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Service Corporation (SCI) Q2 Earnings Top Estimates, Sales Up

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Service Corporation International (SCI - Free Report) posted second-quarter 2022 results, with the top and the bottom line beating the Zacks Consensus Estimate. Revenues increased year over year while earnings declined. Although the company reported lower earnings in the quarter, it continued to perform more services and generate escalated preneed cemetery sales.

Management reiterated its guidance for adjusted earnings and adjusted operating cash flow in 2022.

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 84 cents per share, surpassing the Zacks Consensus Estimate of 82 cents. However, the metric decreased 8 cents from 92 cents reported in the year-ago quarter. The downside can be attributed to lower gross profit associated with reduced COVID-19-related activity and reduced trust fund income. Higher corporate and general administrative expenses and increased interest and taxes were also headwinds. These factors were somewhat offset by gains from recent acquisitions and new builds of funeral homes and cemeteries and a reduced number of shares outstanding.

Total revenues of $990.9 million increased from $987.5 million reported in the year-ago quarter. The upside can be attributed to increased funeral revenue. The top line came ahead of the Zacks Consensus Estimate of $956.3 million.

Gross profit decreased to $266.6 million from $273.3 million reported in the year-ago quarter. Corporate general and administrative costs increased to $45.7 million from $33.6 million mainly due to the timing of favorable adjustments to workers’ compensation, general liability and incentive compensation costs in the year-ago quarter. Management also incurred $3 million on increased expenses associated with a long-term incentive compensation plan. Operating income of $221.2 million decreased from $245.8 million reported in the year-ago quarter.

Segment Discussion

Consolidated Funeral revenues rose to $548.8 million from $531.7 million reported in the year-ago quarter. Total comparable funeral revenue increased 1.8%, mainly fueled by growth in core funeral revenue and recognized preneed revenue. These were somewhat offset by lower other revenue. Core funeral revenue inched up 0.8%, courtesy of higher core average revenue per service. Recognized preneed revenue jumped 27.5%, driven by higher non-funeral home preneed sales production.

Comparable preneed funeral sales production increased 2.5%. Comparable funeral gross profit increased rose $3.5 million to $116.5 million. The gross profit percentage expanded 30 basis points (bps) to 21.6%, mainly fueled by solid revenue growth.

Consolidated Cemetery revenues came in at $442 million, down from $455.8 million reported in the year-ago quarter. Comparable cemetery revenues decreased 4%, mainly due to softcore and other revenues. Core revenues fell $11.7 million on reduced preneed cemetery sales production.

Comparable preneed cemetery sales production declined 3.1% due to a decline in the velocity of contracts sold. This was somewhat offset by better than anticipated sales average per contract growth. Comparable cemetery gross profit fell from $14.1 million to $147.4 million. The gross profit percentage contracted to 33.7%, from 35.4% reported in the year-ago quarter.

Other Financial Details

The Zacks Rank #3 (Hold) company ended the quarter with cash and cash equivalents of $206.2 million, long-term debt of $3,954.5 million and total equity of $1,839.6 million.

Net cash from operating activities amounted to $472.9 million during the six months ended Jun 30, 2020. During the same timeframe, the company incurred capital expenditures of $152.4 million.

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2022 Outlook

The company expects adjusted earnings per share (EPS) in the range of $3.30-$3.70. 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 and cash taxes) is anticipated in the range of $940-980 million in 2022. Net cash provided by operating activities (excluding special items) is anticipated in the range of $750-800 million in 2022. Management expects capital improvements at existing locations and cemetery development expenditures in the band of $270-$290 million during this time.

Service Corporation’s shares have gained 17.4% in the past six months compared with the industry’s 8.8% growth.

3 Hot Staple Bets

Some better-ranked stocks are United Natural Foods (UNFI - Free Report) , The Chef's Warehouse (CHEF - Free Report) and General Mills, Inc. (GIS - Free Report) .

United Natural Foods distributes natural, organic, specialty, produce and conventional grocery and non-food products. UNFI currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for UNFI’s current financial year sales suggests 7.6% growth from the year-ago period’s reported figures. United Natural Foods has a trailing four-quarter earnings surprise of 29.9%, on average.

Chef’s Warehouse, a distributor of specialty food products in the United States, currently flaunts a Zacks Rank #1. CHEF has a trailing four-quarter earnings surprise of 355.9%, on average.

The Zacks Consensus Estimate for Chef Warehouse’s current financial-year sales suggests growth of 40.7%from the year-ago reported numbers.

General Mills, which manufactures and markets branded consumer foods worldwide, currently carries a Zacks Rank of 2 (Buy). GIS has a trailing four-quarter earnings surprise of 6.5%, on average.

The Zacks Consensus Estimate for General Mills’ current financial-year sales and earnings per share suggests growth of almost 2% and 1.5%, respectively, from the corresponding year-ago reported figures.