I'm Off the ConAgra Diet

NEW YORK ( TheStreet) -- The on-again/off-again love affair that the market has had with packaged food giant ConAgra ( CAG) appears to be off.

As is often the case, retail investors, who don't seem to fully grasp ConAgra's business, are left holding the "shopping" bag. The stock is down 17% over the past month. And with organic growth and margins still a concern, it's anyone's guess when the bleeding will stop.

On Tuesday, the company lowered its fiscal 2014 earnings per share expectations by 2.5% to a range of $2.34 to $2.38.

True, ConAgra isn't the only company struggling with growth. Companies such as Nestle ( NSRGY), which has become the gold standard in this industry, haven't exactly outperformed.

And Kraft ( KRFT) and Kellogg ( K) have taken their lumps.

But this is not the first time that ConAgra has frustrated investors. Truth be told, as much as I've wanted to like this company, its poor history of execution has made that tough. It has lagged its peers in the most important categories, including stock performance, returns on capital and, most recently, margins.

What's more, contrary to what management has proclaimed, I don't believe that ConAgra is any closer today to resolving its profitability issues than it was, say, a year ago, prior to its deal for Ralcorp. ConAgra bulls will certainly disagree. And they will cite the possible 8% to 10% growth in EPS, even with the company's revised estimates.

But we can't discount the impact the lowered guidance will have on ConAgra's first-quarter results.

What's more, ConAgra's management has not found adequate ways to offset its underperformance, unlike Coca-Cola ( KO) and PepsiCo ( PEP), which have faced the challenge of poor unit volumes.

Here again, bulls will respond that the company will grow earnings by as much as 10% in the next quarter. But as I pointed out in the introduction, how much of that growth will be organic?

Consolidation happens quickly and frequently in this sector, so analysts are right to look at company performance using internal resources and exclude events like acquisitions.

The importance of organic growth is why Campbell Soup ( CPB), which is as iconic as any brand on the shelves, has lost investors' trust.

And ConAgra's Ralcorp acquisition -- an expensive deal, by the way -- continues to receive plenty of scrutiny.

Management is working to "adjust the mix." This is another way to say that it is reshuffling merchandise to find the "right pricing strategies."

ConAgra says it wants to "improve the Consumer Foods segments sales and profit performance as fiscal 2014 progresses."

That's all well and good. But given the earnings-per-share revision, it also seems as if management wants to sacrifice near-term margin for long-term growth.

Another issue is the company's operating margins. To the extent that management can synergize Ralcorp quickly enough to cut overlapping costs and bring more efficiency to the operation and grow margins, then ConAgra might deserve some patience.

But those are some pretty bold bets, especially given the company's poor history of execution. So before you get too optimistic, I suggest you read the label.

At the time of publication, the author held no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Richard Saintvilus is a co-founder of StockSaints.com where he serves as CEO and editor-in-chief. After 20 years in the IT industry, including 5 years as a high school computer teacher, Saintvilus decided his second act would be as a stock analyst - bringing logic from an investor's point of view. His goal is to remove the complicated aspect of investing and present it to readers in a way that makes sense.

His background in engineering has provided him with strong analytical skills. That, along with 15 years of trading and investing, has given him the tools needed to assess equities and appraise value. Richard is a Warren Buffett disciple who bases investment decisions on the quality of a company's management, growth aspects, return on equity, and price-to-earnings ratio.

His work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets.

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