(FORTUNE Magazine) – WHAT does ConAgra get when it blends a hunk of hamburger with a dollop of beef stock, a pinch of salt, and a bit of processed oat flour? A gooey mess? No, a dietary breakthrough: ground beef that is not only juicy and tasty but also exceptionally lean. The giant food company now markets mincemeat so spare -- the fat content is just 4%, vs. 20% for lean ground beef -- that a standard serving has no more grease than a comparable piece of skinless chicken breast. ConAgra continues to demonstrate that timely innovations and smart acquisitions can be a recipe for earnings growth -- even for a huge company in a sluggish industry. So can dressing up commodity products like chicken, turkey, and beef in brand-name packages. Says Stephen Carnes, a security analyst at Piper Jaffray & Hopwood: ''This company is entrepreneurship at its finest.'' The entrepreneurs are on course for their 12th consecutive year of record sales and earnings. Investors know all about their sterling results: Someone who bought $1,000 of stock in 1974 would be sitting on more than $200,000 today, and that doesn't count dividends. Most consumers have never heard of the Omaha company -- even though it is the country's largest independent food processor (only Philip Morris's Kraft General Foods is bigger). That's because ConAgra puts its money not into building a corporate image but into inventing, buying, and expanding a larder of powerful brand names. Among them: Banquet frozen foods, Country Pride chicken, and Armour luncheon meat. Last year the company picked up a cornucopia of well-known monikers -- including Hunt's tomato sauce and Peter Pan peanut butter -- when it paid more than $1.3 billion to buy Beatrice from Kohlberg Kravis Roberts (KKR), the leveraged-buyout aces. With Extra Lean Ground Beef, launched in October, ConAgra is at the forefront of the frenetic battle to supply nutrition-conscious consumers with tasty food. The new hamburger is part of the company's two-year-old Healthy Choice line, an array of products with reduced fat, cholesterol, and sodium. Sales of Healthy Choice, which began with frozen dinners but now includes victuals from soup to ersatz ice cream, should top $400 million in the fiscal year ending in May. Advertising Age calls it ''the most successful new food brand introduction in two decades.'' Indeed, ConAgra leads the pack in the $3.4-billion-a-year frozen dinner and entree market, besting such worthy rivals as Nestle, Campbell Soup, Philip Morris, and Heinz, according to InfoScan, a supermarket tracking service. Healthy Choice was born of the misfortune of Charles M. ''Mike'' Harper, ConAgra's chairman and CEO. After a heart attack in 1985, Harper was dismayed to find that food that was good for his health was bad for his taste buds. But then his wife, Josie, cooked up a batch of turkey chili and convinced him that flavor and nutrition need not be mutually exclusive. Harper, 64, is a large, balding man with a slight stammer, an occasional fiery temper, and a genius for buying well-known, sometimes languishing companies at cheap prices. With a string of successful acquisitions, he has transformed ConAgra from a nearly bankrupt flour miller into the nation's most diversified food conglomerate, involved in goods from animal feed and poultry to breakfast muffins and popcorn. Two concepts power Harper's approach to buying and managing companies -- discipline and decentralization. ConAgra never let itself be seduced into paying inflated prices for acquisitions during the merger-manic 1980s. Nor has the company compromised its rigorous financial standards as it seeks to expand overseas, where it lags behind its competitors. Says Harper: ''We could go to Europe tomorrow and pay 30 times earnings for a company, but we couldn't meet our return objectives.'' ConAgra has hit those targets -- a return on shareholders' equity that exceeds 20% and annual earnings increases that top 14% -- for 16 straight years. Harper gives the managers of ConAgra's 60 operating companies great leeway in how to generate those returns. Says President Phil Fletcher, 58, who will probably become CEO when Harper relinquishes the post sometime in the next two years: ''It violates our principles to tell a company president what to do. But we do tell him exactly what we think of his plans.'' They sometimes express their thoughts with the expletives undeleted. But managers seem to thrive in the unbureaucratic climate. Hunt-Wesson President Al Crosson, who joined ConAgra when the company acquired Beatrice from KKR, says he likes the way ConAgra encourages new product development. ''Under KKR the attitude was, 'We own this big apartment house. Keep it full and clean, and don't do anything crazy.' With ConAgra it's, 'Let's get out and expand this thing.' '' Hunt-Wesson recently introduced a five-item line of Healthy Choice spaghetti sauce, which Crosson thinks could eventually double ConAgra's share of that market. For all its brand names, ConAgra remains a company that gets 30% of its revenues from beef, pork, and lamb -- cyclical industries with thin profit margins. The company promises that Extra Lean Ground Beef is but the first step in a campaign to transform those faceless commodities into valued-added consumer products. Says Fletcher: ''We'll have friendlier packages than those 80-pound boxes of beef coming in the back door of the supermarket.'' If ConAgra can keep the innovations coming, its profits should continue to be as juicy as its burgers.

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