S&P upgrades Smithfield Foods rating to BBB on parent upgrade

Investing.com - S&P Global Ratings has upgraded the issuer credit rating of Smithfield Foods Inc. to BBB from BBB-, effective today, following an upgrade of its ultimate parent, WH Group, to BBB+ with a stable outlook. Alongside this, the agency raised Smithfield's short-term credit rating to A-2 from A-3 and lifted the issue-level rating on the company's senior unsecured notes to BBB from BBB-.

S&P projects less volatile commodity hog production and robust cash flow at WH Group over the coming years. The rating agency noted that Smithfield continues to make headway in rationalizing its hog production footprint and improving efficiency across its pork processing network. For the 12 months ended June 30, 2026, Smithfield's S&P Global Ratings-adjusted leverage sat at 0.9x.

Since 2019, Smithfield has slashed its annual hog production by 37%, reducing volume from 17.6 million head to 11.7 million head per year, with a medium-term target of 10 million head. This downsizing curtails exposure to the severe earnings swings experienced during the 2023 downturn, when the hog segment posted a $756 million operating loss. S&P estimates that the smaller footprint and retained farm restructuring would have trimmed segment operating losses by more than 50% on a pro forma basis in 2023.

Smithfield's packaged meats segment has delivered over $1 billion in annual operating profit for four straight years and now accounts for more than 80% of overall company profitability. This richer margin mix has pushed Smithfield's S&P Global Ratings-adjusted EBITDA margin to roughly 12% on a last-12-month basis as of June 30, 2026, marking a substantial jump from the 5% cyclical low seen in 2023 and above the 7%-9% pre-pandemic range.

According to S&P, Smithfield's low leverage affords room for growth capital expenditures and mergers and acquisitions. The company intends to channel excess cash into modernization and M&A, including growth capex for the $1.3 billion Sioux Falls facility upgrade and bolt-on acquisitions like the $450 million to $500 million Nathan's Famous deal. WH Group retains an 87% stake in Smithfield's common stock, and S&P estimates that Smithfield generates more than half of WH Group's EBITDA.

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