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Service Corporation (SCI) Q3 Earnings Miss, Revenues Down Y/Y

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Service Corporation International (SCI - Free Report) posted lower-than-expected results for third-quarter 2019. Although the company’s earnings grew on a year-over-year basis, revenues declined. Results were affected by sluggish preneed cemetery sales production in two West Coast markets in Asia.

However, solid funeral revenues and margins, owing to an increase in funeral services performed, along with cost-cutting efforts contributed to the third-quarter results to some extent. Further, management reiterated its bottom-line view for 2019. The company continues to anticipate adjusted earnings of $1.90-$2, the mid-point ($1.95) of which is in line with the Zacks Consensus Estimate. Meanwhile, the same is up from the last year’s reported figure of $1.79.

Service Corporation International Price, Consensus and EPS Surprise

 

Q3 in Detail

Service Corporation reported adjusted earnings of 37 cents per share, missing the Zacks Consensus Estimate by a penny. However, the bottom line improved 5.7% from the year-ago quarter, driven by strength in funeral services, and lower general and administrative expenses. However, soft cemetery revenues hurt the bottom line to some extent.

Adjusted effective tax rate was 18.5% in the third quarter of 2019 compared with 17.6% in the same period last year.

Total revenues of $769.2 million edged down 1.2% from $778.8 million in the year-ago quarter, backed by solid performance in funeral revenues. Moreover, the figure lagged the consensus mark of $785 million.

General and administrative costs dipped 28.4% to reach $29.4 million. The decline resulted from higher costs incurred in the prior-year quarter due to its long-term incentive compensation plan.

Meanwhile, the company’s interest costs inched up 0.6% to $46.7 million in the reported quarter.

Segment Discussion

Comparable Funeral revenues grew 1.3%, backed by improved preneed revenues along with higher core revenues and non-funeral revenues. Core revenues were up, owing to increased funeral services performed, which offset the reduced average revenue per service conducted. Recognized preneed revenues improved 3.5% on high non-funeral home sales production, courtesy of growth in the number of contracts sold.

Comparable preneed funeral sales production rose 1.8%, driven by sales growth in non-funeral home channel and increase in core funeral locations.

Comparable funeral operating profit advanced 8.4% at $73.9 million, driven by cost-effective initiatives. Also, the operating margin expanded 110 basis points (bps) to 16.5%.

Comparable Cemetery revenues fell 5.8% year over year on soft recognized preneed property revenues and other revenues. These downsides were partly offset by growth in atneed revenues, and recognized preneed merchandise and service revenues. Comparable preneed cemetery sales production dipped 2.3%.

Comparable cemetery operating profit declined around 12.2% to $85.3 million and the respective margin contracted 210 bps to 28%. The decline can be attributable to lower recognized preneed property revenues, slightly offset by cost-reduction plans.

Other Financial Details

The company ended the quarter with cash and cash equivalents of $194.7 million, long-term debt of $3,466.8 million, and total equity of approximately $1,775.5 million.

Net cash from operating activities (excluding special items) amounted to $209.3 million in the quarter compared with $136.9 million in the prior-year period, driven by improved performance in atneed operations, higher preneed installment collections and an increase in working capital.

During the third quarter, Service Corporation returned $55.5 million to its shareholders via dividends and share buybacks, and invested $44.6 million in land for new cemeteries and building new funeral homes.

Further, the company incurred capital expenditure of $64.5 million in the third quarter of 2019.

Outlook

The company now projects net cash from operating activities (excluding special items) of $575-$615 million.

It still plans to allocate about $195 million toward capital enhancements at existing facilities and cemetery development.

Price Performance

We note that shares of the Zacks Rank #3 (Hold) company have dipped 1.4% in the past three months compared with the industry’s decline of 0.4%.

 

 

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