CSS Industries: Strong Free Cash Flows

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CSS Industries: Strong Free Cash Flows

CSS Industries: Strong Free Cash Flows

Last fall I wrote about American Greetings Corporation (NYSE: AM), a designer, manufacturer and wholesaler of greeting cards and other gift-related accessories (gift wrap, party goods, etc). I concluded that the company’s dual class share structure had led to a number of wasteful acquisitions:

With AM, I see a company that generates significant free cash flows but lacks the focus to use these free cash flows in the most efficient manner. This makes it ripe for an acquisition by a more focused acquirer (LBO shops should take note of its significant free cash flows and mature industry). If not for the dual class share structure, AM would be a perfect target for an activist hedge fund. Unfortunately, there is no evidence the former will happen and the latter cannot happen until they change their share structure (a highly unlikely event). Translation: an investor today is likely to witness continued lackluster returns as the industry continues to contract, and further shareholder capital wasted on acquisitions as management attempts to transform itself into a technology company. For this reason, I ignore the value I see in the company’s real estate and free cash flows.

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