ConAgra (NYSE:CAG) didn't pick the easiest time to start changing its business, but there's never really a bad time to try to fix an underperforming business. Although macro trends in the food sector aren't doing the companies any particular favors, and a lot of Street analysts have already bought the story on the turnaround, the company does seem to be making some sound moves.

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Ending the Year with a Little Positive News
ConAgra is not leading the sector with its growth, but the company does seem to have broken with a past of missing numbers and disappointing the Street.

Revenue rose over 6%, with 6% growth in the consumer business. Organic growth was more like 1%, though, as the company paired a 6% improvement in price and mix to a 5% decline in volume. While ConAgra's frozen dinner business is losing share within the broader category (and Heinz (NYSE:HNZ) may be gaining) according to Nielsen numbers, that data isn't the end-all/be-all of relative performance.

Margins were a mixed bag. ConAgra is seeing the same commodity price inflation that's impacting the rest of the sector, and gross margin did fall two points. Operating income still rose 8%, though, and operating margin did improve. Investors should note that the company has elected to change its pension accounting; this does not affect the company's cash earnings, but it will influence reported performance.

SEE: Analyzing Operating Margins

Leveraging the Balance Sheet for Growth
While Ralcorp (NYSE:RAH) rebuffed the company's acquisition attempts, ConAgra isn't sitting around pining over it. While market rumors had the company going for TreeHouse Foods (NYSE:THS) as part of its growth strategy in private label food, the company has instead executed a series of small deals, including a deal for the second-largest manufacturer of frozen breakfast sandwiches that should complement its frozen entree business.

Small deals offer less "bang for the buck," but in some ways may make more sense for ConAgra. Big companies such as TreeHouse have options and the pressures of answering to an institutional shareholder base, but small private companies rarely command the same premiums.

SEE: Analyzing An Acquisition Announcement

How Bad Will the Hebrew National Situation Get?
ConAgra is getting some of the wrong kind of publicity right now, as consumers have filed lawsuits claiming that the company's Hebrew National hot dogs are not kosher. ConAgra is denying the allegations, but it will take time for the cases to wind through the legal system and in the meantime, it's probable that at least some consumers will assume ConAgra is guilty until proven innocent. The worst-case scenario is that ConAgra will have to pay out a significant settlement and may in fact have to divest the brand if the image is too badly tarnished. I'd say that's a low-probability outcome at this point.

SEE: Litigation: Are Your Investments At Risk?

The Bottom Line
ConAgra management deserves credit; a lot of companies babble on at length about their turnaround plans, but ConAgra is actually delivering some results. What's more, while ConAgra doesn't have the greatest balance sheet out there, there's ample opportunity to acquire private label businesses and reap both growth and margin leverage.

ConAgra looks undervalued relative to comparables like Heinz and Nestle (OTC:NSRGY) on backward-looking metrics like EV/EBTIDA, but the lower returns on invested capital and weaker brand values would suggest that discount is appropriate. What's more, ConAgra's cash flow-based fair value is still not very compelling, but at least the numbers are heading in a positive direction now.

At the time of writing, Stephen D. Simpson did not own shares in any of the companies mentioned in this article.