CSS Industries, Inc. (NYSE:CSS) announced today the results of operations for the three and nine months ended December 31, 2010. For the quarter ended December 31, 2010, sales decreased 4% to $174,621,000 compared to $182,230,000 in 2009. Net income increased 1% to $12,855,000, or $1.32 per diluted share, compared to prior year net income of $12,700,000, or $1.31 per diluted share last year. For the nine months ended December 31, 2010, sales decreased by 2% to $387,854,000 from $396,180,000 in 2009 while net income decreased 9% to $15,583,000, or $1.61 per diluted share compared to prior year net income of $17,102,000, or $1.77 per diluted share. The Company’s highly seasonal orientation results in operating losses in the first and fourth quarters of the fiscal year and operating profits in the second and third quarters.

Third Quarter Results

Sales for the third quarter of fiscal 2011 were down 4% as compared to the prior year, primarily due to lower sales of Christmas wrapping paper. Net income was positively impacted by lower costs of goods sold and lower selling, general and administrative and interest expenses. The lower costs of goods sold were primarily due to lower labor and materials costs. The lower selling, general and administrative expenses were largely payroll related, and the lower interest expense was primarily due to a reduction in outstanding debt balances.

Nine Month Results

Sales for the first nine months of fiscal 2011 were down slightly as compared to the prior year. Consistent with the third quarter results, net income was positively impacted by lower costs of goods sold and lower selling, general and administrative and interest expenses.

Management Comments

“Our third quarter earnings per diluted share slightly exceeded last year as our reduced spending in costs of goods sold and selling, general and administrative and interest expenses offset the sales decline,” said Christopher J. Munyan, CSS’ President and CEO. “While sales in the third quarter of this year were 4% below the prior year, we continue to believe that we are making progress in the market and that sales will start to gradually improve. Looking forward, we continue to believe that improved operational efficiencies and processes that we have already implemented, combined with expected higher sales in the fourth quarter of fiscal 2011 versus the fourth quarter of fiscal 2010, will result in improved profitability in the fourth quarter of fiscal 2011 as compared to the fourth quarter of fiscal 2010 (before the net impact of the non-cash impairment charge recorded in the fourth quarter of 2010). Additionally, we focus on cash flow generation, and we continue to expect that free cash flow (defined as cash flow from operations reduced by purchases of property, plant and equipment) for fiscal 2011 will be at least $25,000,000.”