Nothing Appetizing About ConAgra

Underperforming companies do not turn themselves around quickly, if they ever do at all. Consequently, there was no reason to think that ConAgra (NYSE:CAG) was going to look any better after this quarter than it did it last quarter. Still, another unimpressive quarter and another look at the fundamentals makes it fairly apparent that there is really nothing stirring in this name. 

A Weak Quarter, As Expected
While ConAgra had telegraphed a tough quarter in its last quarter's guidance, the company did even worse than expected and pre-announced this a little while ago. Consequently, the disappointing performance results announced on Tuesday did not take the Street by surprise.

Revenue fell 2% this period, as volume growth of 1% could not outweigh price and mix pressures that pushed down by 3%. Compounding problems, gross margin contracted over 300 basis points (to about 24%), while operating margin fell almost 200 basis points to less than 11%. All of that translated into a decline in operating income of 14% and, ultimately, a decline of nearly 17% in earnings per share. (For more, see Can Earnings Guidance Accurately Predict The Future?)

A Tough Environment and Weak Brands
ConAgra is taking body-blows from several angles all at once. A weak economy has consumers pinching pennies and loading up the cart with more private-label goods when they go to Wal-Mart (NYSE:WMT) or Target (NYSE:TGT). On top of that, though, people just do not seem to like ConAgra's brands as much as they do those of General Mills (NYSE: GIS), Kellogg (NYSE:K) or Kraft (NYSE:KFT) - every branded food company is dealing with the same domestic pressures, but ConAgra seems to be faring relatively worse and losing share despite price cuts. Making matters worse, the company does not have a strong foreign business to offset the weakness in the U.S.


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