Matthews International Corp. (NASDAQ:MATW)

On January 11, 2018, AlphaWeek reported (“Spruce Point Shorts Matthews International”) that Spruce Point Capital Management (“Spruce Point”) released a statement detailing a “strong sell” position for Matthews International Corp.

Spruce Point on Matthews International: “Poorly Organized,” “Declining Financial Performance,” “Accounting and Financial Control Weakness,” & “Nearly $1 Billion of Debt”

As reported by AlphaWeek from Spruce Point’s January 11, 2018 MATW statement:

Spruce Point has conducted a forensic financial review of MATW and believes it to be a poorly organized company suffering from operational problems, declining financial performance, accounting and financial control weakness, and is excessively levered with nearly $1 billion of debt and limited covenant cushion. Based on our research opinions, [Spruce Point Capital] believe[s] investors and the public would be best served with the immediate resignation of MATW’s CEO, CFO and Controller. [Emphasis added]

As a result, [Spruce Point Capital] . . . issued a “Strong Sell” opinion and a long-term price target of approximately $18.50 – $24.50 per share, or approximately 55% to 65% downside risk. [Emphasis added]

Further, as reported by AlphaWeek from Spruce Point’s MATW release:

Poorly Organized Company With Significant Fundamental Headwinds:

Matthews Int’l . . . is comprised of three unrelated businesses in the death care (“Memorialization”), branding and packaging services (“SGK Brand Solutions”), and Industrial Technologies. In [Spruce Point’s] view, each business is mediocre and struggling from a variety of issues, resulting in organic sales to decline in aggregate. In Memorialization, cremation rates are rising causing less casket sales, cheaper imports from China are causing price and margin compression, while virtual memorials are an easy substitute for MATW’s bronze/granite structures. Matthews SGK business is being weighed down by spending deferrals of consumer packaging companies and FDA regulatory delays. Its Industrial Technology business (just 9% of sales) has margins near all-time lows while management has been investing for years into R&D for “new product development” with little details provided to investors; at best, it is a carrot to bait investors for some upside amongst its portfolio of lagging businesses[.] [Emphasis Added]

Recent Acquisitions Have Failed To Deliver:

Hoping to spark growth, MATW has completed 10 acquisitions since FY 2013 and spent $1.0 billion. Its two largest acquisitions were Schawk ($616m/Brand Solutions/2014) and Aurora Products ($219m/Memorialization/2015). Based on our research, these deals have failed miserably to meet expectations. As a result, MATW is bloated and saddled with declining organic growth of 1-3% in Memorialization and 3-5% in Branding. All along, MATW has been promoting how its ERP investment would yield great benefits and allow for seamless acquisitions, but after six years of implementation (average implementation time is 21 months), investors have no clue how much MATW has spent on this project, and not a single accounting disclosure has been made on its software amortization policies. Don’t be shocked that years ago Schawk admitted software capitalization accounting issues[.] [Emphasis added]

Mounting Evidence of Dubious Financial Results:

MATW has taken classic measures to obscure its problems such as realigning segment reporting and promoting highly “adjusted” figures. MATW has reported $176.8m of pre-tax charges since 2012 (with ~$165m related to acquisitions and strategic cost reductions). Charges have totaled a whopping 16% of its deal costs. When put into context of other successful calls Spruce Point has made identifying companies struggling to integrate targets (eg. NCR, ACM, ECHO, CECE, GEF), MATW is the worst we’ve ever seen! When we look closer at its operational footprint, we find little evidence that it has accomplished anything. SG&A margin is rising as are other fixed cost of operations. Not surprisingly, management is now touting “adjusted free cash flow” metrics, which we think overstates 3yr cumulative cash flow by nearly 30%. With sales slowing, and accounts receivables ballooning, Matthews quietly initiated an accounts receivable securitization facility in April 2017; in our view, a tacit admission by the Company its cash flow isn’t as robust as it appears[.] [Emphasis added]

AlphaWeek also reported about Spruce Point’s discussion of MATW’s “debt ballooning to near a billion dollars with little covenant cushion,” MATW’s “serious financial control issues,” and Spruce Point’s view that its “sum-of-parts valuation implies $18.50-$24.50 or approximately 55% – 65% downside.”

Matthews International Share Price Decline 

On the news of Spruce Point’s information, MATW’s share price fell sharply during intraday trading on January 11, 2018.

MATW Matthews International Stock Chart

Matthews International Shareholders

On behalf of Matthews International Corp. investors, Kehoe Law Firm, P.C. is investigating whether MATW engaged in securities fraud or other unlawful business practices. MATW investors with questions or concerns can contact John Kehoe, Esq, (215) 792-6676, Ext. 801, [email protected], complete the form above on the right or e-mail [email protected].

Kehoe Law Firm, P.C.