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Service Corporation (SCI) Gains on Expansion, Hurt by Cost Woes
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Service Corporation International (SCI - Free Report) ) looks well placed, thanks to its focus on expansion. Also, at its third-quarter earnings call, management stated that the number of funeral services performed is trending better than expectations. Cemetery preneed sales production remains strong too.
However, lower atneed revenues in the Cemetery segment are a concern. Apart from this, the company is encountering escalated cost concerns. Let’s delve deeper.
Main Concerns
Cemetery segment revenues have been declining year over year for the past few quarters now. In the third quarter of 2022, consolidated Cemetery revenues came in at $423.8 million, down from $442.1 million reported in the year-ago quarter. Comparable cemetery revenues decreased 4.7%, mainly due to softcore and other revenues. Core revenues fell $17.5 million due to lower atneed revenues. Comparable preneed cemetery sales production rose 5% due to continued strength in sales average. However, this was partly negated by a decline in contract velocity.
Service Corporation is encountering inflationary pressure. In the third quarter of 2022, The gross profit decreased to nearly $231 million from around $338 million reported in the year-ago quarter. Corporate general and administrative costs were $41.9 million compared with $41.5 million in the year-ago period. The slight increase was mainly due to higher workers’ compensations and general liability, somewhat compensated by lower incentive compensation costs.
The operating income of $203.4 million decreased from $304.3 million reported in the year-ago quarter. These factors also weighed on the bottom line, which declined year over year in the quarter under review. The continuation of such trends remains a concern. Also, management expects persistent pressure from increasing interest costs on its floating rate debt, which is expected to be reflected in the fourth quarter.
Service Corporation International Price, Consensus and EPS Surprise
Service Corporation remains committed to pursuing strategic buyouts for both its segments and building new funeral homes to generate greater returns. During the nine months ended Sep 30, 2022, the company incurred capital expenditures of $252.8 million, which included higher capital improvements at existing field locations, corporate systems development, and cemetery development expenditures.
Management now expects capital improvement at existing field locations, corporate systems development and cemetery development expenditures in the band of $280-$300 million in 2022.
Moving to acquisitions, Service Corporation concluded a minor $2-million deal in the mid-Atlantic region in the second quarter of 2022. After the third quarter, it purchased several funeral home and cemetery locations on the West Coast for nearly $40 million. On its third-quarter earnings call, management stated that it remains encouraged about its acquisition pipeline. Some notable acquisitions made by the company in the past include Alderwoods Group, Keystone North America, The Neptune Society, and Stewart Enterprises. Also, buyouts in the cemetery segment are aimed at exploiting increased opportunities to cater to Baby Boomers.
A Look at Q3 & Ahead
The company posted third-quarter 2022 results, with the top and bottom lines beating the Zacks Consensus Estimate. Service Corporation posted adjusted earnings of 68 cents per share, surpassing the Zacks Consensus Estimate of 51 cents. Total revenues of $977.7 million came ahead of the Zacks Consensus Estimate of $880 million. Though revenues declined year over year, it was mainly due to a tough comparison with the year-ago period, which was impacted by increased pandemic-led deaths. Notably, the company witnessed better-than-expected growth compared with the third quarter of 2019 (pre-pandemic period).
Encouragingly, management raised its guidance for 2022. Service Corporation now expects adjusted earnings per share (EPS) in the range of $3.60-$3.80, up from the earlier guidance of $3.30-$3.70. We note that the company’s earnings came in at $4.57 per share in 2021.
All said we believe that the abovementioned upsides are likely to keep Service Corporation’s growth story going. Shares of the Zacks Rank #3 (Hold) company have risen 7.7% in the past year compared with the industry’s growth of 5%.
Inter Parfums, a manufacturer, marketer and distributor of a range of fragrances and fragrance-related products, currently sports a Zacks Rank #1 (Strong Buy). IPAR has a trailing four-quarter earnings surprise of 27.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Inter Parfums’ 2023 sales and earnings suggests growth of 5.8% and 5.3%, respectively, from the corresponding year-ago reported figures.
e.l.f. Beauty, which provides cosmetic and skin care products, currently sports a Zacks Rank #1. ELF has a trailing four-quarter earnings surprise of 92.8%, on average.
The Zacks Consensus Estimate for e.l.f. Beauty’s current fiscal-year sales and EPS suggests an increase of 24.8% and 33.3%, respectively, from the year-ago reported number.
Philip Morris, which is a tobacco products behemoth, currently carries a Zacks Rank of 2 (Buy). PM has a trailing four-quarter earnings surprise of 9.9%, on average.
Philip Morris has an expected EPS growth rate of 5% for three to five years.
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Service Corporation (SCI) Gains on Expansion, Hurt by Cost Woes
Service Corporation International (SCI - Free Report) ) looks well placed, thanks to its focus on expansion. Also, at its third-quarter earnings call, management stated that the number of funeral services performed is trending better than expectations. Cemetery preneed sales production remains strong too.
However, lower atneed revenues in the Cemetery segment are a concern. Apart from this, the company is encountering escalated cost concerns. Let’s delve deeper.
Main Concerns
Cemetery segment revenues have been declining year over year for the past few quarters now. In the third quarter of 2022, consolidated Cemetery revenues came in at $423.8 million, down from $442.1 million reported in the year-ago quarter. Comparable cemetery revenues decreased 4.7%, mainly due to softcore and other revenues. Core revenues fell $17.5 million due to lower atneed revenues. Comparable preneed cemetery sales production rose 5% due to continued strength in sales average. However, this was partly negated by a decline in contract velocity.
Service Corporation is encountering inflationary pressure. In the third quarter of 2022, The gross profit decreased to nearly $231 million from around $338 million reported in the year-ago quarter. Corporate general and administrative costs were $41.9 million compared with $41.5 million in the year-ago period. The slight increase was mainly due to higher workers’ compensations and general liability, somewhat compensated by lower incentive compensation costs.
The operating income of $203.4 million decreased from $304.3 million reported in the year-ago quarter. These factors also weighed on the bottom line, which declined year over year in the quarter under review. The continuation of such trends remains a concern. Also, management expects persistent pressure from increasing interest costs on its floating rate debt, which is expected to be reflected in the fourth quarter.
Service Corporation International Price, Consensus and EPS Surprise
Service Corporation International price-consensus-eps-surprise-chart | Service Corporation International Quote
The Upsides
Service Corporation remains committed to pursuing strategic buyouts for both its segments and building new funeral homes to generate greater returns. During the nine months ended Sep 30, 2022, the company incurred capital expenditures of $252.8 million, which included higher capital improvements at existing field locations, corporate systems development, and cemetery development expenditures.
Management now expects capital improvement at existing field locations, corporate systems development and cemetery development expenditures in the band of $280-$300 million in 2022.
Moving to acquisitions, Service Corporation concluded a minor $2-million deal in the mid-Atlantic region in the second quarter of 2022. After the third quarter, it purchased several funeral home and cemetery locations on the West Coast for nearly $40 million. On its third-quarter earnings call, management stated that it remains encouraged about its acquisition pipeline. Some notable acquisitions made by the company in the past include Alderwoods Group, Keystone North America, The Neptune Society, and Stewart Enterprises. Also, buyouts in the cemetery segment are aimed at exploiting increased opportunities to cater to Baby Boomers.
A Look at Q3 & Ahead
The company posted third-quarter 2022 results, with the top and bottom lines beating the Zacks Consensus Estimate. Service Corporation posted adjusted earnings of 68 cents per share, surpassing the Zacks Consensus Estimate of 51 cents. Total revenues of $977.7 million came ahead of the Zacks Consensus Estimate of $880 million. Though revenues declined year over year, it was mainly due to a tough comparison with the year-ago period, which was impacted by increased pandemic-led deaths. Notably, the company witnessed better-than-expected growth compared with the third quarter of 2019 (pre-pandemic period).
Encouragingly, management raised its guidance for 2022. Service Corporation now expects adjusted earnings per share (EPS) in the range of $3.60-$3.80, up from the earlier guidance of $3.30-$3.70. We note that the company’s earnings came in at $4.57 per share in 2021.
All said we believe that the abovementioned upsides are likely to keep Service Corporation’s growth story going. Shares of the Zacks Rank #3 (Hold) company have risen 7.7% in the past year compared with the industry’s growth of 5%.
Better Consumer Staple Stocks to Grab
Some better-ranked stocks are Inter Parfums (IPAR - Free Report) , Philip Morris (PM - Free Report) and e.l.f. Beauty, Inc. (ELF - Free Report) .
Inter Parfums, a manufacturer, marketer and distributor of a range of fragrances and fragrance-related products, currently sports a Zacks Rank #1 (Strong Buy). IPAR has a trailing four-quarter earnings surprise of 27.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Inter Parfums’ 2023 sales and earnings suggests growth of 5.8% and 5.3%, respectively, from the corresponding year-ago reported figures.
e.l.f. Beauty, which provides cosmetic and skin care products, currently sports a Zacks Rank #1. ELF has a trailing four-quarter earnings surprise of 92.8%, on average.
The Zacks Consensus Estimate for e.l.f. Beauty’s current fiscal-year sales and EPS suggests an increase of 24.8% and 33.3%, respectively, from the year-ago reported number.
Philip Morris, which is a tobacco products behemoth, currently carries a Zacks Rank of 2 (Buy). PM has a trailing four-quarter earnings surprise of 9.9%, on average.
Philip Morris has an expected EPS growth rate of 5% for three to five years.