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Service Corporation (SCI) Up on Solid Cemetery Unit, Expansions

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Service Corporation International (SCI - Free Report) has been benefiting from Robust Cemetery revenues. The deathcare products and services provider remains committed to pursuing strategic buyouts along with building funeral homes to generate greater returns. That said, the company has been facing escalated costs.

Let’s discuss further.

 

Zacks Investment ResearchImage Source: Zacks Investment Research

 

Cemetery Revenues Solid

Revenues in Service Corporation’s Cemetery segment have been increasing for the past few quarters. In the third quarter of 2021, consolidated cemetery revenues were $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 a more productive and efficient sales force that utilizes the customer relationship management system efficiently. Sales averages gained on consistent investment in high-quality inventory at moderately higher price points.

Focus on Expansion

Service Corporation has been making strategic investments to drive growth. In the nine months ended Sep 30, 2021, the company incurred a capital expenditure of $74.6 million.

On its last reported quarter’s earnings call, management highlighted that it deployed nearly $280 million of capital inthe third quarter of 2021. Through the move, the company reinvested the capital in businesses, expanded its footprint and returned capital to its shareholders. Of this, it invested $65 million in businesses, with $40 million spent as maintenance capital and $25 million as cemetery development capital. Taking about growth capital, management invested nearly $20 million on funeral home new-build opportunities, business acquisitions and real estate acquisition.

In 2018, the company deployed approximately $200 million toward acquisitions. Some notable acquisitions made by the company in the past areAlderwoods Group, Keystone North America, The Neptune Society, and Stewart Enterprises. Also, buyouts in the cemetery segment aim to exploit increased opportunities to cater to Baby Boomers.

Cost Hurdles

In the third quarter of 2021, Service Corporation witnessed some margin pressure in the cemetery segment from higher staffing and maintenance costs related to operating full-service cemeteries compared with a limited-service structure inthe year-ago quarter. The company also faced similar cost-related headwinds in the funeral segment. Apart from this, it also witnessed escalated fuel and energy-associated expenses. On its last reported quarter’s earnings call, management highlighted that it expects to encounter mild wage and supply-chain cost pressures in the near term.

The aforementioned upsides are likely to help the Zacks Rank #3 (Hold) company stay afloat amid such hurdles. The company’s stock has gained 18.6% in the past six months compared with the industry’s growth of 18.8%.

Better-Ranked Consumer Staple Bets

Some better-ranked companies are Helen of Troy Limited (HELE - Free Report) , Nu Skin Enterprises, Inc. (NUS - Free Report) and Hillenbrand, Inc. (HI - Free Report) .

Helen of Troy, the developer and distributor of a portfolio of consumer products worldwide, currently sports a Zacks Rank #1 (Strong Buy). Shares of HELE have gained 4.9% in the past six months.

The Zacks Consensus Estimate for Helen of Troy’s current financial year’s sales suggests growth of 0.8% from the year-ago reported figure. HELE has a trailing four-quarter earnings surprise of 19.1%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

Hillenbrand, a global diversified industrial company, currently carries a Zacks Rank #2 (Buy). Shares of HI have gained 17.4% in the past six months.

The Zacks Consensus Estimate for Hillenbrand’s 2022 sales suggests growth of 0.1% from the year-ago reported figure. HI has a trailing four-quarter earnings surprise of 14.9%, on average.

Nu Skin, which develops and distributes personal care and wellness products worldwide, currently carries a Zacks Rank #2. Shares of NUS have dipped 1.7% in the past six months.

The Zacks Consensus Estimate for Nu Skin’s current financial year’s sales suggests growth of 3.7% from the year-ago reported figure. NUS has a trailing four-quarter earnings surprise of 16.6%, on average.