ConAgra Foods (NYSE:CAG) owns many popular, well-known brands, including Healthy Choice, Chef Boyardee, and Orville Redenbacher's. Unfortunately, those three core brands aren't as popular as they used to be.  Consumer preferences are starting to shift away from packaged foods and toward fresher alternatives. This trend is having a significant impact on ConAgra's three core consumer foods brands. In turn, these market forces are weighing on the company's bottom line.

In addition, a major acquisition that ConAgra pursued to boost its presence in private-label brands is proving more costly than originally anticipated.

Combined, ConAgra's sluggish sales and bloated cost structure are negatively affecting earnings. Here's what you need to know from ConAgra's most recent earnings report. 

First, the details
Last quarter, total sales and diluted earnings per share fell by 2% and 8%, respectively, year over year. For the full fiscal year, net income declined to $315 million, representing a whopping 60% decline versus fiscal 2013. These results badly missed estimates and were very poor when compared with those put forth by competitors such as Nestle (OTC:NSRGY), whose Lean Cuisine brand is a direct competitor of ConAgra's Healthy Choice.

Over the first half of the year, Nestle has produced solid 4.7% organic sales growth, and 3% growth in earnings per share after excluding currency translation effects.

For the full year, Nestle expects 5% organic sales growth and improving margins. The main reason for its outperformance is that Nestle holds a highly diversified company. In all, Nestle holds more than 2,000 brands, and it offers them in more than 80 countries.

From a sales perspective, poor performance in ConAgra's three key brands is posing a big problem. Collectively, the Healthy Choice, Chef Boyardee, and Orville Redenbacher's brands were specifically cited by management as the biggest reasons the company's consumer-foods segment posted a 7% drop in sales.

Adding to the uncertainty was that even though management vowed to improve the company's cost structure, expectations for the upcoming fiscal year are modest. Management expects only "mid-single digit" growth in earnings per share.

Several cracks appearing in ConAgra's armor
Not only is ConAgra suffering from falling sales in its key brands, but its expenses are also soaring as a result of a poorly executed acquisition. ConAgra acquired Ralcorp Holdings last year for $5 billion, which it hoped would boost sales in its private-label brands. Unfortunately, the acquisition isn't proceeding nearly as smoothly as management had hoped. Integration costs are coming in much higher than expected. As a result, ConAgra's private-brands segment posted a $573 million loss last quarter because of impairment charges.

Going forward, management pledges to reduce costs. In the upcoming year, management expects to generate $350 million-$375 million in cost savings. This will be achieved primarily through productivity gains and cost synergies from its integration of Ralcorp.

In addition, the company is determined to repay debt to shore up its balance sheet. This is a good move, since at the end of its most recent fiscal year, the company held more than $8.6 billion in senior long-term debt. ConAgra also has $2.6 billion in what it terms "other non-current liabilities," compared to just $5.3 billion in stockholder equity.

Repaying this debt will use a lot of cash flow. Management expects to generate $1.6 billion to $1.7 billion in operating cash flow in FY 15, only a slight increase from the previous year. Still, ConAgra says it will repay approximately $1 billion of debt in FY 15.

ConAgra is suffering from a shifting market, and that shift is affecting its three key brands. In addition, it needs to repay debt resulting from its major acquisition. Investors will want to keep a close eye on the company's next quarterly report.