Packaged-food company ConAgra (NYSE:CAG) released its second-quarter earnings report on Thursday, and the results looked new and improved. But investors might want to let the company's performance play out a few more quarters before concluding that this turnaround story has a long shelf life.

ConAgra has been divesting itself of commodity businesses in order to focus on brands that can command higher profit margins. This restructuring effort has been under way for several years, but ConAgra's earnings have generally been stagnant, and the stock has underperformed its industry benchmark over the past five years. This year's sizzling 40% total return from ConAgra's stock reflects the expectation that better times are finally at hand.

There certainly are signs that ConAgra's competitive profile is improving. Gary Rodkin, who has been CEO since last year, has brought a more sophisticated and disciplined approach to ConAgra's marketing efforts. For example, the company had previously been using some of its trade spending to support a sales promotion for Healthy Choice that provided aggressive discounts for bulk purchases of the frozen meals. The program helped drive sales volume, but it undermined brand equity and eroded profit margins. Rodkin has instead increased advertising spending to improve brand awareness and used trade spending to support value-added sales promotions, such as locating Reddi-wip whipped cream next to fresh strawberries in the grocer's produce aisle.

ConAgra's financial results provide tangible evidence that the company's marketing focus is paying off. The company generated $0.43 of EPS, compared with $0.29 in last year's second quarter. Making adjustments for discontinued operations and other factors that affect comparability, ConAgra increased EPS by an impressive 38%. ConAgra's strong earnings performance is even more remarkable in light of the company's slow sales growth: Revenue increased just 2.9% to $3.1 billion. Lower interest expense is responsible for most of the bottom-line improvement, but ConAgra's gross and operating margins also improved by approximately 200 and 260 basis points, respectively. Those improved levels of profitability suggest that ConAgra's marketing efforts may finally be gaining some traction.

Still, ConAgra remains in a very challenging competitive position. The company's product portfolio, which includes such brands as Egg Beaters, Hunt's, and Parkay, is second-tier compared to the more popular brands marketed by ConAgra's larger rivals, such as Kraft (NYSE:KFT) and Campbell Soup (NYSE:CPB). Consolidation of supermarket chains and the expansion of discounters like Wal-Mart (NYSE:WMT) also impair ConAgra's efforts to maintain pricing power. Recent sales declines from ACT II and Chef Boyardee, among some of ConAgra's other major brands, suggest that not all product lines are benefiting from improved marketing.

ConAgra's smarter marketing tactics and increased advertising spending can have only limited success against the company's larger rivals that are employing similar tools. Ultimately, the best indication of ConAgra's long-term potential will be revealed next spring, when the company is expected to unveil new products now under development. A continuing commitment to product innovation is critical to staying competitive in the packaged-food industry, and ConAgra cut its dividend this year in order to direct more money to support its R&D effort. It will be interesting to see whether that R&D investment leads to new products that consumers consider superior to competitors' offerings and deserving of a premium over private-label brands.

In the meantime, this year's gains in ConAgra's share price have made the stock relatively expensive. At a recent price of $27, the stock trades at more than 20 times the company's earnings estimates of $1.28-$1.33 per share for the current fiscal year. By comparison, forward earnings multiples for companies like Kraft and H.J. Heinz (NYSE:HNZ) are in the mid-teens. ConAgra's stock appears reasonably priced according to its multiple of enterprise value to EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization), which may provide a better basis for comparison because the calculation is unaffected by a company's capital structure. Nevertheless, ConAgra's below-average profit margins suggest the company is not yet ready to compete with the biggest names in the packaged food group.

Related Foolishness:

Foolanthropy is celebrating its 10th year! To learn more about our five Foolish charities or to make a donation, visit .

Kraft and Heinz are Motley Fool Income Investor selections.To see what other dividend-paying companies are recommendations of the newsletter, take a free 30-day trial today. Wal-Mart is an Inside Value selection.

Fool contributor Michael Leibert welcomes your feedback. He owns shares of ConAgra. The Fool has a disclosure policy.