Yahoo Finance Service Corp International (SCI) (Q1 2024) Earnings Call Transcript Highlights: Mixed Financial ...
Adjusted Earnings Per Share (EPS): $0.89, a decline of $0.04 from the previous year.
Funeral Revenue: Decreased by $9 million, approximately 1% decline year-over-year.
Core Funeral Revenue: Increased by $4 million.
Nonfuneral Home Preneed Sales Revenue: Decreased by $12 million.
Funeral Gross Profit: Declined by $18 million; gross profit percentage down by 270 basis points to 22%.
Preneed Funeral Sales Production: Decreased by $8 million, about 2% decline.
Cemetery Revenue: Increased by $21 million, about 5% growth year-over-year.
Recognized Preneed Cemetery Revenue: Increased by $20 million, 7% growth.
Preneed Cemetery Sales Production: Grew by $24 million, almost 8% increase.
Cemetery Gross Profit: Increased by $3 million; gross profit percentage declined by 100 basis points to over 32%.
Adjusted Cash Flow from Operations: $220 million, flat compared to the prior year.
Capital Investments: Total of $103 million in the quarter for improvements and expansions.
Share Repurchases: $50 million, purchasing about 700,000 shares.
2024 EPS Guidance: Confirmed range of $3.50 to $3.80, with a midpoint of $3.65.
Release Date: May 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Service Corp International reported a robust increase in preneed cemetery sales, growing by $24 million or almost 8% over the prior year quarter.
The company confirmed its normalized earnings per share guidance range of $3.50 to $3.80 for 2024, indicating stable financial expectations.
Service Corp International generated an impressive adjusted cash flow from operations of $220 million, maintaining a strong cash flow performance.
The company made significant capital investments totaling $103 million in the quarter, aimed at improving existing facilities and expanding new growth opportunities.
Service Corp International successfully managed merchandise cost inflation through long-term agreements with inflationary caps, ensuring controlled operational costs.
Negative Points
Service Corp International experienced a decline in adjusted earnings per share from $0.93 to $0.89 compared to the previous year, indicating a slight decrease in profitability.
The company faced a decrease in funeral volumes by 3% compared to the prior year quarter, attributed to COVID pull-forward effects.
There was a notable decline in funeral gross profit by $18 million and a decrease in gross profit percentage by 270 basis points.
Preneed funeral sales production decreased by $8 million or about 2% over the first quarter of 2023, showing a dip in this revenue segment.
Service Corp International incurred higher cash interest payments during the quarter, amounting to $14 million due to higher weighted average interest rates and balances on floating rate debt.
Q & A Highlights
Q: Could you comment on the settlement reached with the California Attorney General regarding cremation practices? A: (Thomas Luke Ryan - Chairman, President & CEO) After about 8 years of discussions, we settled with the California Attorney General for $23 million, covering costs, penalties, and potential customer refunds, with no admission of wrongdoing. The settlement also involves operational changes, particularly in California, affecting how we handle preneed contracts and merchandise delivery. These changes will streamline our SCI Direct model, transitioning to an insurance-funded product which should enhance revenue and customer protection.
Q: With the expiration of the standstill arrangement with Stewart, how do you see the acquisition opportunities in markets previously restricted? A: (Thomas Luke Ryan - Chairman, President & CEO) The expiration allows us to participate in markets where we already have a presence, potentially making any new acquisitions there more accretive. We have a robust pipeline for the year, and the ability to engage without prior FTC approval for transactions under $120 million enhances our competitiveness.
Q: Can you discuss the trends in cemetery preneed production, which was up almost 8%? A: (Thomas Luke Ryan - Chairman, President & CEO) The increase was driven by strong Qingming sales and a 19% growth in large sales. Core products also grew by 6%, reflecting robust market activity across various regions. Our sales teams are leveraging digital leads and improved follow-ups, which helps mitigate the impact of lower funeral volumes due to the COVID pull-forward effect.
Q: What are your thoughts on the FTC funeral rule update? A: (Eric D. Tanzberger - Senior VP & CFO) We have maintained a good relationship with the FTC and provided our inputs. We don't foresee any changes from the updated rule that would materially affect our operations or financial projections. The rule is seen as beneficial for the industry overall.
Q: How is expense inflation, particularly wages and merchandise costs, trending in 2024 compared to last year? A: (Thomas Luke Ryan - Chairman, President & CEO) Merchandise cost inflation is well-managed through long-term contracts with capped inflation rates. Wage inflation, which was above 4% in previous years, is normalizing to high 3% levels in 2024. We continue to manage these costs effectively across our operations.
Q: Could you provide insights into your capital deployment strategy, particularly regarding acquisitions and share repurchases? A: (Eric D. Tanzberger - Senior VP & CFO) Our capital deployment remains robust, with a strong bias towards share repurchases at current levels. We've also been active in acquisitions, particularly in the funeral home and cremation sectors, and expect to be at the higher end of our investment target for 2024. The strategy is balanced with prudent debt management and maintaining operational flexibility.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
