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Service Corporation (SCI) Looks Poised on Funeral Segment

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Service Corporation International (SCI - Free Report) is poised for growth due to the steady demand for its products and services. The deathcare products and services provider has been gaining from its solid Funeral segment and focus on expansion. That said, the company is battling some inflationary cost increases related to normalized staffing and service levels along with higher incentive compensations.

Let’s delve deeper.

Upsides

Service Corporation remains committed to pursuing strategic buyouts for both its segments and building new funeral homes to generate greater returns. During the three months ended Mar 31, 2022, the company incurred capital expenditures of $56.7 million, which included higher investments in technology and associated infrastructure projects at the company’s cemetery and funeral locations. SCI also made investments in cemetery property development. Management expects capital improvements at existing locations and cemetery development expenditures in the band of $270-$290 million during 2022.

Revenues in the Funeral segment have been increasing for quite some time now. In the first quarter of 2022, consolidated Funeral revenues rose to $649.1 million from the $619.4 million reported in the year-ago quarter, reflecting a 4.8% rise. Total comparable funeral revenues grew 2.9%, led by growth in core funeral revenues and recognized preneed revenues. Growth in core funeral revenues (of 1.7%) was driven by an increase in the core average revenue per service. 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. Management stated that the percentage of families opting to have funerals has reverted to pre-pandemic levels. Also, the funeral sales average is being boosted by a rise in other revenues, including flowers and catering. The continuation of such trends bodes well for the segment.

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Not All Is Rosy for SCI

In the first quarter of 2022, Service Corporation witnessed some inflationary cost increases related to normalized staffing and service levels along with higher incentive compensations. The overall gross profit decreased to $376.9 million from the $382.4 million reported in the year-ago quarter.

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

Wrapping Up

On its last earnings call, Service Corporation raised its bottom-line and adjusted cash flow guidance for 2022, which suggests robust first-quarter earnings, mainly related to escalated funeral services performed and 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.

Shares of this Zacks Rank #3 (Hold) company have rallied 6.8% in the past six months compared to the industry’s decline of 4.1%.

3 Solid Staple Stocks

Some better-ranked stocks are Sysco Corporation (SYY - Free Report) , The Chef's Warehouse (CHEF - Free Report) and Campbell Soup (CPB - Free Report) .

The Chef's Warehouse, which engages in the distribution of specialty food products, sports a Zacks Rank #1 (Strong Buy). The Chef's Warehouse has a trailing four-quarter earnings surprise of 372.3%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for CHEF’s current financial-year EPS suggests significant growth from the year-ago reported number.

Sysco, which engages in marketing and distributing various food and related products, sports a Zacks Rank #1. Sysco has a trailing four-quarter earnings surprise of 9.1%, on average.

The Zacks Consensus Estimate for SYY’s current financial-year sales and EPS suggests growth of 32.6% and 124.3%, respectively, from the year-ago reported number.

Campbell Soup, which manufactures and markets food and beverage products, currently carries a Zacks Rank #2 (Buy). Campbell Soup has a trailing four-quarter earnings surprise of 10.8%, on average.

The Zacks Consensus Estimate for CPB’s current financial-year sales suggests growth of 0.5% from the year-ago reported figure.