Why Is Service Corp. (SCI) Up 8.3% Since Last Earnings Report?

A month has gone by since the last earnings report for Service Corp. (SCI). Shares have added about 8.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Service Corp. due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Service Corporation Q1 Earnings Lag Estimates, Down Y/Y

Service Corporation International posted first-quarter 2020 results, with earnings missing the Zacks Consensus Estimate and revenues beating the same. Further, earnings declined year over year. Sales were up slightly year over year owing to improved performance in the funeral segment.

Given the current situation related to the coronavirus outbreak and its unpredictable impact on economic activities, Service Corporation has withdrawn its 2020 guidance. The company expects the coronavirus pandemic to negatively impact its adjusted earnings per share in 2020. Nevertheless, it is undertaking a number of cost-control measures to minimize these negative impacts.

Also, management anticipates adjusted operating cash flow to be less impacted than adjusted earnings per share on the back of continued cash collection from preneed installment sales, deferred taxes as well as reduced costs and capital expenditures.

Q1 in Detail

Service Corporation reported adjusted earnings of 43 cents per share, which lagged the Zacks Consensus Estimate of 45 cents. Further, the bottom line fell 8.5% from the year-ago quarter’s figure due to reduced gross profit stemming from lower preneed cemetery property revenues induced by the coronavirus pandemic. Nevertheless, lower corporate general and administrative costs along with reduced interest expenses offer some respite.

Total revenues of $803 million inched up 0.6% from $798.2 million in the year-ago quarter, backed by increased funeral revenues. Moreover, the figure beat the consensus mark of $793 million.

Corporate general and administrative costs fell 26% to $31.8 million. Additionally, the company’s interest costs fell 6.4% to $44.4 million in the reported quarter.

Segment Discussion

Comparable Funeral revenues inched up 1.6% year over year, backed by improved preneed revenues along with higher core revenues. Core revenues rose on the back of increased funeral services performed and higher average revenue per service conducted. Recognized preneed revenues improved 4.2%.

Comparable preneed funeral sales production declined 7.2% due to fall in preneed production in non-funeral home channel and an increase in core funeral locations.

Comparable funeral gross profit declined 2.7% to $102.9 million. Also, the gross profit margin contracted 90 basis points (bps) to 20.7% due to increased employee-related expenses and rise in doubtful account reserves.

Comparable Cemetery revenues fell 2.4% year over year due to decline in recognized preneed property revenues. This was partly offset by increase in recognized preneed merchandise and service revenues along with higher atneed sales. Comparable preneed cemetery sales production declined 10.5%.

Comparable cemetery gross profit declined 12.8% to $75.3 million and the respective margin contracted 300 bps to 25.3%. The decline can be attributable to reduced cemetery sales as well as higher employee-related costs, increased maintenance expenses and an increase in doubtful account reserves.

Other Financial Details

The company ended the quarter with cash and cash equivalents of $176.3 million, long-term debt of $3,535.8 million and total equity of $1,751.1 million.

Net cash provided by operating activities amounted to $180 million in the quarter compared with $184.9 million in the prior-year quarter. During the first quarter, the company incurred capital expenditures of $52.3 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -12.25% due to these changes.

VGM Scores

Currently, Service Corp. has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Service Corp. has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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