ConAgra's Long Road Ahead

If you've invested in a stock like Unilever (NYSE: UL  ) or Sara Lee (NYSE: SLE  ) , what I'm about to say will sound like old news. It takes time to turn around a big food business, and there are almost always bumps in that road back to respectability. So given that ConAgra's (NYSE: CAG  ) management isn't really expecting things to be normal until 2009, don't hold your breath for a fast turnaround here.

Since we're only about one quarter into the "new" ConAgra, there's no way you can fairly expect any big improvements in results. Revenue was down about 1%, and operating profits (adjusted for various one-time items) were up about 1%, with segment operating profits up a bit more. Regrettably, there was no cash flow statement included in the press release.

As part of the restructuring, ConAgra has changed the way in which it reports results by segment. While that's often pointed to as a "red flag" with companies, we already knew ConAgra was doing poorly. So it may as well clear the decks and start over, even though the new segments don't really make any less sense than their predecessors.

I wish I could say that these shares were so blindingly cheap they were worth a serious look. But they're not -- at least not in my opinion. Divestitures may remove some chronically underperforming businesses from the picture, but you don't grow by getting smaller. Moreover, I'm always skeptical when companies pledge to boost the status of second- and third-tier brands through marketing. As you might have noticed, there's never any shortage of competing ads from Kraft (NYSE: KFT  ) , Nestle, Campbell Soup (NYSE: CPB  ) , et al. to counteract the message.

At least ConAgra has a few intrinsic positives in its favor. Folks are brand-loyal, but you can occasionally tempt new customers with coupons or really memorable ads (I know, I know, I just said marketing doesn't really work). What's more, you don't have to worry about obsolescence. For example, a graphics-chip company that falls behind may never catch up, but there isn't a tremendous amount of world-changing innovation in ketchup and cocoa. At a minimum, that at least gives ConAgra the chance to succeed with its turnaround.

For more Foolish food for thought:

Unilever, Sara Lee, and Kraft are allMotley Fool Income Investorpicks.

Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).


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