Steer Clear of ConAgra

NEW YORK (TheStreet) -- When it rains, it pours. Unfortunately for ConAgra (CAG) shareholders, there is no shelter for a stock that has been in a perpetual decline, losing close to 20% over the past month.

While it hasn't been a "nutritious" year for the overall packaged food industry, ConAgra hasn't been able to stop the bleeding -- unlike Kraft ( KRFT) and Kellogg ( K), which have also faced headwinds due to weak volumes.

For all of the criticism I've unleashed towards this company this year, ConAgra's managemen has produced nothing but dismal growth and eroding margins and has yet to prove me wrong. Now, after the company issued worse-than-expected guidance last week following another disastrous quarter, investors who insist on holding this stock might as well starve themselves.

On some levels, I take it personal for how poorly managed this company is now. It's sacrilege to condemn the maker of Swiss Miss and Peter Pan peanut butter. Just a year ago the company posted a net income of $250 million. But with year-over-year profits declining 42% to $144 million, one has to wonder if ConAgra's consumer segment, which is the company's largest division, will ever recover.

Essentially, earnings, on a per-share basis, declined from 61 cents to 34 cents. Although on an adjusted basis, earnings inched up to 37 cents per share, the company still missed Street estimates by 2 cents. This prolongs what has been a poor history of execution, which has made it tough to nibble on this stock, even when shares appeared to have bottomed.

Although a case can be made the stock has reached the discount bin, the company still lags its peers in areas like returns on capital and more importantly, margins. With revenue in the consumer segment shedding another 2% this quarter combined with a 21% decline in profits, I don't think anyone can justify having a glass-half-full view, regardless of the angle.

ConAgra bulls will disagree. As have been the case for the past couple of quarters, they will play the "Ralcorp card." It's true that ConAgra's overall revenue growth did climb 27% year over year. But astute investors understand that without the acquisition of Ralcorp, virtually all of that 27% growth never would have been realized.

Let me remind you that even with the 27% growth, the company still missed Street estimates. Plus, it's not just the Consumer business that is struggling. ConAgra's Commercial foods segment shed 0.4% in revenue, with a 7% decline in profits.

I won't deny that management is making some progress with synergizing Ralcorp. It just doesn't seem that management is able to produce any organic growth, which measures a company's operational performance and excluding events like acquisitions.

I'm not suggesting investors should completely dismiss ConAgra's absolute performance. But given how quickly this sector is known to consolidate, it's not enough to look at a single revenue number -- in this case, 27% growth -- and believe that it's digestible. With CEO Gary Rodkin making statements like, "We are revising our merchandising and promotion plans to improve our volume," it is clear that there is still a lot of work to be done.

In that regard, given that ConAgra has guided earnings for this current quarter to 8 cents below Street estimates of 63 cents per share, it's going to be a while before this company can revert to growing margins and generating the sort of cash needed to support a higher share price.

The tough part, however, is the stock looks cheap. Even so, investors should remain off the ConAgra diet until the company shows consecutive quarters of organic growth and improved margins.

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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