So of course I'm generalizing, not everyone is like that, not everyone's CS degree is like that, etc. etc. Also, more true for recent grads.
But in my experience people with advanced "pure CS" degrees seem to be focused on the process not the result. I mean, they went to CS because they like to tinker with type systems, elegant algebraic concepts, nice abstract problems -- and not just as a hobby, they like it so much so they commited several years of their lifes to do that. Not that this is bad area of research, but generally when you look for a software engineer you look for someone not only smart but also pragmatic, who can get stuff done in a simple and efficient way, and this is kind of the opposite.
Of all PhDs, in my experience people who have degrees in areas that use programming as a tool not the goal in it self, e.g. physicis/EE, make the best software engineers.
Not sure that I agree on the choice of this specific "red flag"; on the other hand, having PhD in CS is a red-ish flag to me per se.