Food purveyor Hormel Foods
So, the Wall Street reaction is -- drumroll, please -- making the stock the third largest percentage loser (down 8%). Why is Wall Street killing the beloved owner of SPAM? Or, is the correct question: Is there a killing to be made in SPAM?
What spooked the market was the company's earnings guidance. Analysts were projecting earnings of $0.53 next quarter and $1.62 for the fiscal year -- a big increase from $1.33 last year. That was in line with the company's estimate as late as May.
The company now projects $0.40 to $0.46 a share next quarter and $1.46 to $1.52 for the year. Rising grain prices, which hurt operating margins particularly in the turkey operation, are causing the company to temper its near-term outlook.
It is unclear when the company will be able to pass these costs on to consumers or see a fall in grain prices. But, for heaven's sake, Hormel and Stagg chili is now available in the Tetra Recart carton. What more could Wall Street want?
Higher grain prices should pressure poultry operating margins at Tyson Foods
Hormel, at 17 times earnings, is value priced. With a light debt load and a stable of strong brands, the stock is one that should afford investors a sound night's sleep.
Fool contributor W.D. Crotty does not own stock in the companies mentioned. He is also not guilty of trying to turn a SPAM pun into a few software company links.