US Meatpacking ($TSN, $SFD, $PPC): Cheap enough?
[FREE TO READ] The largest US protein producers at a cyclical inflection
The last post in the blog covered the cyclical situation of the Brazilian meatpackers. Because two of the three meatpackers have substantial operations in the US, that article already explored the North American meat cycles (beef, pork, chicken) in some depth.
Armed with that knowledge, I was curious to see what the fully domestic US meatpackers look like, and I found that they screened relatively attractive on a cycle-adjusted basis. Add some fear, and these names might get quite cheap:
Tyson Foods, the largest and most diversified of the three, covering beef, pork, and chicken.
Smithfield Foods, fully concentrated in pork and derived products.
Pilgrim’s Pride, fully concentrated in chicken and derived products.
This article is a short overview of these companies, their historical business, capital allocation, current cyclical position, and how the cycle and earnings might look in the near future, along with a short comment on their valuation.
What I found are fairly defensive segments in most cases, with stable earnings across the cycle, albeit peppered by disruptions. I am currently concerned that we might be about to see such a disruption period. My reads are not particularly bullish because of the mix of grain prices and droughts (impacting costs) and fuel prices (impacting demand).
The company valuations are not astronomical, but they are not all-weather bargains just yet, especially if we are about to enter a more margin-disruptive period. I would be comfortable with lower prices for an all-weather valuation, but these are very interesting businesses to follow given their scale moats and relatively defensive demand characteristics. A more bullish inclined read of the future might actually find them cheap.
Disclaimer: The opinions expressed in the Blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.
Other articles related to meatpacking
Index
Tyson Foods
Segment intro
Prepared Foods
A comment on the Prepared Foods cycle
Chicken
A comment on the Chicken cycle
Beef
Pork
Corporate, leverage, and valuation
Smithfield Foods
Segment intro
Segment performance
Corporate, leverage, and valuation.
Pilgrim’s Pride
US
Europe/UK
Mexico
Corporate, leverage, and valuation
Tyson Foods
Tyson Foods is a protein giant in the US. The company claims to process around 20% of the beef, chicken, and pork consumed in the country.
It has upstream integrated operations in chicken, and downstream integrated operations into prepared foods, its main breadwinner.
The company is controlled by the founding family, via higher vote shares.
Segment intro
Tyson divides its segments by protein (beef, chicken, pork) with an additional segment for Prepared Foods, encompassing all proteins. The company has international operations, and exports from its domestical segments, but this is a relatively unimportant portion of the business.
As seen below, from a revenue standpoint, beef is the company’s leading segment, followed by chicken.
However, when we look at profitability, the picture flips completely. Tyson’s most important segment is Prepared Foods, followed by Chicken.
The reason is that, despite huge revenues, the beef segment has only produced outsized profits during certain periods (the 2015-2022 positive cattle cycle, explored in a previous article). Seen from this perspective, Tyson is primarily a Prepared Foods & Chicken company, with some profit convexity provided by the Beef Cycle.
Prepared Foods
Tyson’s Prepared Foods segment concentrates most of the company’s downstream consumer brands, albeit only in the processed category. The majority of the unprocessed meat products (and some processed products in Chicken) use the Tyson brand and are recorded in their respective segments.
The company does not talk about market shares, but the segment has similar revenues (~$9 billion) to the Prepared Meats segment of Smithfield Foods, which claims a 20% market share by volume. That could indicate a close to 20% market share. On volumes, the company processes ~130 thousand tons per month, versus 170 thousand for Smithfield, indicating potentially a 15% volume share. The company claims that Jimmy Dean and Hillshire Farm are two of the ten largest protein brands in the country.
Prepared Foods, as a category, has maybe some of the most defensive characteristics, as shown by highly stable margins and revenues since 2014.
However, the segment has not grown much over the past 10 years. This may be due to the trend towards lower consumption of processed products, or maybe because some of these processed products are potentially inferior goods (people move from sausage to chicken breast when they have more money).
Further, from a capital perspective, it is unclear whether the segment has been a good investment. On a cumulative basis, the segment has yet to repay the CAPEX + Acquisitions investment made on the business, even on a pre-tax, pre-cost-of-capital basis. This is highly affected by the acquisition of Hillshire Brands in 2014, at a 10x+ EBITDA multiple (~$8.5 billion), followed by the acquisition of AdvancePierre in 2017 (~$3.2 billion).
As can also be seen, however, the business does not require much investment once the brands are acquired. This is probably not a highly capital-intensive business on a maintenance basis, but acquiring the brands generates a lot of goodwill and capital costs. Going forward, barring brand or category-disrupting events, this should be a very capital-accretive segment.
A comment on the Processed Food cycle
Understanding what can happen with Processed Foods is relevant for Tyson (the most profitable segment), Smithfield (the most profitable segment), and Pilgrim’s (relevant for the European segment).
My working scenario is that meat markets receive an inflationary shock coming from grains, at a time when the whole economy is receiving such a shock (for example, on fuels) via the Hormuz disruption, affecting disposable income.
On the one hand, an inflationary shock is generally bad for consumers and, therefore, for any consumer brand. I fear they will get a hit to margins that they cannot pass down. For example, because otherwise people would choose private labels.
On the other hand, processed meats are more affordable than fresh meats, and therefore could benefit from trade down from chicken or beef.
With the exception of Pilgrim’s Europe, the margin dynamics of the two segments were not very affected during the inflation of 2021/22, but this was potentially because of a strong consumer.
The situation is different now. Indeed, the European situation might be more illustrative of what might come in the US segments from this new inflation shock.
Hormel, not covered in this article, but strong in this segment, has seen falling margins since 2016 at least, for what seems like idiosyncratic factors, including peak cycle acquisitions.
In aggregate, it is hard to be bullish on this market in the current context, because of the margin squeeze, but the segments might be more defensible than fresh meats.
Chicken
Tyson has an upstream and downstream integrated chicken processing operation that is potentially responsible for as much as 15/20% of all the processing of chicken in the US. These figures are similar to Pilgrim’s Pride as a standalone company.
The company produces most, if not all, of its inventory, starting with managed pullet, egg, and hatchery operations, plus feed operations, which are then outsourced to contracted farms, for which animals, feed, and all other supplies are provided.
In addition, Tyson owns Cobb-Vantress, one of the two remaining chicken genetics companies globally (30% of all chickens on the planet are Cobb-Vantress). The company does not provide an estimate of how much profitability from the segment comes from Cobb-Vantress, but it could be significant given that this market is a duopoly.
On the downstream, Tyson sells almost half (40%) of its production to foodservice, another 40% to retail, and 15% to industry (only 5% exports).
In foodservice, branding is not relevant, but contracts and integration can be. Foodservice tends to purchase what is called small birds, a category raised for uniformity and portion size. This means more client-specific, somewhat less commoditized production. Tyson mentions in its calls that it has significant contract pricing activity, although the actual figures are not disclosed.
In retail, the company has some ability to generate brand value with the Tyson brand, especially in value-added products (nuggets, breaded, pre-cooked, and fully cooked), but in case-ready pieces, it is basically a commodity in the eyes of the consumer. Industrial is the most commoditized segment.
From a capital invested perspective, the business has been fairly good, especially compared to Prepared Foods. Today, the segment is the most CAPEX-intensive by far, absorbing 25% of segment EBITDA and 50% of Tyson’s CAPEX over the past four years.
A comment on chicken cycles
From a financial perspective, although chicken is arguably the least biologically cyclical of the proteins, the company was not safe from the industry vagaries, as seen below when comparing the segment’s EBITDA margins with the USDA Feed Price ratios (second chart below), a proxy for chicken producer margins, climbing in 2011/2015, only to stagnate and fall in 2015/2020, and then climb again in 2021/2025.
Because this period also affects Pilgrim’s Pride (analyzed below), it deserves additional attention.
The aggregate value of all chicken production in the US fell throughout this period, even though more chicken was produced (first chart below) at a time when grain prices were more or less flat (second chart below). This indicates basically falling chicken prices.
That is to say, although Chicken is a sturdy segment for Tyson, it is not a zero-cyclicality one. Its cycle is very tied to grain prices and their effect on chicken supply.
The 2015/2021 period was characterized by a previous shortage of chicken caused by the 2011/2013 spike in corn prices (see above). When grain prices collapsed, chicken entered a period of massive profitability (Tyson’s Chicken peak margins in 2015/17, Pilgrim’s peak margins in 2014/15). But this engendered a new period of low margins, because grain prices were stable and low for almost 7 years.
A similar dynamic occurred in 2021/22 with the post-COVID, droughts, and the Ukraine war. Corn prices exploded, leading to lower relative supply and great profits for Chicken. That situation is currently reverting, with expanding supply and worse margins (more evident in Pilgrim’s 2026 figures).
We could say then that periods of low and stable grain prices are bad for chicken producers/packers, as they lead to expanding capacity. Periods of high grain prices, accompanied by good end-market demand, are very positive.
This dynamic is expanded by the relative capital-hunger of chicken. The segment has received way more investment than Beef or Pork, and about 2/3 of Prepared Foods, but without the large brand goodwill-driven acquisitions. This does not include the contracted, but not balance-sheet recorded, producer farms. This level of capital probably pushes towards utilization and margin compression in periods of low grain prices.
It is possible, as well, that, being a highly labor-intensive process, high chicken prices help offset some of the overhead of the labor force, or that small variations in unit margins carry large variations in operation EBITDA margins because labor and other expenses do not adjust.
Finally, we may have an inverse relation to the cattle cycle and the chicken/beef ratio. The 2014/2021 period was characterized by the expansion of the cattle herd, and therefore, relatively depressed beef prices. Since then, the herd cycle has reverted, leading to 500%+ increases in beef prices. This added to Chicken attractiveness.
The next few years are a wildcard. On the one hand, conditions are ripe for grain prices to climb (droughts in the US and Brazil, fertilizer crisis driven by Hormuz), which should be good, but at the same time, this meets the end-demand markets at a challenging period. The potential squeeze of supply from this low margin period will eventually generate the conditions for a new upcycle.
Beef
Beef is an interesting market. Tyson has a capacity of around 25/30% of all US slaughter capacity, in what is effectively an oligopoly with JBS, National Beef (MBRF), and Cargill.
Despite this, the segment is the most cyclical by far. As seen in the segment intro section, the business can either produce massive profits or nothing. Further, this is almost entirely dependent on the cattle herd cycle (second chart below). The herd recovers, Tyson makes money, the herd contracts, and Tyson does not make money.
But what is even more interesting is that Tyson’s beef segment is by far the most capital-profitable business in the company. The segment’s EBITDA is 6x what the company has invested in the business in CAPEX and acquisitions since 2010.
As commented in the Brazilian meatpackers article, the US cattle herd cycle is not yet turning, at least for this year. There are some small signs of improvement, but these are not yet conclusive at all. Even more, it is hard to avoid thinking that for a lot of reasons, the cattle herd in the US is secularly declining, and that therefore significant capacity reductions are needed for the business to improve. Further, the worsening drought conditions point to a further deterioration of the cycle. The recent rumors of the US removing tariffs on imported beef will constitute another blow to packers.
Pork
Tyson does not enjoy the same heavyweight position in pork production as in other proteins. Its capacity is about 30% smaller than that of Smithfield and 25% smaller than JBS Pork USA's business.
Pork is also Tyson’s worst-performing business when we consider the segment’s margin deterioration compared to the market’s performance.
The cycle for pork packers has not been terrible in the past decade, with more pressure in 2025 than in previous years and a bad year in 2022. However, compared to this, Tyson’s Pork segment is consistently performing negatively.
One reason for this might be a lack of integration at the operational and segment accounting level. The business is not upstream integrated, purchasing hogs from independent producers, and it is downstream integrated via Prepared Foods, but from an accounting basis, the segment only generates packer commodity margins. 25% of the segment’s revenues are intersegment, and probably at transfer pricing, which is not highly accretive (potentially subsidizing some of Prepared Foods margins). Another ~35% of revenues is the potentially more commoditized export and industrial markets. This compares rather unfavourably with the other protein segments.
The business has been very accretive in terms of capital invested, at least until 2020, when it basically stopped generating EBITDA in a meaningful way.
Corporate, leverage, and valuation
The company has recently added a Corporate segment to its reporting, which was not presented in previous data up to FY26, and represents ~$800 million yearly, not considering D&A.
This change makes the guidance figures look better than they actually are in reality, when compared to pre-recast FY25 figures. When previous figures are recast, the company is expecting a further deterioration in Beef, with other businesses operating within similar ranges (Pork, International) or slightly improving YoY (Chicken, Prepared Foods). This implies flat earnings on the aggregate.
From the Brazilian meatpackers article, which reviewed the poultry, beef, and pork markets, my read on these markets is not positive, but rather negative (beef) or neutral to negative (poultry and pork). In the case of beef, the negative view stems from the cattle cycle not improving. In the case of poultry and pork, we have relatively oversupplied animal markets (in the case of poultry) or packer markets (in the case of pork), where costs are going up because of grains, and demand is at least marginally more pressured because of fuel costs.
Therefore, current earnings could be considered average, in my opinion. The cattle cycle can indeed push earnings much higher when it is positive (three times as much as today), but it is also true that Chicken and Prepared Foods can contract their margins at least temporarily.
From EBITDA of ~$2.5 billion after corporate costs, and CAPEX of $700 million at the super low end of the historical series (could be considered maintenance), interest is very well covered ($330 million yearly).
The company is not leveraged in terms of interest coverage because its debt costs are low (4.4/4.8%), but at ~$7.5 billion in net debt, it is a close to 3x Net Debt/EBITDA figure, which is generally considered the upper range.
The valuation, in my opinion, is not super attractive. Tyson can generate ~$1/1.2 billion in FCF today. If the cattle cycle is firing on all cylinders, that figure climbs a whole lot, to maybe $3 billion, but this is only at the peak, and once every 10+ years.
Compared to this, the company trades at $24/25 billion.
A great comparison, in my opinion, is JBS. JBS US capacities are almost the same as Tyson's across beef, chicken, and pork, maybe except for a lower penetration in Prepared Products. However, compared to Tyson, JBS also has the Brazilian beef, chicken, and pork businesses, which are also huge and have better long-term trends. The leverage levels in interest and Net Debt/EBITDA are similar. Both companies are family-controlled. Despite this, JBS trades at a market cap of $18 billion.
Smithfield Foods
Smithfield Foods is a large integrated player in the hog and pork value chain. It is the pure-play for the hog/pork market in the US.
The company is the largest pork processor in the US, owns some of the leading processed food brands (mostly from pork but also other proteins), and has significant capacity in hog production.
The company was originally public but was then privatized by WH Group, a Chinese multinational packer. WH Group still owns and controls the company (80% of shares), but since January 2025, 20% of Smithfield is back in the public markets.
Segment intro
The company divides its operations into the stages of the value chain.
Hog Production
A mix of contracted and owned farms (primarily contracted), with an annual production of about 11 million hogs (~9% of US production). The segment serves the downstream packer segment almost entirely.
Fresh Pork
Pure pork packing, with a capacity of about 25% of the US production, is larger than both JBS Pork USA and Tyson Pork.
The segment purchases ~40% of its live animals from Hog Production, the rest coming from the market.
30% of its production is integrated downstream, and the rest is primarily retail (35%) and exports (25%).
Packaged Meats
15 Brands, including Smithfield, Eckrich, Nathan’s, Armour, Cooks, and others.
The company claims a 20% share in its aggregate slice of the market, although in aggregate it is probably lower when the market is considered more broadly. Still, strong positions in bacon, deli meat, sausages, and hot dogs.
Almost the totality of the meat processed is internally sourced, and probably the totality of pork, given that the company also processes some beef and chicken.
The company’s capacity in this segment is 40% larger than JBS and Tyson, and is largely concentrated on pork products.
Segment performance
Unfortunately, the company’s short public history implies a very limited data pool to source segment profitability over time. The company was considered a single geographical segment within WH Group.
However, we have enough to understand that Packaged Meats is by and large the most important and profitable segment, followed by packing, and finally by Hog Production.
We do not have asset information by segment, and the investment history is definitely too short, especially around the brands, but the capital productivity of Packaged Meats is evident. The company had the same level of goodwill and intangibles in 2013/14 before being taken private, which indicates no large acquisitions in the 2013-2025 period.
In terms of margins, Prepared Meats also stands out as the highest margin, most stable segment.
Fresh Pork (packer) and Hog Production (producer) approximately follow the Sterling Profit Tracker estimated margins.
It is interesting, however, that Hog Production is much less profitable than the Sterling Tracker would indicate.
The company is slowly divesting this segment, moving from about 17 million heads in 2019 (contracted or owned) to only 11 million in 2025, and a goal of eventually settling at 10 million (30% of Fresh Pork input).
One potential explanation is that hog production is generally not such a good business, potentially indicating why neither Tyson nor JBS has integrated much upstream here.
Corporate, leverage, and valuation
The company’s corporate segment consumes around $200/300 million per year (including the ‘Unallocated’ portion in the financials).
Of course, Smithfield has been a public company for only a year, so corporate could very well eat more profits down the road.
Leverage should not be a problem, at $2 billion in gross debt versus $1.4 billion in cash.
The company is embarking on a large $1.3 billion CAPEX project in Sioux Falls, Idaho, for Fresh Pork and Packaged Meats between 2026 and 2027. The normal CAPEX intensity of the business has been ~$350 million, so this is almost twice as fast. Still, cash should not be a problem, as Cash From Operations, even during the challenging 2023, was ~$600 million.
The valuation is interesting for further consideration, although not a jump on the bandwagon type, at least right now.
At current EBITDA levels, the company can generate $1.5 billion in corporate-level EBITDA, minus say $300 million in maintenance CAPEX, and then another $300 million in taxes, we get to $900 million in net income.
Compared to that, it trades at ~$10 billion.
However, the current period could be considered high-margin cyclically, especially regarding Hog Production, which generated a massive $700 million loss in 2023. Those loss levels seem quite sporadic (related to grain price spikes), and the company is reducing Hog Production exposure.
More tactically, given that we seem to be heading into a period of higher grain prices and more pressured consumers, the name might get even cheaper.
Pilgrim’s Pride
Pilgrim’s is, in some senses, the Smithfield of chicken: leading in US capacity (15%), fully integrated, and owned by a multinational (JBS).
However, it also has significant differences.
First, it is more highly exposed to commoditized meat markets (80% of sales in the US are fresh product) than to branded prepared products markets (12% of sales).
Second, the company has relevant operations abroad, in Europe (20% of operating income) and Mexico (10% of operating income).
US
The company’s breadwinner is the US market.
Pilgrim reports a single integrated segment going from hatcheries (owned) through production (contracted) to processing (owned) and downstream products (owned). The company’s capacity is ~15% of the market, 1 in 6 pounds processed.
The US is a relatively commodity-exposed business. Although the company does not openly acknowledge this, it is evident from many data points.
First, 80% of sales are fresh products, with only 12% being prepared products. Although fresh includes branded retail, it is obviously less protected than a branded consumer-processed product.
The company reports 50% of sales to retail, minus 12% being prepared (probably none of which goes to anything other than retail), means 38% of it is fresh+retail, or ~50% of fresh as well.
The rest is what the company calls foodservice, which is a mix of foodservice (like QSR) and industrial.
Without a separation between these two, it is hard to know whether the channel is more or less commoditized. We can have some estimates from the types of birds produced (by weight). As explained in the Tyson Chicken section, the most commoditized segment in chicken is the big bird, which is grown mainly for the breasts, used for further processing. This could be considered the industrial market. Pilgrim is not super exposed to this segment, and its managerial comments point towards a further reduction. Case-ready is basically retail fresh meat. Small birds are probably the real foodservice exposure.
On the margin, this is a little lower exposure to foodservice than Tyson (which claims 40%), similar to retail (40%), and a little higher than commodity (25%+, versus 15/20% for Tyson).
The company is more open regarding pricing mechanisms, showing that 50% of its US Fresh revenues are either commodity or market.
The cyclicality of the US segment is fairly evident in the 2014/2021 period, with significantly declining profits. I addressed the market’s recent history in more detail in the Tyson Chicken section.
The possibility of such a period repeating is the highest operational risk for Pilgrim’s over the long-term. We are starting to see some of those developments in market prices for the early 2026 period. As explained in Tyson Chicken, however, if grain prices climb, it will eventually result in a better position for chicken producers.
Europe / UK
Pilgrim’s European segment is mostly the UK (25 facilities in the UK and Ireland out of 29 total), and it is much more oriented towards branded prepared foods (60% of revenues). The segment includes pork and lamb processing and prepared products.
The company says that 1 out of 4 pounds of chicken and pork in the UK is processed by Pilgrim’s.
Pilgrim’s expanded Europe via a series of acquisitions, all of them before the war.
The situation today is challenging for consumers, and the company’s branded products come under attack from private labels, but still, the segment is performing well. I believe the dip in 2021/22 stems from sudden inflation, which cannot be passed so easily to consumers when the market is so retail/brand oriented (margin vs share decision). However, as time passes, inflation costs can be passed down to customers. Further, an inflationary environment is probably positive for processed foods versus fresh meat, because of more price-sensitive consumers. That said, the upcoming inflation bouts will probably originally hurt European margins, only for them to recover in future years (say 27/28).
Mexico
In Mexico, Pilgrim’s is the second largest player (25% share). The segment has grown organically for the most part, with a large acquisition (Tyson Mexico) in 2014.
The company’s exposure is relatively commoditized, with 90% of sales in fresh products, including 30% of which are live animal sales.
In this sense, the Mexican market follows somewhat the US market in terms of grain/demand price developments.
Corporate, leverage and valuation
Pilgrim’s segment figures already incorporate corporate expenses.
In terms of leverage, Pilgrim is not pressured today. Net interest expenses are ~$120 million, the average cost of debt is 5%, on net debt of ~$2.5 billion, with maturities starting in earnest in 2031.
The company screens cheaply today. It generates ~$1.6 billion in operating income (maintenance CAPEX of $400 million vs D&A of $470 million implies a good proxy), or $1.1 billion in net income after interest and taxes, versus a market cap of $7 billion.
The problem is obviously the potential cyclicality of the US segment. Could we test the lows of 2020, and further, see 6 years of downtrending profits in the US?
I believe the risks point to the downside because of the mix of higher grains and more pressured demand.
However, the situation is unlikely to repeat in terms of the length of the downtrend because the 2014/15 capital profitability peak was much higher than the current peak. In terms of profits, it was close, but today’s capital base is much larger. 2014 was a mix of ballooning grain prices (2013/2014 droughts in the US), matched by strong US demand (GFC recovery) and relatively depressed capacity (coming from the GFC).
Further, as analyzed in the Tyson’s Chicken section, low grain prices seem to be worse for chicken producers over the long term than high grain prices, the scenario with which I’m more comfortable today.
Finally, even though it is a commoditized market company, Pilgrim’s returns on capital are higher than all other meatpackers considered in this article.
Even if we only consider the 2019-2026 period, the average pre-tax ROC (EBIT/Capital) is close to 15%, or EBIT of $1 billion over $7.1 billion in capital in the business. That implies $650 million in net income, or a close to 10x multiple on the current market cap.
Of course, if we move to 2020 levels of profitability (3.5% pre-tax ROC), we are talking of only $250 million in EBIT.
From this perspective, I think Pilgrim’s is the most attractive of the three over the cyclical long-term. However, I believe tactically it is probably more pressured ahead.
As seen below, historically, prices have recovered before margins (the financial figures are backfilled and therefore even more lagged than shown below), so this is a name to follow closely.
