SCI Earnings Call: Mixed Results with Growth Prospects

Service Corporation International ((SCI)) has held its Q1 earnings call. Read on for the main highlights of the call.

The recent earnings call of Service Corporation International (SCI) painted a mixed picture for investors. While the company reported significant growth in earnings per share, funeral revenue, and cash flow, these gains were tempered by declines in preneed sales and cemetery revenue, as well as an increased effective tax rate. This duality in performance reflects both the strengths and challenges facing SCI in the current market environment.

Earnings Per Share Growth

SCI reported an increase in adjusted earnings per share, rising to $0.96 from $0.89 in the previous year. This growth was primarily driven by strong funeral revenue and an increase in gross profit. The company’s ability to enhance its earnings per share underscores its operational efficiency and strategic focus on core revenue streams.

Funeral Revenue Increase

The company saw a notable increase in total comparable funeral revenue, which rose by over $23 million, or about 4%. This was attributed to robust growth in core revenue and general agency revenue. Such an increase highlights SCI’s effective strategies in expanding its funeral services market.

Funeral Gross Profit Increase

SCI’s funeral gross profit saw a substantial rise of about $21 million, with the gross profit percentage increasing by 240 basis points to over 24%. This improvement indicates the company’s successful cost management and pricing strategies, contributing to its overall profitability.

Solid Cash Flow

The company generated an impressive adjusted operating cash flow of $316 million, which exceeded expectations and marked an improvement of over $90 million from the previous year. This strong cash flow performance provides SCI with the financial flexibility to invest in growth opportunities and return capital to shareholders.

Capital Return to Shareholders

SCI returned $176 million of capital to shareholders, which included $46 million in dividends and $130 million in share repurchases. This demonstrates the company’s commitment to delivering value to its shareholders through consistent capital return strategies.

Decline in Preneed Funeral Sales Production

The company experienced a decline in preneed funeral sales production, which decreased by $32 million or about 10%. This was primarily due to the transition to a new preneed insurance provider, indicating potential challenges in adapting to new operational changes.

Cemetery Revenue Decline

Comparable cemetery revenue decreased by $8 million, or about 2%, mainly due to a $12 million decrease in recognized preneed property revenue. This decline reflects the challenges in maintaining growth in the cemetery segment amidst changing market dynamics.

Higher Effective Tax Rate

SCI faced a higher effective tax rate due to the non-deductibility of certain excess tax benefits, which affected earnings. Had the tax rate remained constant, earnings per share would have been $0.04 higher, highlighting the impact of tax policies on the company’s financial performance.

Forward-Looking Guidance

Looking ahead, SCI maintained its earnings per share guidance for 2025 at $3.70 to $4.00, with a midpoint of $3.85, reflecting a 9% year-over-year growth. The company anticipates flat to slightly down funeral volume and 1-2% revenue growth in the cemetery segment. SCI plans to focus on managing inflationary costs, which will be crucial in sustaining its financial performance in the coming year.

In conclusion, Service Corporation International’s earnings call revealed a balanced narrative of growth and challenges. While the company demonstrated strong performance in earnings per share and cash flow, it faces hurdles in preneed sales and cemetery revenue. The forward-looking guidance suggests a cautious yet optimistic outlook, with a focus on managing costs and sustaining revenue growth.