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Service Corp. (SCI) Down 2.7% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Service Corp. (SCI - Free Report) . Shares have lost about 2.7% in that time frame, outperforming the S&P 500.

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

Service Corporation  Q1 Earnings Top Estimates, View Up

Service Corporation International posted splendid first-quarter 2022 results, with the top and the bottom line beating the Zacks Consensus Estimate and increasing on a year-over-year basis.

Service Corporation posted the adjusted earnings of $1.34 per share, surpassing the Zacks Consensus Estimate of 99 cents. The metric increased by 2 cents from the $1.32 reported in the year-ago quarter. The upside can be attributed to the increased gross profit (from recent buyouts and new builds) as well as reduced shares outstanding. Both the funeral and cemetery units delivered robust performances.

Total revenues of $1,112.4 million increased by 3.2% year over year. The upside can be attributed to increased funeral and cemetery revenues. The top line came ahead of the Zacks Consensus Estimate of $1,023 million.
 
The gross profit decreased to $376.9 million from $382.4 million reported in the year-ago quarter. Corporate general and administrative costs remained in line with the year-ago period level of $41.7 million. The operating income of $335.7 million increased from $342 million reported in the year-ago quarter.

Interest expenses escalated by $3.2 million to $39.0 million during the first quarter of 2022, mainly due to the issuance of fixed rate bonds in 2021.

Consolidated Funeral revenues rose to $649.1 million from $619.4 million reported in the year-ago quarter. Total comparable funeral revenues grew 2.9%, led by growth in core funeral revenues as well as recognized preneed revenues. Growth in core funeral revenues (of 1.7%) was driven by an increase in the core average revenue per service, partly negated by lower core funeral services performed, with the comparable core cremation rate rising 120 basis points (bps). Recognized preneed revenues increased by 2.9%. Comparable preneed funeral sales production increased by 16.7%. The upside can be attributed to a rise in velocity and sales averages as the company continues to gain on elevated leads.

The comparable funeral gross profit fell $2.1 million to $193.4 million. The gross profit percentage came in at 30.4%, down 120 bps year over year. Funeral margins were affected by increased costs stemming from normalized staffing and service levels along with higher incentive compensations.

Consolidated Cemetery revenues came in at $463.3 million, up from $458.5 million reported in the year-ago quarter. Comparable cemetery revenues increased by 0.2% due to a rise in other revenues, largely offset by lower core revenues. Core revenues decreased due to lower atneed revenues and a decline in recognized preneed revenues. The comparable cemetery gross profit declined by $9.6 million to $178.5 million. The comparable gross profit percentage came in at 38.9%, down from the 41% reported in the year-ago quarter. The company saw modest cost inflation and increased incentive compensations.
 
Comparable preneed cemetery sales production grew 10.9%, led by increased quality sales averages and elevated sales activity. Comparable preneed cemetery sales production benefited from a better productive and efficient sales force. Sales averages gained from continued investments in the high-quality inventory at moderately-increased price points.

Other Financial Details & Guidance

The company ended the quarter with cash and cash equivalents of $300.6 million, long-term debt of $3,962.9 million and total equity of $1,842.6 million. Net cash from operating activities amounted to $332.2 million during the three months ended Mar 31, 2022. During the same period, the company incurred capital expenditures of $56.7 million.

Management raised its bottom-line and adjusted cash flow guidance for 2022, which reflects robust first-quarter earnings, mainly related to escalated funeral services performed as well as increased preneed cemetery sales. Apart from this, management increased its estimates for preneed cemetery sales production and cemetery revenues for the remainder of 2022.

The company expects the midpoint of adjusted earnings per share (EPS) to come in at $3.50 compared with the earnings of $3.00 projected earlier. The company envisions the adjusted EPS in the range of $3.00-$3.70 in 2022 compared with the earlier view of the $2.80-$3.20 band. We note that the company’s earnings came in at $4.57 per share in 2021.

Net cash provided by operating activities (excluding special items) in 2022, is anticipated in the range of $750-$800 million now, up from the $675-725 million range expected earlier. Management expects capital improvements at existing locations and cemetery development expenditures in the band of $270-$290 million during this time.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

The consensus estimate has shifted 13.1% due to these changes.

VGM Scores

Currently, Service Corp. has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

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

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Service Corp. has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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