target minimum liquidity.
Our operating plan may change because of factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financing or other sources. We may also seek financing in connection with potential new product introductions or acquisitions or investments in businesses or technologies that we believe could offer growth opportunities. Such financing may result in dilution to shareholders, imposition of affirmative and negative covenants and debt repayment obligations, or other restrictions, any of which may adversely affect our business. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans.
Our affiliation with WH Group has historically provided us with higher credit ratings. The terms of additional financing we incur in the future after this offering may not be as favorable as those previously obtained prior to this offering. Our ability to access additional capital may further be affected by adverse or uncertain economic conditions. Weakness and volatility in the capital markets and the economy in general could make it more difficult to access the capital markets and could increase our cost of borrowing.
Our level of indebtedness and the terms of our indebtedness could adversely affect our business and liquidity position.
As of September 29, 2024, we had, on a consolidated basis, $2,012 million of outstanding total debt and finance lease obligations and $2,290 million of undrawn capacity including $2,100 million under the Senior Revolving Credit Facility (as defined herein) and $190 million under the Securitization Facility (as defined herein) (after giving effect to $23 million of issued but undrawn letters of credit and $61 million of borrowing base adjustment).
Because the borrowing capacity under the Securitization Facility depends, in part, on accounts receivable levels, which fluctuate from time to time, such amounts may not reflect actual borrowing capacity. The Senior Revolving Credit Facility is a fixed commitment facility and is not dependent on a borrowing base. In addition, on or before the maturity date of the Senior Revolving Credit Facility, we have the right, but not the obligation, to request an increase in the amount of commitments under the Senior Revolving Credit Facility in an aggregate amount not to exceed $500 million under customary terms and conditions. We are currently evaluating the possibility of refinancing our Senior Revolving Credit Facility in order to extend its maturity and seek improved terms. There can be no assurance that we will enter into such a refinancing transaction.
Our indebtedness may increase from time to time for various reasons, including fluctuations in operating results, working capital needs, capital expenditures and potential acquisitions or joint ventures. In addition, due to the volatile nature of the commodities markets, we may need to borrow significant amounts to cover any margin calls under our risk management and hedging programs. During fiscal year 2024, margin deposits posted by us ranged from $(11) million to $97 million (negative amounts representing margin deposits we have received from our brokers). The average daily amount on deposit with our brokers during fiscal year 2024 was $27 million. As of December 29, 2024, our net amount of margin held on deposit was $60 million.
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Our consolidated indebtedness level could significantly affect our business and the value of our common stock because:
•it may, together with the financial and other affirmative and negative covenants in the agreements governing our indebtedness, limit or impair our ability in the future to obtain financing, refinance any of our indebtedness, sell assets or raise equity or debt on commercially reasonable terms or at all, which could cause us to default on our obligations, materially impair our liquidity or otherwise adversely affect our business and the value of our common stock;
•a downgrade in our credit rating (including the loss of our investment grade credit ratings) could restrict or impede our ability to access capital markets at attractive rates and increase the cost of future borrowings;
•it may, through event of default provisions, limit our ability to enter into change of control transactions, which may impede our ability to enter into certain transactions;
•it may reduce our flexibility to respond to changing business and economic conditions or to take advantage of business opportunities that may arise;
•it may place us at a competitive disadvantage relative to some of our competitors that have less indebtedness than we do;
•a portion of our cash flow from operations must be dedicated to interest payments on our indebtedness and is not available for other purposes, which amount could increase if prevailing interest rates rise or if we incur additional indebtedness;
•substantially all of our accounts receivable in the United States secure the Securitization Facility, all of which could limit our ability to dispose of such assets or utilize the proceeds of such dispositions and, upon an event of default under any such secured indebtedness, the lender thereunder could foreclose upon our pledged assets; and
•it could make us more vulnerable to downturns in general economic or industry conditions or in our business.
Further, our debt agreements, under certain circumstances, currently and in the future may require us to maintain investment grade credit ratings and certain financial ratio covenants, and may limit additional borrowings, investments, the payment of dividends and other restricted payments, the acquisition or disposition of assets, mergers and consolidations, transactions with affiliates, the creation of liens, entrance into swap agreements, sale/leaseback transactions and the repayment of certain debt. We cannot assure you that any of these limitations will not hinder our ability to finance operations and capital needs and our ability to pursue business opportunities and activities that may be in our interest.
In addition, should market conditions deteriorate, or should our operating results otherwise be depressed in the future, we may have to request amendments or waivers to our covenants and restrictions under our debt agreements. There can be no assurance that we will be able to obtain such relief should it be needed in the future. A breach of any of these covenants or restrictions could result in a default that would permit our senior lenders, including lenders under the Senior Revolving Credit Facility (as defined herein) and the Securitization Facility (as defined herein) and the holders of our other debt financing facilities, as the case may be, to declare all amounts outstanding under the Senior Revolving Credit Facility, the Securitization Facility and our other debt financing facilities, as applicable, to be due and payable, together with accrued and unpaid interest, and the commitments of the relevant lenders to make further extensions of credit under the Senior Revolving Credit Facility and the Securitization Facility could be terminated. If we were unable to repay our secured indebtedness to our lenders, these lenders could proceed against the collateral securing that indebtedness, which could include substantially all of our accounts receivable assets in the United States.
Our future ability to comply with financial covenants and other conditions, make scheduled payments of principal and interest, or refinance existing borrowings depends on our future business performance which is subject
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to economic, financial, competitive and other factors, including the other risks set forth in this section, and may be affected by events beyond our control. Any failure to comply with the covenants of our debt agreements could have a material adverse effect on our business, financial condition, results of operations and prospects.
Additionally, the repayment obligations under our outstanding debt may have the effect of discouraging, delaying or preventing a takeover of our company.
We may not be able to generate sufficient cash to service all of our indebtedness.
Our ability to make payments on and to refinance our indebtedness and to fund planned capital expenditures and other strategic investments will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We may not generate sufficient cash flow from operations, and we cannot assure you that future borrowings will be available to us in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs.
If we do not generate cash flow from operations sufficient to pay our debt service obligations, we may have to undertake alternative financing plans, such as refinancing or restructuring our debt, selling assets, reducing or delaying capital investments or seeking to raise additional capital. Our ability to refinance our debt will depend on the condition of the capital markets and our financial condition at that time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations.
In addition, we conduct our operations through our subsidiaries, certain of which are not, and in the future may not be, guarantors of our indebtedness. Accordingly, repayment of our indebtedness is dependent on the generation of cash flow by our subsidiaries and their ability to make such cash available to us, by dividend, intercompany transfer, debt repayment or otherwise. Due to the restrictive covenants under certain debt agreements, our subsidiaries may be restricted from distributing dividends to enable us to make payments in respect of our indebtedness. In addition, unless they are guarantors of our indebtedness, our subsidiaries do not have any obligation to pay amounts due on our indebtedness or to make funds available for that purpose.
If drawn upon, our current variable rate indebtedness would subject us to interest rate risk, which could cause our debt service obligations to increase.
Our undrawn revolving credit facility has, and indebtedness we incur in the future may have, variable interest rates. Market interest rates have increased over the past several years and may increase in the future as a result of action by the U.S. Federal Reserve and other factors, and as a result, variable-rate debt may create higher debt service requirements, which would adversely affect our cash flow. If we draw upon our variable rate indebtedness and interest rates increase, our debt service obligations on our variable rate indebtedness would increase even though the amount borrowed would remain the same.
In particular, our borrowings under the Senior Revolving Credit Facility (as defined herein) bear interest at the Secured Overnight Financing Rate, or SOFR, plus a margin ranging from 0.875% to 1.50% per annum, or, at our election, at a base rate plus a margin ranging from 0.00% to 0.50% per annum, in each case depending on our senior unsecured debt rating. To the extent we draw from our Senior Revolving Credit Facility, we may subject to interest rate risk which could cause our debt service obligations to increase. We may also enter into additional variable rate indebtedness in the future.
There can also be no assurance that SOFR will perform in the same way as the Senior Revolving Credit Facility’s original benchmark London interbank Offered Rates, or LIBOR, would have at any time, including as a result of changes in interest and yield rates in the market, market volatility or global or regional economic, financial, political, regulatory, judicial or other events.
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Despite current indebtedness levels and restrictive covenants, we may incur additional indebtedness. This could further exacerbate the risks associated with our financial leverage.
Despite current indebtedness levels and restrictive covenants, we expect to incur additional indebtedness and may incur other indebtedness to finance our operations and other capital needs. Although the agreements governing our indebtedness contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of thresholds, qualifications and exceptions, and the additional indebtedness incurred in compliance with these restrictions could be substantial. If additional debt is incurred, the related risks that we now face as a result of our leverage would intensify.
Risks Relating to our Relationship with WH Group
We will be a “controlled company” within the meaning of the rules of Nasdaq and, as a result, qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to shareholders of other companies that are subject to such requirements.
After the completion of this offering, WH Group will beneficially own approximately 91.2% of our shares of common stock eligible to vote in the election of our directors (or approximately 89.9% if the underwriters exercise in full their option to purchase additional shares). As a result, we will be a “controlled company” within the meaning of the corporate governance standards of Nasdaq. Under these rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including requirements that:
•a majority of our board consist of “independent directors” as defined under the rules of Nasdaq;
•our director nominees be selected, or recommended for our board’s selection, by a nominating and governance committee comprised solely of independent directors;
•the compensation of our executive officers be determined, or recommended to our board for determination, by a compensation committee comprised solely of independent directors; and
•an annual performance evaluation of the nominating and governance and compensation committees be performed.
Following this offering, we intend to utilize these exemptions. Accordingly, you will not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of Nasdaq. These exemptions do not modify the independence requirements for our audit committee, and we expect to satisfy the member independence requirement for the audit committee prior to the end of the transition period provided under Nasdaq’s listing standards and SEC rules and regulations for companies completing their initial public offering. See the section titled “Management—Committees of the Board of Directors—Audit Committee.” There is no single shareholder or group of shareholders which owns 50% or more of the voting power of WH Group as of the date of this prospectus. As a result, WH Group would not be considered a controlled company within the meaning of the corporate governance standards of Nasdaq.
WH Group controls us, and their interests may conflict with ours or yours in the future.
We have agreed to include in the slate of directors nominated to our board individuals designated by WH Group in accordance with our amended and restated articles of incorporation and shareholders agreement with WH Group. For so long as WH Group owns, in the aggregate, a majority of our then outstanding shares of our common stock, WH Group shall have the right to designate, for inclusion in the slate of directors nominated by our board for election to our board, a majority of the directors on our board and control the composition of our board and the approval of actions requiring shareholder approval through its voting power. Even when WH Group ceases to own a majority of our then outstanding shares of common stock, for so long as WH Group continues to own, in the aggregate, at least 10% of our then outstanding shares of common stock, WH Group shall be entitled to designate, for inclusion in the slate of directors nominated by the board for election to our board, a number of the total number of directors entitled to serve on the board proportionate to the percentage of our outstanding common stock owned
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by WH Group, rounded up to the nearest whole number. In addition, our amended and restated articles of incorporation provide that at any time that WH Group owns at least a majority of our then outstanding shares of common stock, shareholders are permitted to take action by written consent. For the purpose of determining ownership of our common stock for these purposes, references to WH Group include WH Group, its successors by way of merger or transfer of all or substantially all of its assets, any entity that is 50% beneficially owned by WH Group, and any entity that acquires a majority of our then outstanding shares of common stock directly from any of the foregoing that is a shareholder of our company.
As a result, WH Group will generally be able to control, whether directly or indirectly through its ability to remove and elect directors, and subject to applicable law, substantially all matters affecting us, including:
•any determination with respect to our business direction and policies, including the election and removal or directors and the appointment and removal of officers;
•any determinations with respect to mergers, amalgamations, business combinations or disposition of assets;
•our financing and dividend policy, and the payment of dividends on our common stock, if any;
•compensation and benefit programs and other human resources policy decisions;
•changes to any other agreements that may adversely affect us; and
•determinations with respect to our tax returns and other tax matters.
In particular, for so long as WH Group continues to own a significant percentage of our common stock, WH Group will be able to cause or prevent a change of control of our company or a change in the composition of our board, and could preclude any unsolicited acquisition of our company. The concentration of ownership could deprive you of an opportunity to receive a premium for your common stock as part of a sale of our company and ultimately might affect the market price of our common stock.
If WH Group sells a controlling interest in our company to a third party in a private transaction, you may not realize any change of control premium on shares of our common stock and we may become subject to the control of a presently unknown third party.
Following the completion of this offering, WH Group will continue to own a controlling equity interest in our company. WH Group will have the ability, should it choose to do so, to sell some or all of its shares of our common stock in a privately negotiated transaction, which, if sufficient in size, could result in a change of control of our company.
The ability of WH Group to privately sell its shares of our common stock, with no requirement for a concurrent offer to be made to acquire all of the shares of our common stock that will be publicly traded hereafter, could prevent you from realizing any change of control premium on your shares of our common stock that may otherwise accrue to WH Group on its private sale of our common stock. Additionally, if WH Group privately sells its controlling interest in our company, we may become subject to the control of a presently unknown third party. Such third party may have interests that conflict with those of other shareholders.
After this offering, certain of our directors may have actual or potential conflicts of interest because of their equity interest in WH Group. Also, certain of WH Group’s current executive officers also serve as directors of our company, which may create conflicts of interest, or the appearance of conflicts of interest.
Because of their positions with WH Group, certain of our directors own equity interests in WH Group. Continuing ownership of shares of WH Group’s common stock and equity awards could create, or appear to create, potential conflicts of interest if we and WH Group face decisions that could have implications for both WH Group and us after this offering. In addition, certain of WH Group’s current executive officers also serve as directors of our company, and this could create, or appear to create, potential conflicts of interest when we and WH Group encounter opportunities or face decisions that could have implications for both companies following this offering or in connection with the allocation of such directors’ time between WH Group and us. These potential conflicts could
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arise, for example, over matters such as the desirability of changes in our business and operations, funding and capital matters, regulatory matters and other agreements with WH Group relating to the commercial arrangements in the future, employee retention or recruiting or our dividend policy.
While our board believes that, given its size and structure, such actual or potential conflicts of interest can be managed adequately, including that the independent members of our board may meet in the absence of senior executive officers or non-independent directors in respect of the relevant matter, the actual or perceived conflicts of interest that may arise could cause reputational or other harm.
In addition, we have, and expect to continue to be, engaged in related party transactions with WH Group and its affiliates. In all related party transactions, there is a risk that a related party’s influence may be such that the transaction terms could be viewed as favorable to that related party, even if we strive to reach arms-length transaction terms. The appearance of conflicts of interest created by related party transactions could impair the confidence of our investors. Furthermore, WH Group has certain non-compete arrangements with Henan Shuanghui Investment & Development Co., Ltd., or Shuanghui Development, which provide that there will be no competition between Shuanghui Development on the one hand, and WH Group and entities controlled by WH Group, on the other hand, regarding the operation of meat business in the PRC. Such undertaking by WH Group may restrict us from engaging in certain activities that would compete with Shuanghui Development and may limit our ability to pursue business opportunities in the manner that we desire, which could adversely affect our business, financial condition and results of operations.
After this offering, WH Group will indemnify us for certain liabilities. However, there can be no assurance that the indemnity will be sufficient to insure us against the full amount of such liabilities, or that WH Group’s ability to satisfy its indemnification obligation will not be impaired in the future.
Pursuant to the shareholders agreement and certain other agreements with WH Group, WH Group has agreed to indemnify us for certain liabilities as discussed further in “Certain Relationships and Related Party Transactions—Relationship with WH Group.” However, third parties could also seek to hold us responsible for any of the liabilities that WH Group has agreed to retain, and there can be no assurance that the indemnity from WH Group will be sufficient to protect us against the full amount of such liabilities, or that WH Group will be able to fully satisfy its indemnification obligations. In addition, WH Group’s insurance will not necessarily be available to us for liabilities associated with occurrences of indemnified liabilities prior to this offering, and in any event WH Group’s insurers may deny coverage to us for liabilities associated with certain occurrences of indemnified liabilities prior to this offering. Moreover, even if we ultimately succeed in recovering from WH Group or such insurance providers any amounts for which we are held liable, we may be temporarily required to bear these losses. Each of these risks could negatively affect our business, financial condition or results of operations.
Changes in relations between the United States and the PRC, or in U.S. regulations concerning the PRC, may adversely impact our business, financial condition, results of operations, our ability to raise capital or the market price of our common stock.
The U.S. government, including its agencies such as the SEC, has made statements and taken certain actions that have led to, and may in the future make statements or take actions that would lead to, changes in relations between the United States and the PRC, which statements and actions could impact companies, including us, with connections to the PRC. In particular, the United States may in the future impose policies on or increase scrutiny of companies having operations in the PRC, such as WH Group, or companies in the United States with significant PRC ownership. These could restrict or negatively impact our business or our ability to access the U.S. capital markets. More broadly, changes in political conditions in the PRC and changes in the state of U.S.-PRC relations, including any tensions relating to potential military conflict between the PRC and Taiwan, are difficult to predict and could lead to policies or regulations that adversely affect our business, financial condition or results of operations on account of our controlling shareholder’s ties to the PRC. Furthermore, continued or increased tension in U.S.-PRC relations or any deterioration in political or trade relations between the United States and the PRC may lead to negative investor sentiment towards companies controlled by shareholders with significant ties to the PRC, which could make our common stock less attractive to U.S. investors and affect the market price of our common stock.
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Our controlling shareholder is required by the stock exchange on which its shares are listed to disclose and obtain approval from its board of directors or shareholders for certain corporate actions that we undertake.
WH Group is listed on The Stock Exchange of Hong Kong Limited and is therefore subject to the applicable Hong Kong laws and regulations, including but not limited to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, or the HKEx Listing Rules. Under the HKEx Listing Rules, WH Group is obligated to obtain approval from its board of directors and/or shareholders for certain transactions in which we, as a subsidiary of WH Group, engage, such as the purchase or sale of assets, mergers and acquisitions, lending, leasing of assets, donation or acceptance of assets, debt restructuring, license agreements, research and development joint ventures, and transactions with connected persons (as defined under the HKEx Listing Rules) of WH Group, the value of which exceeds certain financial thresholds established by the applicable listing rules and/or otherwise not exempted under the applicable listing rules. In addition, the HKEx Listing Rules require our controlling shareholder to obtain shareholders’ approval for certain corporate actions that we undertake, including but not limited to (i) any issuance of shares by us that results in a reduction of WH Group’s equity interest in us in excess of certain dilution thresholds and (ii) the implementation of a share option and/or award scheme involving the issuance of new shares by us. This offering will constitute a “disposal” and a “deemed disposal” of the interest in a subsidiary of WH Group under the HKEx Listing Rules. Based on the proposed size of this offering, it is expected that this offering may constitute a “major transaction” of WH Group under the HKEx Listing Rules and would therefore be subject to the approval of the shareholders of WH Group under paragraph 3(e)(1) of Practice Note 15 and Chapter 14 of the HKEx Listing Rules. Accordingly, we received the requisite approval of the shareholders of WH Group for this offering prior to the date of this prospectus.
Additionally, under Practice Note 15 of the HKEx Listing Rules, this offering constitutes a “spin-off” transaction by WH Group, for which the approval of The Stock Exchange of Hong Kong Limited is required to be obtained by WH Group. On September 6, 2024, The Stock Exchange of Hong Kong Limited confirmed that WH Group may proceed with the “spin-off” transaction. The offering is not subject to the approval of any other regulatory authority on the part of WH Group.
There can be no assurance that WH Group will obtain the requisite approvals if we desire to enter into any of the transactions as required under the applicable listing rules, and a failure to do so would restrict our ability to engage in such transactions. Furthermore, regulators including The Stock Exchange of Hong Kong Limited and/or the Securities and Futures Commission of Hong Kong could impose additional restrictions or approval requirements that could impact our ability to undertake certain corporate actions. We cannot guarantee that our controlling shareholder will be able to successfully or timely obtain any of the approvals needed to permit us to undertake any of the corporate actions as required under the applicable listing rules, and the failure to do so may have a material adverse effect on our business, financial condition or results of operations.
Risks Relating to this Offering
We will incur increased costs and become subject to additional regulations and requirements as a result of becoming a public company, and our management will be required to devote substantial time to new compliance matters, which could lower our profits or make it more difficult to run our business.
As a public company, we will incur significant legal, regulatory, finance, accounting, investor relations, insurance and other expenses that we have not incurred as a private company, including costs associated with public company reporting requirements and costs of recruiting and retaining non-executive directors. We also have incurred and will incur costs associated with the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act and related rules implemented by the SEC and the relevant stock exchange. The expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing. We expect these rules and regulations to increase our compliance costs and to make some activities more time-consuming and costly, although we are currently unable to estimate these costs with any degree of certainty. Our management will need to devote a substantial amount of time to related compliance requirements, diverting the attention of management away from revenue-producing activities. These laws and regulations also could make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the
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same or similar coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board, our board committees or as our executive officers. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our common stock, fines, sanctions and other regulatory action, and civil litigation.
Failure to comply with requirements to design, implement, and maintain effective internal controls could have a material adverse effect on our business and stock price.
As a privately held company, we were not required to evaluate our internal control over financial reporting in a manner that meets the standards of publicly traded companies required by Section 404(a) of the Sarbanes-Oxley Act, or Section 404.
As a public company, we will have significant requirements for enhanced financial reporting and internal controls. The process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environment, and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. If we are unable to establish or maintain appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations on a timely basis, result in material misstatements in our consolidated financial statements, and harm our results of operations. In addition, we will be required, pursuant to Section 404, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting in the second annual report following the completion of this offering. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. The rules governing the standards that must be met for our management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation. Testing and maintaining internal controls may divert our management’s attention from other matters that are important to our business.
In connection with the implementation of the necessary procedures and practices related to internal control over financial reporting, we may identify deficiencies that we may not be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404. In addition, we may encounter problems or delays in completing the remediation of any deficiencies identified by us or our independent registered public accounting firm in connection with the issuance of their attestation report.
We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404, or our independent registered public accounting firm may not issue an unqualified opinion. If either we are unable to conclude that we have effective internal control over financial reporting or our independent registered public accounting firm is unable to provide us with an unqualified report, investors could lose confidence in our reported financial information, which could have a material adverse effect on the trading price of our common stock.
In addition, the preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in our combined financial statements. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets, liabilities, equity, net sales and expenses that are not readily apparent from other sources. If our assumptions change or if actual circumstances differ from our assumptions, our results of operations could be adversely affected.
There is currently no public market for our common stock and an active, liquid trading market for our common stock may not develop or continue following this offering.
There is currently no public market for our common stock. If an active and liquid trading market does not develop or continue, you may have difficulty selling your shares of our common stock at an attractive price or at all. The initial public offering price per share of common stock will be determined by agreement between us and the representative of the underwriters and may not be indicative of the price at which shares of our common stock will trade in the public market after this offering. An inactive market may also impair our ability to raise capital by
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selling shares of our common stock and may impair our ability to acquire other companies by using our shares of common stock as consideration.
Our stock price may change significantly following this offering, and you may not be able to resell shares of our common stock at or above the price you paid or at all, and you could lose all or part of your investment as a result.
Even if a trading market develops, the market price of our common stock may be highly volatile and could be subject to wide fluctuations. You may not be able to resell your shares at or above the initial public offering price due to a number of factors such as those listed elsewhere in this “Risk Factors” section and the following:
•results of operations that vary from the expectations of securities analysts and investors;
•results of operations that vary from those of our competitors;
•changes in expectations as to our future financial performance, including financial estimates and investment recommendations by securities analysts and investors;
•changes in market valuations of, or earnings and other announcements by, companies in our industries;
•declines in the market prices of stocks generally, particularly those of companies in our industry;
•additions or departures of key management personnel;
•strategic actions by us or our competitors;
•announcements by us or our competitors of significant contracts, price reductions, new services, acquisitions, dispositions, joint marketing relationships, joint ventures, other strategic relationships or capital commitments;
•changes in our market share;
•an increase in our indebtedness or the interest rates applicable to our indebtedness;
•changes in general economic or market conditions or trends in our industries or the economy as a whole;
•changes in business or regulatory conditions;
•future sales of our common stock or other securities;
•actions by WH Group or other institutional shareholders;
•investor perceptions of or the investment opportunity associated with our common stock relative to other investment alternatives;
•changes in the way we are perceived in the marketplace, including due to negative publicity or campaigns on social media to boycott certain of our products, our business or our industries;
•the public’s response to press releases or other public announcements by us or third parties, including our filings with the SEC;
•changes or proposed changes in laws or regulations or differing interpretations or enforcement thereof affecting our business;
•announcements relating to litigation or governmental investigations;
•guidance, if any, that we provide to the public, any changes in this guidance or our failure to meet this guidance;
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•the development and sustainability of an active trading market for our common stock;
•changes in accounting principles; and
•other events or factors, including those resulting from informational technology system failures and disruptions, epidemics, pandemics, natural disasters, war, acts of terrorism, civil unrest, or responses to these events.
Further, the global equity markets in general have recently experienced extreme price and volume fluctuations, including as a result of the COVID-19 pandemic, economic uncertainty and changes or anticipated changes in interest rates, inflation, and liquidity concerns at financial institutions that may be unrelated to our operating performance. Continued market fluctuations could result in extreme volatility in the price of our common stock, which could cause a decline in the value of our common stock. In addition, price volatility may be greater if the public float and trading volume of our common stock is low.
In the past, following periods of market volatility, shareholders have instituted securities class action litigation against various issuers. If we were to become involved in securities litigation, it could have a substantial cost and divert resources and the attention of executive management from our business regardless of the outcome of such litigation, which may adversely affect the market price of our common stock.
We expect to continue paying regular dividends to our shareholders, but our ability to do so is subject to the discretion of our board and may be limited by our financial condition, our credit facilities, the indentures governing the notes we previously issued and applicable law.
We have historically paid dividends to WH Group annually, along with special dividends in some years. We initially expect to pay annual dividends in an amount equal to 50% of our net income, subject to the discretion of the board. See “Dividend Policy.” However, the payment of dividends and other distributions is at the discretion of our board and our board may, in its discretion, increase, decrease or eliminate the payment of dividends. Our ability to pay dividends on our common stock depends on many factors, including our results of operations, financial condition, level of indebtedness, capital requirements, contractual restrictions, restrictions in our debt agreements and in any preferred stock, business prospects and other factors that our board may deem relevant. In particular, our ability to pay dividends on our common stock is limited by covenants in our credit facilities and the indentures governing the notes and may be further restricted by the terms of any future debt or preferred securities. Furthermore, Virginia law prohibits us from paying dividends or other distributions if, after giving effect to the dividend or other distribution, we would not be able to pay our debts as they become due in the usual course of business or our total assets would be less than the sum of our total liabilities plus the amount that would be needed, if we were to be dissolved at the time of the dividend or other distribution, to satisfy the preferential rights of any then outstanding shares of our preferred stock. While we do not currently believe that these restrictions will impair our ability to continue to pay regular quarterly cash dividends, there can be no assurance that we will not need to reduce or eliminate the payment of dividends on our common stock in the future.
Any shareholder whose principal currency is not the U.S. dollar will be subject to exchange rate fluctuations.
Our common stock will be traded in, and any cash dividends or other distributions to be declared in respect of them, if any, will be denominated in U.S. dollars. Shareholders whose principal currency is not the U.S. dollar will be exposed to foreign currency exchange rate risk. Any depreciation of the U.S. dollar in relation to such foreign currency would reduce the value of our common stock held by such shareholders, whereas any appreciation of the U.S. dollar would increase their value in foreign currency terms. In addition, we will not offer our shareholders the option to elect to receive dividends, if any, in any other currency. Consequently, our shareholders may be required to arrange their own foreign currency exchange, either through a brokerage house or otherwise, which could incur additional commissions or expenses.
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Future sales or issuances, or the perception of future sales or issuances, by us or our existing shareholders in the public market following this offering could cause the market price for our common stock to decline.
The sale or issuance of substantial amounts of shares of our common stock or other securities convertible or exchangeable into shares of our common stock in the public market, or the perception that such sales or issuances could occur, including sales by our existing shareholders, could harm the prevailing market price of shares of our common stock. These sales or issuances, or the possibility that these sales or issuances may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
Upon completion of this offering, we will have a total of 397,469,232 shares of our common stock outstanding. All of the shares of our common stock sold in this offering will be freely tradable without restriction or further registration under the Securities Act, except that any shares held by WH Group or purchased by our directors and officers in this offering (including through our directed share program described under “Underwriting—Directed Share Program”) may be sold only in compliance with the limitations described in “Shares Eligible for Future Sale.” The 362,669,232 shares of common stock beneficially owned by WH Group after this offering, representing approximately 91.2% of the total outstanding shares of our common stock following this offering (or 357,449,232 shares representing approximately 89.9% if the underwriters exercise in full their option to purchase additional shares), will be “restricted securities” within the meaning of Rule 144 of the Securities Act, or Rule 144, and subject to certain restrictions on resale. Restricted securities may be sold in the public market only if they are registered under the Securities Act or are sold pursuant to an exemption from registration such as Rule 144, as described in “Shares Eligible for Future Sale.”
We, our directors and our officers and WH Group have signed lock-up agreements with the underwriters that, subject to certain customary exceptions, restrict the sale of the shares of our common stock and certain other securities held by them for 180 days following the date of this prospectus. The representative of the underwriters may, in their sole discretion and at any time without notice, release all or any portion of the shares or securities subject to any such lock-up agreements. See “Underwriting” for a description of these lock-up agreements.
Upon the expiration of the lock-up agreements described above, all of such shares will be eligible for resale in a public market pursuant to Rule 144, subject to our compliance with the public information requirement and, in the case of shares held by WH Group, subject to volume, manner of sale and other limitations under Rule 144.
In addition, pursuant to the registration rights agreement entered into between us and the selling shareholder, the selling shareholder has the right, subject to certain conditions, to require us to register the sale of its shares of our common stock under the Securities Act. See “Certain Relationships and Related Party Transactions—Registration Rights Agreement.” By exercising its registration rights and selling a large number of shares, the selling shareholder could cause the prevailing market price of our common stock to decline. Following completion of this offering, the shares covered by registration rights would represent approximately 91.2% of our common stock outstanding (or approximately 89.9% if the underwriters exercise in full their option to purchase additional shares). Registration of any of these outstanding shares of common stock would result in such shares becoming freely tradable without compliance with Rule 144 upon effectiveness of the registration statement. See “Shares Eligible for Future Sale—Registration Rights.”
We intend to file one or more registration statements on Form S-8 under the Securities Act to register shares of our common stock or securities convertible into or exchangeable for shares of our common stock issued under the New Equity Awards, to be adopted in connection with this offering. Any such Form S-8 registration statements will automatically become effective upon filing. Accordingly, shares registered under such registration statements will be available for sale in the open market. We expect that the initial registration statement on Form S-8 will cover 21,860,807 shares of our common stock.
In the future, we may attempt to obtain financing or to further increase our capital resources by issuing additional shares of our common stock or by offering debt or other equity securities, including senior or subordinated notes, debt securities convertible into equity or shares of preferred stock. Our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, which may have a material adverse effect on the amount, timing or nature of our future offerings. Thus, holders of our
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common stock bear the risk that our future offerings may reduce the market price of our common stock and dilute their stockholdings in us.
As restrictions on resale end, or if the existing shareholders exercise their registration rights, or we register additional shares of our common stock or securities convertible into or exchangeable for shares of our common stock, or if the market anticipates any of the foregoing, the market price of our shares of common stock could drop significantly. These factors could also make it more difficult for us to raise additional funds through future offerings of our shares of common stock or other securities.
Our quarterly results of operations may fluctuate significantly and could fall below the expectations of securities analysts and investors due to seasonality and other factors, some of which are beyond our control, resulting in a decline in our stock price.
Our quarterly results of operations may fluctuate due to seasonal or other factors. Accordingly, results for any one quarter are not necessarily indicative of results to be expected for any other quarter or for any year. In addition, if we increase our marketing or promotional activity in certain periods, the seasonality of our business may be amplified. Typically, our third and fourth quarters have higher revenue due to weather and holidays. Fluctuations or changes in these seasonal patterns may adversely affect our business, financial condition and results of operations. As a result, it may be difficult to accurately forecast our results of operations and, if our forecasts are not accurate, we may fail to meet the expectations of investors and securities analysts, which could cause the trading price of our common stock to fall substantially and potentially subject us to costly lawsuits, including securities class action suits.
If securities analysts do not publish research or reports about our business or if they downgrade our stock or our sector, our stock price and trading volume could decline.
The trading market for our common stock will rely in part on the research and reports that industry or financial analysts publish about us or our business. We do not control these analysts. Furthermore, if one or more of the analysts who do cover us downgrade our stock or our industries, or the stock of any of our competitors, or publish inaccurate or unfavorable research about our business, or if our operating results do not meet their expectations, the price of our stock could decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline.
Our management may spend the proceeds to our company from this offering in ways with which you may disagree or that may not be profitable.
Although we anticipate using the net proceeds to our company from this offering as described under “Use of Proceeds,” we will have broad discretion as to the application of the net proceeds received by us and could use them for purposes other than those contemplated by this offering. You may not agree with the manner in which our management chooses to allocate and spend the net proceeds. Our management may use the net proceeds for corporate purposes that may not increase our profitability or otherwise result in the creation of shareholder value. In addition, pending our use of the net proceeds, we may invest the net proceeds primarily in instruments that do not produce significant income or that may lose value.
Anti-takeover provisions in our organizational documents and provisions in existing and future debt agreements could delay or prevent a change of control.
Certain provisions of our amended and restated articles of incorporation and our amended and restated bylaws may have an anti-takeover effect and may delay, defer or prevent a merger, acquisition, tender offer, takeover attempt or other change of control transaction that a shareholder might consider to be in its best interest, including those attempts that might result in a premium over the market price for the shares held by our shareholders.
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These provisions will provide for, among other things:
•a classified board of directors, as a result of which our board will be divided into three classes, with each class serving for staggered three-year terms;
•the ability of our board to issue one or more classes or series of preferred stock and to determine the preferences, rights and limitations of those shares without shareholder approval;
•advance notice requirements for nominations of directors and proposals of other business by shareholders to be considered at our annual or special meetings;
•at any time after WH Group ceases to own directly or indirectly a majority of the combined voting power of our then-outstanding shares of common stock entitled to vote generally in director elections, or the WHG Trigger Event, our shareholders will not be able to act by less-than-unanimous written consent without a duly called annual or special meeting of our shareholders;
•at any time after the WHG Trigger Event, special meetings may only be called by the Chair of the board, the President or the board;
•from and after the WHG Trigger Event, our directors may only be removed for cause, by the affirmative vote of holders of a majority of the voting power of the shares of common stock outstanding and entitled to vote on the election of directors;
•restrictions on engaging in mergers, share exchanges, certain dispositions of corporate assets and other transactions with an interested shareholder (generally defined as any person, other than any member of WH Group or any entity that acquires a majority of our then outstanding shares of common stock directly from any member of WH Group that is a shareholder of our company, that acquires more than 10% of any class of our outstanding voting shares without the approval of a majority of our disinterested directors) unless the transaction is approved by a majority of our disinterested directors and holders of two-thirds of our voting shares (excluding shares owned by the interested shareholder); and
•that our amended and restated articles of incorporation and amended and restated bylaws may be amended by the affirmative vote of the holders of at least a majority of the total voting power of the outstanding shares of common stock entitled to vote.
These anti-takeover provisions could make it more difficult for a third party to acquire us, even if the third party’s offer may be considered beneficial by many of our shareholders. These provisions also may have the effect of preventing changes in our board and may make it more difficult to accomplish transactions that shareholders may otherwise deem to be in their best interests. As a result, our shareholders may be limited in their ability to obtain a premium for their shares. See “Description of Capital Stock.”
Our board will be authorized to issue and designate shares of our preferred stock in additional classes and series without shareholder approval.
Our amended and restated articles of incorporation will authorize our board, without the approval of our shareholders, to issue up to 100,000,000 shares of our preferred stock, subject to limitations prescribed by applicable law and the provisions of our amended and restated articles of incorporation, as shares of preferred stock in one or more classes or series, to establish from time to time the number of shares to be included in each such class or series and to fix the preferences, rights and limitations of the shares of each such class or series. The preferences, rights and limitations of these classes or series of preferred stock may be senior to or on parity with our common stock, which may reduce the value of our common stock.
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Our amended and restated bylaws designate the U.S. District Court for the Eastern District of Virginia, Richmond Division (or if it does not have jurisdiction over certain action, the Circuit Court of Henrico County, Virginia) as the sole and exclusive forum for certain litigation that may be initiated by our shareholders, which could limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us.
Pursuant to our amended and restated bylaws, unless we consent in writing to the selection of an alternative forum, the U.S. District Court for the Eastern District of Virginia, Richmond Division (or, if the U.S. District Court for the Eastern District of Virginia does not have jurisdiction over certain action, the Circuit Court of Henrico County) will be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of our company, (ii) any action asserting a claim of breach of a duty owed by any of our directors, officers or shareholders to us or our shareholders, (iii) any action asserting a claim arising pursuant to the Virginia Stock Corporation Act, our amended and restated articles of incorporation or our amended and restated bylaws or (iv) any action asserting a claim governed by the internal affairs doctrine. Our amended and restated bylaws will provide that the foregoing provision will not apply to claims arising under the Securities Act or the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. In addition, our amended and restated bylaws will provide that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States shall, to the fullest extent permitted by law, be the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. There is no guarantee that a court will enforce such provisions. Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all claims brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. For the avoidance of doubt, our shareholders cannot waive compliance with U.S. federal securities laws and the rules and regulations thereunder. The forum selection clause in our amended and restated bylaws may have the effect of discouraging lawsuits against us or our directors, officers or shareholders.
Any person or entity purchasing or otherwise acquiring or holding any interest in shares of our capital stock will be deemed to have notice of and consented to the forum provisions in our amended and restated bylaws, except our shareholders will not be deemed to have waived (and cannot waive) compliance with the federal securities laws and the rules and regulations thereunder. This exclusive forum provision may limit a shareholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our current or former directors, officers or shareholders. There is also a risk that this exclusive forum provision may result in increased costs for a shareholder to bring a claim. Alternatively, if a court were to find the exclusive forum provision contained in our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, financial condition and results of operations.
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FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this prospectus, including statements regarding our strategy, future financial condition, future operations, projected costs, prospects, plans, objectives of management, and expected market growth, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words, such as “may,” “might,” “will,” “shall,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” “goal,” “objective,” “seeks,” “likely” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions.
Forward-looking statements contained in this prospectus include, but are not limited to, statements about:
•our ability to capture synergies between our Packaged Meats and Fresh Pork segments;
•our ability to execute on our strategy to optimize the size of our hog production operations;
•our ability to anticipate and meet consumer trends and interests through production innovation;
•the size of our addressable markets, market share and market trends, including our ability to drive organic growth in our business through our Packaged Meats and Fresh Pork segments;
•anticipated trends, developments and challenges in our industry, business and the highly competitive markets in which we operate;
•our ability to mitigate higher input costs through productivity improvements in our operations (including analytics and task automation), various procurement strategies and the use of derivative instruments;
•our dependence on third-party suppliers and our ability to mitigate any disruption or inefficiency in our supply chain and/or operations;
•our expectations regarding our hog production transformation strategy and our ability to achieve segment production targets;
•fluctuations in our quarterly results of operations due to the seasonal nature of our business;
•our ability to attract and retain a diverse and inclusive workforce and maintain our corporate culture;
•our ability to prevent cyberattacks, other cyber-incidents, security breaches or other disruptions of our information technology systems;
•our ability to defend litigation brought against us successfully and the sufficiency of our accruals for related contingent losses;
•compliance with laws and regulations, including environmental, cybersecurity and tax laws and regulations, that currently apply or may become applicable to our business both in the United States and Mexico and our expectations regarding various laws and restrictions that relate to our business;
•our ability to capitalize on export markets;
•our ability to execute on acquisitions, joint ventures and divestitures;
•legal, regulatory, or market measures to address climate change and our ability to achieve our climate-related goals and strategies;
•future investments in our business, our anticipated capital expenditures and our estimates regarding our capital requirements;
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•the sufficiency of our cash and cash equivalents and the availability of our committed credit facilities to meet our liquidity needs;
•our ability to achieve our financial and operational targets;
•our ability to maintain our investment grade ratings;
•our expectations regarding expenses, such as stock-based compensation expenses;
•fluctuations in the values of our open derivative contracts and pension obligations and related assets;
•impairment in the carrying value of our goodwill or intangible assets;
•our ability to achieve or maintain our targeted Ratio of Net Debt to Adjusted EBITDA and minimum liquidity levels;
•our dividend policy and our ability to pay dividends; and
•our intended use of the net proceeds from this offering.
We caution you that the foregoing list does not contain all of the forward-looking statements made in this prospectus.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this prospectus primarily on our current expectations, estimates, forecasts and projections about future events and trends that we believe may affect our business, results of operations, financial condition and prospects. Although we believe that we have a reasonable basis for each forward-looking statement contained in this prospectus, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur at all. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors, including those described in the section titled “Risk Factors” and elsewhere in this prospectus. Moreover, we operate in a very competitive and rapidly changing environment. Additional risks and uncertainties of which we are unaware, or that we currently deem immaterial, also may become important factors that affect us. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this prospectus. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
The forward-looking statements made in this prospectus relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this prospectus to reflect events or circumstances after the date of this prospectus or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this prospectus, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and you are cautioned not to unduly rely upon these statements.
You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of the forward-looking statements in this prospectus by these cautionary statements.
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USE OF PROCEEDS
We estimate that the net proceeds to us from this offering will be approximately $400.4 million based on an assumed initial public offering price of $25.00 per share of our common stock, which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.
Certain of the shares of common stock offered by this prospectus are being sold by the selling shareholder. The selling shareholder in this offering is SFDS UK Holdings Limited, an indirect wholly owned subsidiary of WH Group that holds WH Group’s interest in us. We will not receive any of the proceeds from the sale of shares by the selling shareholder in this offering, including from any exercise by the underwriters of their option to purchase additional shares. For information about the selling shareholder, see “Principal and Selling Shareholders.”
We intend to use the net proceeds to us from this offering for general corporate purposes, including capital investments in infrastructure, automation and capacity expansion.
Each $1.00 increase (decrease) in the assumed initial public offering price of $25.00 per share of our common stock, which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by $17 million, assuming the number of shares of our common stock offered in this offering by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, an increase (decrease) of one million shares in the number of shares of our common stock sold in this offering by us would increase (decrease) the net proceeds to us from this offering by $24 million, assuming the initial public offering price of $25.00 per share of our common stock, which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. The information discussed above is illustrative only and will adjust based on the actual initial public offering price and other terms of this offering determined at the time of the pricing of this offering.
The foregoing represents our current intentions with respect to the use of the net proceeds of this offering based upon our present plans and business condition. We cannot predict with certainty all of the particular uses for the net proceeds of this offering or the amounts that we will actually spend on such particular uses. Accordingly, our management will have broad discretion in applying the net proceeds of this offering. A change in our present plans or the occurrence of unforeseen events or changed business conditions could result in application of the net proceeds of this offering in a manner other than as described in this prospectus.
Pending their use, we intend to invest the net proceeds of this offering in a variety of capital-preservation investments, including short- and intermediate-term investments, interest-bearing investments, investment-grade securities, government securities and money market funds.
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DIVIDEND POLICY
We have historically paid dividends to WH Group annually, along with special dividends in some years. We initially expect to pay annual dividends in an amount equal to 50% of our net income, subject to the discretion of the board.
The payment of any dividends or other distributions in the future to our shareholders, and the timing and amount thereof, will fall within the discretion of the board. The board’s decisions regarding the payment of dividends will depend on many factors, such as our financial condition, earnings, capital requirements, debt service obligations, restrictive covenants in the agreements governing our indebtedness, general economic business conditions, industry practice, legal requirements and other factors that the board may deem relevant.
We cannot assure you that we will pay our anticipated dividend in the same amount or frequency, or at all, in the future. You should not purchase shares of our common stock with the expectation of receiving cash dividends. See “Risk Factors—Risks Relating to This Offering—We expect to continue paying regular dividends to our shareholders, but our ability to do so is subject to the discretion of our board and may be limited by our financial condition, our credit facilities, the indentures governing the notes we previously issued and applicable law.”
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CAPITALIZATION
The following table sets forth our cash and cash equivalents and capitalization as of September 29, 2024:
•on an actual basis as derived from our consolidated financial statements included elsewhere in this prospectus; and
•on an as adjusted basis after giving effect to the sale by us of shares of our common stock in this offering based on an assumed initial public offering price of $25.00 per share of our common stock, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.
The “as adjusted” information set forth below is illustrative only, and will be adjusted based on the actual initial public offering price and other terms of the offering determined at the pricing of this offering. You should read this table in conjunction with the information contained in “Summary Historical Consolidated Financial Information,” “Use of Proceeds,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as our consolidated financial statements and related notes and our unaudited condensed consolidated financial statements and related notes, each included elsewhere in this prospectus.
As of September 29, 2024 |
|||||||||||
Actual |
As Adjusted (2)
|
||||||||||
(In millions, except par value and share data) |
|||||||||||
Cash and cash equivalents | $ | 278 | $ | 679 | |||||||
Current portion of long-term debt and finance lease obligations (1)
|
8 | 8 | |||||||||
Long-term debt and finance lease obligations (1)
|
2,005 | 2,005 | |||||||||
Common stock, no par value, 380,069,232 shares authorized and 380,069,232 issued and outstanding, actual; 5,000,000,000 shares authorized and 397,469,232 shares issued and outstanding, as adjusted (2)
|
— | — | |||||||||
Additional paid-in capital | 2,967 | 3,368 | |||||||||
Preferred stock, no par value, no shares authorized, issued and outstanding, actual; 100,000,000 shares authorized and zero shares issued and outstanding, as adjusted |
— | — | |||||||||
Retained earnings |
2,997 | 2,997 | |||||||||
Accumulated other comprehensive loss | (363) | (363) | |||||||||
Total shareholder’s equity |
5,601 | 6,001 | |||||||||
Total capitalization | $ | 7,613 | $ | 8,014 |
________________
(1)For a further description of our indebtedness, including our revolving credit facility, see “Note 10: Debt” and “Note 11: Lease Obligations, Commitments, and Guarantees” in the consolidated financial statements and accompanying notes included elsewhere in this prospectus.
(2)Each $1.00 increase (decrease) in the assumed initial public offering price of $25.00 per share of our common stock, which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by $17 million , assuming the number of shares of our common stock offered in this offering by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, an increase (decrease) of one million shares in the number of shares of our common stock sold in this offering by us would increase (decrease) the net proceeds to us from this offering by $24 million, assuming the initial public offering price of $25.00 per share of our common stock, which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. The information discussed above is illustrative only and will adjust based on the actual initial public offering price and other terms of this offering determined at the time of the pricing of this offering.
(3)On January 17, 2025, we increased our authorized share capital to 5 billion shares of common stock and 100 million shares of preferred stock.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management’s discussion and analysis of our financial condition and results of operations should be read in conjunction with, and is qualified in its entirety by reference to the consolidated financial statements of Smithfield Foods, Inc. and the related notes included within this prospectus. For the purposes of this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” references to “we,” “our,” “us,” and “Smithfield” refer to Smithfield Foods, Inc. and its consolidated subsidiaries.
This discussion and analysis contains forward-looking statements that involve risks and uncertainties which could cause our actual results to differ materially from those anticipated in such forward-looking statements, including, risks and uncertainties discussed under the heading “Forward-Looking Statements,” “Risk Factors” and elsewhere in this prospectus. Additionally, our historical results are not necessarily indicative of the results that may be expected for any period in the future.
Our fiscal year is the 52-week or 53-week period that ends on the Sunday nearest to December 31. Unless otherwise noted, all references to “2023,” “2022” and “2021” are to the 52-week periods ended December 31, 2023, January 1, 2023 and January 2, 2022, respectively.
Overview
Smithfield is an American food company and an industry leader in value-added packaged meats and fresh pork with over $14 billion in annual sales. We produce and distribute a wide variety of packaged meats and fresh pork products both domestically and abroad. We market our products under a leading portfolio of iconic brands including Smithfield, Eckrich and Nathan’s Famous, among many others.
We conduct our operations through the following reportable segments:
•Packaged Meats: The Packaged Meats segment consists of our U.S. operations that process fresh meat into a wide variety of packaged meats products, including bacon, sausage, hot dogs, deli and lunch meats, dry sausage products (such as pepperoni and genoa), ham products, ready-to-eat products and prepared foods (such as pre-cooked entrees, bacon and sausage). Approximately 80% of the Packaged Meats segment’s raw materials are sourced from our Fresh Pork segment. We market our domestic packaged meats products under a strategic set of core brands, which include: Smithfield, Eckrich, Nathan’s Famous, Farmland, Armour, Farmer John, Kretschmar, Krakus, John Morrell, Cook’s, Gwaltney, Carando, Margherita, Curly’s and Smithfield Culinary. We also sell a sizeable portion of our packaged meats products as private label products. The majority of the Packaged Meats segment’s products are sold to retail and foodservice customers in the United States.
•Fresh Pork: The Fresh Pork segment consists of our U.S. operations that process live hogs into a wide variety of primal, sub-primal and offal products, such as bellies, butts, hams, loins, picnics and ribs. The Fresh Pork segment sources approximately half of its raw materials from our Hog Production segment and half from independent farmers with whom we partner across the United States. Approximately one-third of our fresh pork products, including the majority of hams, bellies and trimmings, is transferred to our Packaged Meats segment. Externally, we sell our fresh pork products to domestic retail, foodservice and industrial customers, as well as to export markets, including, among others, China, Mexico, Japan, South Korea and Canada.
•Hog Production: The Hog Production segment consists of our hog production operations in the United States, which produce and raise our hogs on numerous company-owned farms and farms that are owned and operated by third-party contract farmers. Nearly all of the hogs produced by this segment are processed by our Fresh Pork segment. The Hog Production segment also may sell grains to external customers.
We also have other operations that do not themselves constitute reportable segments and are included in our Other segments. These include our Mexico and Bioscience operations. Our Mexico operations include the raising of hogs and production of pork products that are sold primarily to customers in Mexico. Our Bioscience operations use
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raw materials from hogs that we process to manufacture heparin products, including an active pharmaceutical ingredient that mitigates the risk of blood clots.
Prior to this offering, we have been an indirect wholly owned subsidiary of Hong Kong-based WH Group. WH Group is publicly traded on The Stock Exchange of Hong Kong Limited.
On August 26, 2024, we completed a carve-out and transfer of our European operations to WH Group. Accordingly, the results of operations, assets and liabilities, and cash flows of the European operations have been condensed and reported as discontinued operations in the consolidated financial statements for all periods presented.
In connection with the pricing of this offering, we intend to grant to certain of our directors and employees and certain directors and employees of WH Group options to purchase 8,370,000 shares of our common stock with an exercise price equal to the initial public offering price and 1,521,600 restricted stock units based on the assumed initial public offering price of $25.00 per share of our common stock, which is the midpoint of the estimated price range set forth on the cover page of this prospectus. We expect to recognize an aggregate of $61 million in compensation expense over the five-year vesting period of these awards, of which we estimate that the amount recognized in 2025 will range from $12 million to $25 million.
Key Factors Affecting Our Results of Operations
The following are key factors that have influenced our results of operations in the past and may influence our results in the future.
Sales Drivers
We are focused on driving profitable growth through our Packaged Meats segment. Within the Packaged Meats segment, the primary factors impacting sales of our brands are household penetration, consumption levels, price point and product offerings. As a result, we have pursued strategies that we believe best align our products with consumer trends and behavior. We have shifted our portfolio towards a higher mix of value-added and margin accretive products while leveraging the breadth of our offerings to further penetrate across dayparts. We look to increase brand awareness and encourage consumer adoption of our products through product and packaging innovation and effective and appealing marketing strategies while maintaining our promise to consumers to offer high-quality products for every budget. We have also expanded to new categories and grown distribution of under-indexed brands in under-penetrated locations. In addition to the prior initiatives, we also seek to increase sales in packaged meats products by driving volumes of our private label and foodservice products, by expanding our customer relationships and by offering quality selections across the value chain. We will seek to continue to increase the overall contribution to our sales from our Packaged Meats segment.
In our Fresh Pork segment, the primary drivers of external sales are the consistent level of global pork consumption, our ability to maximize the value of each hog and our ability to leverage our different end markets including retail, foodservice, industrial and export channels. Through ongoing product innovation, we seek to appeal to ever-changing consumer preferences, including demand for convenience and smaller portion sizes as well as expanded interests in new and varied flavors. We also seek to capitalize on export markets as an outlet for increasing the value of raw materials through whole-hog utilization and by appealing to differentiated, global tastes and preferences.
Cost Factors
Our cost as a percentage of sales varies based on fluctuations of raw materials prices, as well as manufacturing, distribution and marketing costs. Raw materials are the largest component of our total cost of goods sold, with feed ingredients and hogs accounting for the majority share. Approximately 80% of the raw materials used in the Packaged Meats segment is sourced internally from our Fresh Pork segment, and about half of the hogs used in the Fresh Pork segment are supplied by our Hog Production segment. In the Hog Production segment, approximately 64% of cost of goods sold is from animal feed, which is derived primarily from corn and soybean meal. The price of feed ingredients, hogs and pork fluctuates based on market dynamics which can affect our margins. We enter into hedging transactions for these commodities when we determine conditions are appropriate to mitigate the inherent
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price risks. While this hedging may limit our ability to participate in gains from favorable commodity fluctuations, it also reduces the risk of loss from adverse changes in raw material prices.
We continue to optimize the size of our hog production operations and procure a greater mix of hogs from independent suppliers with market-based supply agreements in order to supply our Fresh Pork segment. We have reduced the size of our internal hog production from a peak of 17.6 million head in 2019 to closing 2024 at 14.6 million head, and we continue to explore opportunities for reduced internal production. We expect to end 2025 at approximately 11.5 million head.
We are pursuing best-in-class manufacturing principles in our plants by employing automation to redeploy labor to higher value tasks, increasing yields and driving efficiency by reducing complexity. In our logistics and distribution network, we have reduced transportation and warehousing costs by improving transportation carrier mix, maximizing utilization of our cold storage and trucking assets, improving supply and demand planning and optimizing inventory levels.
Our results of operations will continue to depend on our ability to (i) manage raw material cost movements through optimizing our hog production operations, hedging, forward purchasing, strategic sourcing negotiations and passing inflationary cost increases to customers, (ii) operate our manufacturing and logistics footprint efficiently and competitively and (iii) continue to attract and retain customers and consumers through effective sales and marketing spend.
Seasonality
Our business is somewhat seasonal. Traditionally, the periods of higher sales for hams are the holiday seasons such as Easter, Thanksgiving and Christmas, and the periods of higher sales for ribs, smoked sausages and hot dogs are the summer months.
In addition, hog prices tend to rise as hog supplies decrease during the summer, and hog prices tend to decline as hog supplies increase during the fall and winter. This tendency is due to lower farrowing performance during the winter and slower animal growth rates during the summer.
Seasonality impacts relative sales and profitability of each quarter of the year, both on a quarter-to-quarter and year-over-year basis, as well as our cash generation and use. Generally, our sales and profitability are higher in the fourth quarter due to the Thanksgiving and Christmas holidays. In addition, the timing of the Easter holiday can impact the comparability of our first and second quarters with prior periods. Our cash use is highest in the first quarter due to working capital needs related to payments to certain suppliers that are typically deferred in the fourth quarter.
Impact of Material Acquisitions, Investments and Dispositions on Our Results of Operations
The following transactions occurred during the last three fiscal years and impacted our results of operations during such periods:
West Coast Exit and Hog Production Reform. We have undertaken a number of steps to reduce our activities in California where high taxes, high utility costs and a challenging regulatory environment negatively impact our ability to operate efficiently and profitably. We also undertook a number of other actions in furtherance of our efforts to optimize the size of our Hog Production segment’s operations:
•West Coast Exit. In May 2022, we announced a decision to close our Vernon, California processing facility, exit farm operations in Arizona and California, and reduce our sow herd in Utah. Additionally, in December 2023, we made a decision to terminate a number of agreements with contract farmers and closed several company-owned nursery farms in Utah as a result of the Vernon, California facility closure in early 2023.
•Hog Production Reform. In May 2023, we made a decision to cease operations on a number of sow farms in Missouri. The decision was driven by persistent livestock disease issues, underperforming operations and
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shifting industry supply and demand dynamics. Additionally, during 2023 we terminated certain agreements with underperforming contract farmers in the eastern United States.
As a result of these decisions, we incurred various exit costs and disposal charges. We recognized charges totaling $195 million and $151 million in cost of sales in 2023 and 2022, respectively. Additionally, certain biogas assets owned by our joint venture, Align, were impaired due to our decision in December 2023 to terminate hog grower contracts and close farms in Utah. As a result, we recognized our share of the impairment totaling $35 million in (income) loss from equity method investments in the consolidated income statement in the fourth quarter of 2023. We also incurred $14 million in costs associated with biogas assets owned by our joint venture, Monarch, in connection with the farms in Missouri that were closed. These costs were recognized in (income) loss from equity method investments in the consolidated statement of income in the fourth quarter of fiscal year 2023.
In the second quarter of 2023, we sold our Vernon, California facility for $205 million and recognized a gain of $86 million in operating gains in the consolidated statement of income.
Saratoga. On October 31, 2022, we closed on the sale of our Saratoga operation, which produced spices, seasonings and sauces for sale primarily to the foodservice industry and for use in our internal production of various packaged meats products. Saratoga continues to be a supplier of ours subsequent to the sale. Proceeds totaled $575 million, resulting in a $417 million gain on the disposal. The gain was recognized in operating gains in the consolidated statement of income in the fourth quarter of 2022. The carrying amount of assets disposed of included $47 million of allocated goodwill. We received $568 million of proceeds at closing. The remainder was received in the first quarter of 2023. Saratoga was accounted for in the Packaged Meats segment.
Altosano. On July 7, 2021, we acquired a controlling interest in Altosano in exchange for cash valued at $108 million, increasing our total ownership and voting rights in Altosano from 50% to 66%. We paid $1 million, net of $17 million in cash acquired, of the purchase consideration to our joint venture partner upon change in control. We paid an additional $55 million and $2 million in the third quarter of 2022 and the third quarter of 2023, respectively, with smaller amounts payable annually through 2028. Altosano consists of hog production and pork processing operations in Mexico, growing approximately 1.8 million hogs and processing approximately 1.5 million hogs per year, with approximately 2,600 employees. We historically recorded our share of earnings in Altosano using the equity method of accounting. Upon acquisition of the controlling interest, the accounts of Altosano were consolidated. See also “—Other Anticipated or Potential Cash Requirements—Altosano Redeemable Noncontrolling Interest.”
Recent Developments
Monarch Bio Energy, LLC Sale Notice
On January 17, 2025, TPG Rise Climate, one of the other two equal joint venture partners in Monarch, delivered a sale notice under the joint venture agreement, pursuant to which Monarch must pursue a sale of the joint venture. In the event that a sale of Monarch is not consummated before January 18, 2026, TPG Rise Climate may require that Monarch purchase TPG Rise Climate’s ownership interests in Monarch.
Murphy Family Farms Investment
On December 27, 2024, we became a member of a North Carolina-based company, Murphy Family Farms LLC, by contributing $3 million in cash in exchange for a 25% minority interest. We additionally sold approximately 150,000 sows located on company-owned and contract farms in North Carolina to Murphy Family Farms. On December 30, 2024, we sold the commercial hog inventories associated with such sows to Murphy Family Farms. Murphy Family Farms is now a hog supplier to us and will supply approximately 3.2 million hogs annually. We will supply animal feed and provide certain support services to Murphy Family Farms.
VisionAg Hog Production Investment
On December 20, 2024, we entered into an agreement to become a member of a North Carolina-based company, VisionAg Hog Production, LLC, whereby we will contribute $450,000 in cash in exchange for a 9%
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minority interest in VisionAg Hog Production, with the existing owner retaining a 91% interest. As part of the agreement, we will sell to VisionAg Hog Production approximately 28,000 sows and the associated commercial hog inventories located on certain company-owned and contract farms in North Carolina. VisionAg Hog Production will become a hog supplier to us, expected to supply approximately 600,000 hogs annually. In addition, we will supply animal feed and provide certain support services to VisionAg Hog Production. The transaction is expected to close during the first quarter of 2025. Closing of the transaction is subject to satisfaction of customary closing conditions.
Sale of Utah Hog Production Assets
On December 17, 2024, we sold our hog production assets in Utah, excluding the live animals, for $58 million. The transaction resulted in a gain of $32 million, which was recognized in operating gains in the fourth quarter of fiscal year 2024. As part of the agreement, we will lease back certain farm and feed properties, which we will continue to operate.
Sale of Missouri Hog Farms
On November 26, 2024, we sold certain hog farms in Missouri, most of which were previously inactive, for $32 million. The transaction resulted in a loss of $4 million, which was recognized in cost of sales in the fourth quarter of fiscal year 2024.
Components of Our Results of Operations
Sales
Our sales are derived primarily from the delivery of our packaged meats and fresh pork products to customers. Sales fluctuate as a function of changes in volume, product mix and net price.
•Sales to customers are recorded at the transaction price, which is the amount of consideration we expect to receive in exchange for providing goods to customers. The net sales price reflects adjustments for estimates of known or expected variable consideration, including consumer incentives, trade promotions and other programs.
•Walmart accounted for approximately 11.8%, 11.5% and 11.3% of our consolidated sales in 2023, 2022 and 2021, respectively. No other customer accounted for 10% or more of our consolidated sales during 2023, 2022 and 2021. Cumulatively, our top ten customers accounted for 36.9%, 36.5% and 37.3% of our consolidated sales in 2023, 2022 and 2021, respectively.
•Sales to our customers located outside of the United States, including sales to WH Group and its affiliates, accounted for 15.9%, 14.2% and 17.7% of our consolidated sales in 2023, 2022 and 2021, respectively.
•Sales to WH Group and its affiliates accounted for 3.2%, 2.7% and 5.5% of our consolidated sales in 2023, 2022 and 2021, respectively.
Cost of Sales
Cost of sales consists primarily of costs directly related to the manufacture and distribution of our products. These costs include:
•Primary raw material costs, including costs for grains, hogs, other proteins (such as beef and poultry), corn and soybean meal. Prices for these raw materials are affected by the global level of supply and demand, the agricultural policies of the United States and other countries and weather patterns and climatic conditions throughout the world and can have a material impact on cost of sales.
•Secondary raw material costs, such as packaging and ingredients, which can be affected by inflation or other factors that impact the availability of supply.
•The cost of labor and overhead required to produce our products.
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•Cold storage costs and freight and distribution costs, which are both impacted by changes in fuel costs.
•Asset write-downs and losses from the disposal of assets.
Cost of sales are impacted by fluctuations in commodity prices for hogs, fresh pork, corn, soybean meal and other proteins.
•Hogs. The lean hog price index published by the CME averaged $0.81 per pound, $0.98 per pound and $0.93 per pound in 2023, 2022 and 2021, respectively.
•Fresh Pork. Fresh pork cut-out values reported by the USDA averaged $0.90 per pound, $1.04 per pound and $1.04 per pound in 2023, 2022 and 2021, respectively.
•Corn and soybean meal. Nearby futures prices for corn reported by the CME averaged $5.58 per bushel, $6.87 per bushel and $5.74 per bushel in 2023, 2022 and 2021, respectively. Nearby futures prices for soybean meal averaged $432.33 per ton, $433.89 per ton and $381.01 per ton in 2023, 2022 and 2021, respectively. The prices paid for corn and soybean meal take approximately six months to be fully reflected in our results due to the hog growth period.
Selling, General and Administrative Expenses (SG&A)
SG&A expenses relate to sales and administrative functions that support our operations and other general corporate expenses. These expenses include:
•Sales and marketing expenses, including salaries, wages and incentives for our sales and marketing personnel, broker commissions, sales-related travel and entertainment expenses and other marketing and advertising expenses, such as costs relating to the execution of in-store product demonstrations, trade shows and samples provided to prospective customers;
•General and administrative expenses, including salaries, wages and incentives for our management and general administrative personnel, professional fees for service providers, depreciation of non-production property and equipment, amortization of intangible assets, information technology licensing and maintenance costs, insurance, travel and other operating expenses; and
•Accruals for litigation and defense costs.
In the future, we expect to incur stock-based compensation expenses related to restricted stock awards granted to employees and directors under our equity incentive plan to be adopted in connection with this offering.
Operating Gains
Operating gains primarily consists of gains on the sale of businesses and other assets, and certain insurance recoveries.
Interest Expense, Net
Interest expense, net consists of interest on our debt and the amortization of finance lease costs and debt issuance costs, premiums and discounts, net of interest earned on our cash and cash equivalents.
Non-Operating Gains
Non-operating gains consist primarily of the non-operating components of net pension and postretirement benefits cost (benefit), gains and losses on non-qualified retirement plan assets, gains and losses on the sale or dilution of equity method investments, and impairments of investments. The non-operating components of net pension and postretirement benefits cost (benefit) consist of interest cost, expected return on plan assets, amortization of actuarial gains/losses and prior service costs/credits, and curtailment gains.
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(Income) Loss from Equity Method Investments
We account for investments in entities that we do not control, but over which we have the ability to exercise significant influence, using the equity accounting method. Our equity method investments consist primarily of biogas joint ventures, which produce renewable natural gas from methane gas captured on our hog farms. We record our share of the income or loss from these equity method investments in (income) loss from equity method investments.
Results of Operations
The following table summarizes the results of operations for our consolidated business.
Nine Months Ended |
Fiscal Year | % of Sales | |||||||||||||||||||||||||||||||||||||||||||||
September
29, 2024
|
October 1,
2023
|
2023 | 2022 | 2021 | 2023 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||
(in millions except for percentages) |
|||||||||||||||||||||||||||||||||||||||||||||||
Sales | $ | 10,190 | $ | 10,642 | $ | 14,640 | $ | 16,199 | $ | 15,009 | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||||||||||||||||||||
Cost of sales | 8,826 | 10,038 | 13,751 | 14,704 | 13,437 | 93.9 | % | 90.8 | % | 89.5 | % | ||||||||||||||||||||||||||||||||||||
Gross profit | 1,364 | 604 | 889 | 1,495 | 1,572 | 6.1 | % | 9.2 | % | 10.5 | % | ||||||||||||||||||||||||||||||||||||
Selling, general and administrative expenses | 594 | 643 | 1,050 | 807 | 1,095 | 7.2 | % | 5.0 | % | 7.3 | % | ||||||||||||||||||||||||||||||||||||
Operating gains |
(12) | (99) | (105) | (429) | (44) | (0.7) | % | (2.7) | % | (0.3) | % | ||||||||||||||||||||||||||||||||||||
Operating profit (loss) | 783 | 60 | (56) | 1,117 | 521 | (0.4) | % | 6.9 | % | 3.5 | % | ||||||||||||||||||||||||||||||||||||
Interest expense, net | 52 | 59 | 76 | 87 | 93 | 0.5 | % | 0.5 | % | 0.6 | % | ||||||||||||||||||||||||||||||||||||
Non-operating (gains) losses |
(13) | 3 | (3) | (18) | (30) | — | % | (0.1) | % | (0.2) | % | ||||||||||||||||||||||||||||||||||||
Income (loss) from continuing operations before income taxes | 745 | (2) | (129) | 1,047 | 458 | (0.9) | % | 6.5 | % | 3.1 | % | ||||||||||||||||||||||||||||||||||||
Income tax expense (benefit) | 165 | — | (41) | 231 | 97 | (0.3) | % | 1.4 | % | 0.6 | % | ||||||||||||||||||||||||||||||||||||
(Income) loss from equity method investments |
(1) | — | 46 | 6 | (28) | 0.3 | % | — | % | (0.2) | % | ||||||||||||||||||||||||||||||||||||
Net income (loss) from continuing operations | $ | 581 | $ | (2) | $ | (133) | $ | 811 | $ | 389 | (0.9) | % | 5.0 | % | 2.6 | % |
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Nine Months Ended September 29, 2024 compared with the Nine Months Ended October 1, 2023
Consolidated Results
Nine Months Ended |
|||||||||||||||||||||||
September 29,
2024
|
October 1,
2023
|
$ Change | % Change | ||||||||||||||||||||
(in millions except for percentages) |
|||||||||||||||||||||||
Sales | $ | 10,190 | $ | 10,642 | $ | (452) | (4.2) | % | |||||||||||||||
Cost of sales | 8,826 | 10,038 | (1,212) | (12.1) | % | ||||||||||||||||||
Gross profit | 1,364 | 604 | 760 | 125.9 | % | ||||||||||||||||||
Selling, general and administrative expenses | 594 | 643 | (50) | (7.7) | % | ||||||||||||||||||
Operating gains |
(12) | (99) | 87 | (87.7) | % | ||||||||||||||||||
Operating profit |
783 | 60 | 723 | 1208.8 | % | ||||||||||||||||||
Interest expense, net | 52 | 59 | (7) | (12.5) | % | ||||||||||||||||||
Non-operating (gains) losses |
(13) | 3 | (16) | NM | |||||||||||||||||||
Income (loss) from continuing operations before income taxes | 745 | (2) | 747 | NM | |||||||||||||||||||
Income tax expense |
165 | — | 165 | NM | |||||||||||||||||||
Income from equity method investments |
(1) | — | (1) | NM | |||||||||||||||||||
Net income (loss) from continuing operations | $ | 581 | $ | (2) | $ | 583 | NM |
Sales. Sales decreased by $452 million, or 4.2%, primarily due to the following factors:
•Lower volume in our Fresh Pork segment, which decreased sales by approximately $330 million, or 3.1%.
•Lower volume in our Packaged Meats segment primarily due to recently enacted group housing legislation in California and Massachusetts, which reduced sales by approximately $178 million, or 1.7%.
•A decrease in grain sales to external customers from our Hog Production segment, which reduced consolidated sales by $125 million, or 1.2%, year-over-year.
Higher average sales prices for fresh pork and packaged meats products partially offset the decline in sales. See “Segment Results” below for additional discussion of sales for each of our reportable segments.
Cost of sales. Cost of sales decreased by $1,212 million, or 12.1%, year-over-year primarily due to the following factors:
•A $761 million decrease in raw material costs primarily attributable to lower feed ingredient prices, fewer hogs produced in our Hog Production segment and a reduction in grain sales to external customers.
•A $285 million decrease in manufacturing costs primarily attributable to the recognition of $86 million in employee retention tax credits in the second quarter of 2024 and declines in production volume in each of our reportable segments.
•A $115 million decrease in distribution costs due in part to lower sales volumes in our Fresh Pork and Packaged Meats segments.
•An $81 million reduction in costs associated with our West Coast Exit and Hog Production Reform activities.
79
Selling, General and Administrative Expenses. SG&A decreased by $50 million, or 7.7%, primarily driven by cost reduction initiatives and a $17 million decrease in accruals for litigation matters described in “Note 18: Regulation and Contingencies” of the condensed consolidated interim financial statements and accompanying notes.
Operating gains. Operating gains for the first nine months of 2024 and 2023 includes a $5 million gain on the sale of a shuttered packaged meats facility located in Charlotte, North Carolina and an $86 million gain on the sale of our Vernon, California facility, respectively.
Interest expense, net. Interest expense, net decreased $7 million, or 12.5%, due to higher levels of cash and cash equivalents earning interest at higher rates for the nine months ended September 29, 2024 compared to the same period in the prior year, while interest rates on borrowings were largely fixed.
Non-operating (gains) losses. Non-operating (gains) losses consisted of the following items:
Nine Months Ended |
|||||||||||
September 29,
2024
|
October 1,
2023
|
||||||||||
(in millions) | |||||||||||
Gain on nonqualified retirement plan assets |
$ | (18) | $ | (6) | |||||||
Net pension and postretirement benefits cost |
5 | 8 | |||||||||
Other | (1) | 1 | |||||||||
Non operating (gains) losses |
$ | (13) | $ | 3 |
Income tax expense. Income tax expense increased by $165 million year-over-year primarily due to the higher amount of pre-tax income recognized in 2024.
Segment Results
The following tables present sales and profit (loss) for each of our reportable segments and other operating segments. Additional information about our reportable segments, including a reconciliation of the measure of our segments’ profit (loss) to consolidated income (loss) from continuing operations before income taxes, is included in “Note 2: Reportable Segments” in the condensed consolidated interim financial statements and accompanying notes included elsewhere in this prospectus.
Nine Months Ended |
||||||||||||||||||||||||||
Sales |
September 29,
2024
|
October 1,
2023
|
$ Change | % Change | ||||||||||||||||||||||
(in millions except for percentages) |
||||||||||||||||||||||||||
Packaged Meats | $ | 5,861 | $ | 5,876 | $ | (15) | (0.3) | % | ||||||||||||||||||
Fresh Pork | 5,871 | 5,996 | (125) | (2.1) | % | |||||||||||||||||||||
Hog Production | 2,220 | 2,499 | (279) | (11.2) | % | |||||||||||||||||||||
Other (1)
|
350 |