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Service Corp (SCI) Stock Dips 19.5% YTD: What's Hurting It?
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Shares of Service Corporation International (SCI - Free Report) have tumbled since the beginning of this year. The decline in share price primarily reflects the adverse impacts of tough macroeconomic trends, increasing interest rates, and higher operating costs and expenses.
Year to date, the Zacks Rank #4 (Sell) company’s shares have lost 19.5% compared with the industry’s and sector’s declines of 13.5% and 12.7%, respectively.
What’s Ailing the Stock?
Service Corp remains concerned about the inflationary environment and its related impact on consumer discretionary spending, as well as the impact of high-interest rates. It expects 2023 adjusted earnings per share in the range of $3.40-$3.60 compared with $3.45-$3.75 expected earlier. This reflects a decline from earnings of $3.80 per share in 2022.
The company has been encountering rising operating costs and expenses for a while now. For instance, in the second quarter of 2023, its revenue costs increased 3.8% year-over-year to $752 million. Its interest expenses increased 46.6% to $59.5 million in the same quarter.
As a result, the gross profit declined to $261.5 million from $266.6 million reported in the year-ago quarter. These factors also weighed on the bottom line, which declined year over year in the quarter. SCI expects continued pressure from rising interest costs on its variable-rate debt, which had a 9-cent per share negative impact on second-quarter earnings.
Service Corp’s high debt level also poses a concern. It exited the second quarter with a long-term debt of $4,452.4 million, indicating an increase of 4.7% on a sequential basis. In the first six months of 2023, SCI incurred capital expenditures of $177 million. Considering its high debt level, its cash and cash equivalents of $172.5 million (exiting the second quarter) do not look promising.
The company’s earnings estimate declined over the past couple of months, with four downward estimate revisions for 2023. The Zacks Consensus Estimate for 2023 EPS has declined from $3.51 to $3.46 over the past 60 days.
Celsius Holdings offers functional drinks and liquid supplements. CELH delivered an earnings surprise of 100% in the second quarter of 2023. The Zacks Consensus Estimate for Celsius Holdings’ current financial-year sales and earnings suggests growth of 88.9% and 170.7%, respectively, from the year-ago reported numbers.
MGPI produces and markets ingredients and distillery products for the packaged goods industry. MGP Ingredients has a trailing four-quarter earnings surprise of 18%, on average. The Zacks Consensus Estimate for MGPI’s current financial-year sales and EPS implies rises of 5.8% and 10.4%, respectively, from the year-ago reported numbers.
Grocery Outlet is a retailer of consumables and fresh products. GO has a trailing four-quarter earnings surprise of 14.3%, on average. The Zacks Consensus Estimate for GO’s current financial-year sales and EPS indicates improvements of 11.2% and 4.9%, respectively, from the year-ago reported numbers.
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Service Corp (SCI) Stock Dips 19.5% YTD: What's Hurting It?
Shares of Service Corporation International (SCI - Free Report) have tumbled since the beginning of this year. The decline in share price primarily reflects the adverse impacts of tough macroeconomic trends, increasing interest rates, and higher operating costs and expenses.
Service Corp belongs to the Zacks Funeral Services industry, which comes under the ambit of the Zacks Consumer Staples sector.
Image Source: Zacks Investment Research
Year to date, the Zacks Rank #4 (Sell) company’s shares have lost 19.5% compared with the industry’s and sector’s declines of 13.5% and 12.7%, respectively.
What’s Ailing the Stock?
Service Corp remains concerned about the inflationary environment and its related impact on consumer discretionary spending, as well as the impact of high-interest rates. It expects 2023 adjusted earnings per share in the range of $3.40-$3.60 compared with $3.45-$3.75 expected earlier. This reflects a decline from earnings of $3.80 per share in 2022.
The company has been encountering rising operating costs and expenses for a while now. For instance, in the second quarter of 2023, its revenue costs increased 3.8% year-over-year to $752 million. Its interest expenses increased 46.6% to $59.5 million in the same quarter.
As a result, the gross profit declined to $261.5 million from $266.6 million reported in the year-ago quarter. These factors also weighed on the bottom line, which declined year over year in the quarter. SCI expects continued pressure from rising interest costs on its variable-rate debt, which had a 9-cent per share negative impact on second-quarter earnings.
Service Corp’s high debt level also poses a concern. It exited the second quarter with a long-term debt of $4,452.4 million, indicating an increase of 4.7% on a sequential basis. In the first six months of 2023, SCI incurred capital expenditures of $177 million. Considering its high debt level, its cash and cash equivalents of $172.5 million (exiting the second quarter) do not look promising.
The company’s earnings estimate declined over the past couple of months, with four downward estimate revisions for 2023. The Zacks Consensus Estimate for 2023 EPS has declined from $3.51 to $3.46 over the past 60 days.
3 Promising Staples Stocks
Here we have highlighted three better-ranked stocks, namely Celsius Holdings, Inc. (CELH - Free Report) , MGP Ingredients, Inc. (MGPI - Free Report) and Grocery Outlet Holding Corp. (GO - Free Report) , currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Celsius Holdings offers functional drinks and liquid supplements. CELH delivered an earnings surprise of 100% in the second quarter of 2023. The Zacks Consensus Estimate for Celsius Holdings’ current financial-year sales and earnings suggests growth of 88.9% and 170.7%, respectively, from the year-ago reported numbers.
MGPI produces and markets ingredients and distillery products for the packaged goods industry. MGP Ingredients has a trailing four-quarter earnings surprise of 18%, on average. The Zacks Consensus Estimate for MGPI’s current financial-year sales and EPS implies rises of 5.8% and 10.4%, respectively, from the year-ago reported numbers.
Grocery Outlet is a retailer of consumables and fresh products. GO has a trailing four-quarter earnings surprise of 14.3%, on average. The Zacks Consensus Estimate for GO’s current financial-year sales and EPS indicates improvements of 11.2% and 4.9%, respectively, from the year-ago reported numbers.