ConAgra Foods (NYSE:CAG) has had a wild ride over the past year. The company is experiencing falling sales of its frozen and shelf-stable packaged foods brands, and its expansion into new categories isn't taking hold as management had planned. ConAgra made a large acquisition in the past year that is proving to be far more costly than initially anticipated. These forces are combining to weigh on earnings, which has had an effect on the company's stock price.

Since the beginning of the year, ConAgra shares are down roughly 5%. Its performance is well below the broader market's. To illustrate, the S&P 500 Index is up about 8% this year, and it recently hit an all-time high.

But Foolish investors understand the value in buying low on a company in the early stages of a turnaround. Here's what ConAgra stock can offer you right now.

Earnings under pressure
ConAgra has encountered a slow-down for a few of its key brands. The three in particular that are suffering the most are Healthy Choice, Orville Redenbacher's, and Chef Boyardee. In ConAgra's recently concluded fiscal year, earnings declined to $315 million, representing a 60% drop versus the prior fiscal year.

Last quarter, total sales and diluted earnings per share fell by 2% and 8%, respectively, year over year. Management highlighted the Healthy Choice, Chef Boyardee, and Orville Redenbacher's brands as key reasons for the disappointing performance last quarter and in the fiscal year. Indeed, sales of ConAgra's main segment, consumer foods, fell 7%.

It's worth noting that the bulk of the earnings decline stemmed from a large writedown relating to its acquisition. ConAgra purchased RalCorp Holdings for $5 billion to boost its private-label brands. Higher-than-expected integration costs resulted in a huge impairment charge taken against earnings last quarter.

To be sure, poor sales of shelf-stable and packaged foods are hitting other companies in the industry as well. For example, Campbell Soup Company (NYSE:CPB) registered flat sales last quarter and cut its full-year sales guidance. The company cites lagging consumer demand as the primary culprit, and in response, it will shake up its portfolio in the upcoming year. To that end, Campbell announced it will use organic ingredients in its flagship soup flavors to satisfy consumer preferences, which are increasingly shifting toward fresher ingredients.

Modest valuation and solid dividend
Working in ConAgra's favor are its valuation and strong dividend yield. Because of its poor share price performance, ConAgra is valued at just 13 times forward earnings. This is a significant discount to the market multiple, and implies that investors don't have high hopes for the company going forward. This could prove to be an attractive buying opportunity if ConAgra can reverse its sluggish sales and make progress in integrating Ralcorp.

In addition, ConAgra offers a solid 3.1% dividend yield. Despite its operating challenges, management recently reiterated its commitment to the dividend. Indeed, steady dividends are fairly typical in the food industry. People will always need to eat, which allows for enough profits to return cash to shareholders. Campbell Soup also pays a dividend yield, which stands at roughly 3%.

ConAgra has increased its dividend by about 5% compounded annually over the past five years. Plus, if ConAgra can execute its turnaround, there may be room for a dividend increase in the not-too-distant future. This is because the impairment charge taken against earnings was non-cash, and therefore did not affect cash flow.

In fiscal 2014, ConAgra generated $948 million in free cash flow and paid $421 million in dividends. That results in a free cash flow payout ratio of only 44%, which leaves a comfortable level of flexibility that could support a future dividend bump.

The Foolish conclusion
ConAgra performed poorly last year because of declines in its key packaged foods brands. Consumers are showing a desire for fresher foods instead of canned, shelf-stable, and frozen foods, and this is hurting ConAgra. In addition, its major acquisition to expand into private-label brands isn't going smoothly.

Nevertheless, ConAgra is a highly profitable company with a compelling valuation and above-average dividend yield. Management has vowed to cut costs and reverse its sales decline through new product innovations. This drives forecasts for high single-digit earnings growth over the next several years.

If the company can engineer its turnaround, now might be a good time to consider buying ConAgra Foods.

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Bob Ciura has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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