Martha Stewart Hits Trouble Bringing Home the Bacon

Updated from 11:15 a.m. EDT

Wall Street was pleased with third-quarter results from Martha Stewart Living Omnimedia (MSO) before Friday's opening bell, but that was before the company unveiled the pork.

The stock opened Friday up 2% as investors cheered a narrower-than-expected loss from the company, but the optimism dissipated quickly as the company reduced its revenue guidance for 2007 due to the crisis in the U.S. housing market.

Furthermore, the company said its much-anticipated merchandising deal with Costco (COST) will amount to one product this holiday season -- a smoked ham.

"Many people consider ham the ultimate holiday entrée -- you know Martha's ham will be the ultimate of the ultimate," the company's CEO Susan Lyne said on a conference call with analysts. "In January we'll launch with soups."

MSLO shares recently were trading down 79 cents, or 6%, to $12.34 -- close to where the stock was at the beginning of 2004, when Stewart was facing allegations that she lied to federal regulators about her sale of ImClone(IMCL) stock.

For the third quarter, the media and merchandising conglomerate reported a loss of $4.4 million, or 8 cents a share, for the quarter. That compares with a loss of $25.2 million, or 49 cents a share, in the same quarter last year. Revenue climbed 13% to $69.3 million.

Those results beat analysts' expectation for a loss of 13 cents a share and revenue of $68.5 million, and MSLO said it's on track to return to profitability and free cash flow in 2007.