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Service Corporation's (SCI) Q3 Earnings Top Estimates, View Up

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Service Corporation International (SCI - Free Report) posted splendid third-quarter 2021 results, with the top and the bottom line beating the Zacks Consensus Estimate. Revenues and earnings increased on a year-over-year basis. Consistent strength in comparable preneed cemetery sales production as well as growth in comparable preneed funeral sales production drove the results.

Increased funeral services performed as well as solid performance of preneed cemetery property sales encouraged management to raise the midpoint of the 2021 bottom-line view and the midpoint of the adjusted operating cash flow projection.

Shares of this renowned deathcare services and products company moved up 4.1% in the after-market trading session on Oct 27. This Zacks Rank #2 (Buy) stock has surged 29.1% so far this year compared with the industry’s growth of 25.8%.

Service Corporation International Price, Consensus and EPS Surprise

 

Service Corporation International Price, Consensus and EPS Surprise

Service Corporation International price-consensus-eps-surprise-chart | Service Corporation International Quote

 

Quarter in Detail

Service Corporation posted adjusted earnings of $1.16 per share, which easily surpassed the Zacks Consensus Estimate of 63 cents and increased 47% year over year. The year-over-year increase can be attributed to elevated gross profit associated with growth in funeral services performed, funeral sales average, cemetery atneed and recognized preneed revenues as well as higher recognized earnings from cemetery endowment care trust funds. The bottom line also gained from reduced shares outstanding as well as declines in corporate and general administrative expenses.

Total revenues of $1,034.4 million increased $116 million year over year from $918.2 million reported in the year-ago quarter. The upside can be attributed to increased funeral and cemetery revenues. The top line came ahead of the Zacks Consensus Estimate of $923.5 million.

Gross profit increased nearly $69 million to $333 million. Corporate general and administrative costs declined $4.5 million to $36.5 million due to a decline in workers’ compensation as well as lower general liability and auto liability insurance accruals in the reported period. The company saw favorable comparisons with elevated charitable contributions in the year-ago period. Operating income of $304.3 million increased from $223.2 million reported in the year-ago quarter.

Segment Discussion

Consolidated Funeral revenues rose to $592.3 million from $518.6 million reported in the year-ago quarter. Total comparable funeral revenues increased 13.6% year over year, mainly driven by solid growth in core funeral revenues, recognized preneed revenues and other revenues. Growth in core funeral revenues to the tune of 11.1% was driven by an increase in core average revenue per service as well as higher core funeral services performed. The comparable core cremation rate expanded 60 basis points (bps) to 52.8%. Non-funeral home revenues rose 16.7% owing to increased average revenue per service and services performed growth.

Comparable preneed funeral sales production increased 21.6% driven by continued growth in digital and direct mail leads along with the return of local marketing events and in-person seminars. The company witnessed a 21.1% increase at its core funeral locations and 23.6% growth in preneed production via the non-funeral home channel.

Comparable funeral gross profit increased $39.9 million to $163.8 million. The gross profit margin expanded 400 bps to 28.1%.

Consolidated Cemetery revenues came in at $442.1 million, up from $399.6 million reported in the year-ago quarter. Comparable cemetery revenues increased 10.6% year over year, mainly on growth in core revenues. The core revenue growth of $35.9 million was backed by a 19.5% increase in atneed revenues.
    
Comparable preneed cemetery sales production growth of 8.2% was fueled by impressive gains in sales averages and large sales activity. Comparable preneed cemetery sales production is benefiting from more productive and efficient sales force that utilizes the customer relationship management system efficiently. The sales averages gained on consistent investment in high-quality inventory at moderately higher price points.

Comparable cemetery gross profit came in at $168 million, up $28.2 million from the year-ago period’s levels. The gross profit margin increased from 35% to 38% in the reported quarter on higher revenues.

Other Financial Details

Service Corporation ended the quarter with cash and cash equivalents of $406.9 million, long-term debt of nearly $3,760 million and total equity of $1,941.9 million.

Net cash provided by operating activities amounted to $730.4 million during the nine months ended Sep 30, 2021. During the same timeframe, the company incurred capital expenditures of $74.6 million.

Management now expects adjusted net cash from operating activities to be $850-$925 million in 2021, up from $700-$775 million guided earlier. Expenditures associated with capital enhancements at current locations and cemetery development are still anticipated in the band of $235-$255 million.

Zacks Investment ResearchImage Source: Zacks Investment Research

Outlook

Considering the company’s consistent outperformance, management is lifting its midpoint of 2021 adjusted earnings per share (EPS) guidance by 95 cents to $4.30. The company now envisions adjusted EPS in the range of $4.15-$4.45 compared with $3.20-$3.50 projected earlier. We note that the company’s earnings came in at $2.91 per share in 2020.

The company is also raising the midpoint guidance for adjusted operating cash flow by $150 million to $888 million. The company now envisions the metric in the range of $850-$925 million compared with $700-$775 projected earlier. The company’s guidance for the year takes into account the continued uncertainty associated with the pandemic.

For the fourth quarter of fiscal 2021, the company expects adjusted EPS in the range of 74 cents to $1.04. Adjusted operating cash flow is anticipated in the range of $128-$203 million in the quarter.

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