Oy Gevalt, Hormel Lowers Forecast

Hormel won't release its third-quarter results until Nov. 25, so we probably won't know until then precisely why it cut its earnings outlook for the year on Monday.

The Spam-maker's stock is falling - more than 10 percent as of midday Monday -- thanks to its somewhat puzzling announcement blaming its lowered forecast on a variety of factors, including higher costs, "unfavorable product mix changes" and the poor performance of an investment trust it holds. Hormel lowered its earnings estimate for fiscal 2008 to $2.03-$2.09 a share from $2.22 to $2.28 a share.

Most news accounts are playing up rising input costs, particularly for the company's Jennie-O Turkey Store operations. That's not surprising: the poultry industry is hurting bad thanks in large part to rising feed costs. And Barron's lauded the company for citing its product-mix problems. "Finally," wrote Bob O'Brien, Barron's stocks columnist, "a company that owns up to the fact that at least some of its problems are self-inflicted."

But the first thing mentioned in Hormel's news release, in a quotation attributed to Chairman and CEO Jeffrey M. Ettinger, was the "recent decline in global financial markets" which have "negatively impacted our rabbi trust investment performance."

Is it odd that a pork company has a "rabbi trust"? From the Minneapolis/St. Paul Business Journal, we learn that the pork producer's "rabbi trust" is an investment vehicle "the assets of which are used for the company's deferred compensation plan offered to company executives."

Investopedia tells us the name "rabbi trust" is "due to the first initial ruling made by the IRS on behalf of a synagogue."

Reuters quoted a stock analyst who said the rabbi trust was the main reason for the lowered forecast. The trust has to be included in earnings, but it doesn't affect operations and has "no cash flow impact," and so is "not really a very big deal" he said. Another analyst said the stock wouldn't be falling so much if the company had not also brought up rising costs and the product mix.

So at this point, it's hard to know how big an impact each of those factors will have on earnings.