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Service Corp. (SCI) Up 0.8% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Service Corp. (SCI - Free Report) . Shares have added about 0.8% in that time frame, underperforming the S&P 500.

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

Service Corporation Q3 Earnings Beat, Sales Rise Y/Y

Service Corporation posted third-quarter 2023 results. The company posted adjusted earnings of 78 cents per share, surpassing the Zacks Consensus Estimate of 70 cents. The metric increased from 68 cents reported in the year-ago quarter. The upside was driven by increased cemetery revenue coupled with reduced fixed costs. A decline in corporate general and administrative expenses and reduced share count were upsides. However, a rise in interest expenses was a concern.

Total revenues of $1,001.9 million increased from $977.7 million reported in the year-ago quarter. The top line beat the Zacks Consensus Estimate of $978.6 million.

The gross profit increased to $253.7 million from almost $231 million reported in the year-ago quarter. The upside can mainly be attributed to increased recognized cemetery preneed revenue. We expected gross profit to come in at $234.5 million. Corporate general and administrative costs were $33.2 million compared with $41.9 million in the year-ago period. The reduced cost was caused by reduced incentive compensation expenses. The operating income of $223 million increased from $203.4 million reported in the year-ago quarter. We expected operating income to come in at $203 million.

Segment Discussion

Consolidated funeral revenues came in at $554.8 million compared with $554 million reported in the year-ago quarter. We expected funeral revenues to come in at $545.6 million. Total comparable funeral revenues fell 1.3%, mainly due to a fall in core funeral revenues. Core funeral revenues fell 2.2% thanks to a decline in core funeral services performed to the tune of 6.2%. This was somewhat countered by growth in the core average revenue per service of 4.3%.

Comparable preneed funeral sales production grew 4.9%. Further, core preneed sales production grew increased by 1.2%, driven by increased sales averages. Non-funeral home preneed sales production jumped 18.0%. The upside can be attributed to increased sales averages and higher velocity. Comparable funeral gross profit came in at $108.5 million, up $5.8 million. The gross profit margin expanded 130 basis points (bps) to 19.9%, mainly on reduced fixed costs and lower incentive compensation costs.

Consolidated cemetery revenues came in at $447.1 million, up from $423.8 million reported in the year-ago quarter. We expected cemetery revenues to come in at $437.1 million. Comparable cemetery revenues increased 5.2%. The upside was mainly caused by increased core revenues to the tune of $21.4. Comparable preneed cemetery sales production fell 5.9%. The company witnessed lower core production with continued moderation in consumer discretionary spending.

Comparable cemetery gross profit came in at $144.3 million, up $15 million. The gross profit margin expanded 190 bps to 32.4%.

Other Financial Details & Guidance

Service Corporation ended the quarter with cash and cash equivalents of $172.7 million, long-term debt of $4,511.5 million and total equity of $1,630.7 million. Net cash from operating activities amounted to $591.5 million during the nine months ended Sep 30, 2023. During the same period, the company incurred capital expenditures of $267.8 million.

Service Corporation continues to expect 2023 adjusted earnings per share (EPS) in the range of $3.40- $3.60. We note that the company’s earnings came in at $3.80 per share in 2022. Net cash provided by operating activities (excluding special items and cash taxes) is still anticipated in the range of $920-$960 million. Net cash provided by operating activities (excluding special items) is expected in the range of $830-$880 million. Management continues to expect maintenance capital expenditures in the band of $290-$310 million.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

The consensus estimate has shifted -8.04% due to these changes.

VGM Scores

Currently, Service Corp. has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Service Corp. has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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