Service Corp. International Balances Funeral Weakness

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

Service Corporation International’s latest earnings call struck a cautiously optimistic tone, as management highlighted resilient financial performance despite a sharp drop in funeral volumes. Strong cemetery results, robust preneed demand, and solid cash generation underpinned confidence, even as weaker mortality trends pressured funeral revenues, margins, and near-term visibility on earnings.

Adjusted EPS Holds Up Despite Funeral Weakness

Adjusted earnings per share nudged higher to $0.97 from $0.96 a year ago, underscoring the underlying strength of the business. Management noted that if funeral volumes had simply been flat, EPS would have been around $1.12, implying roughly 17% growth and highlighting how volume softness masked otherwise strong fundamentals.

Cemetery Revenue and Margins Drive Growth

Cemetery operations were the primary growth engine, with comparable cemetery revenue rising about $31 million, or 7%. Core recognized preneed revenue climbed $28 million, roughly 10%, lifting cemetery gross profit by $15 million and expanding margins by about 120 basis points to around 33%, helped by higher-margin trust income.

Preneed Sales Momentum Remains Strong

Preneed demand remained robust across both funeral and cemetery offerings, providing a strong pipeline for future revenue. Preneed funeral sales production increased by about $18 million, roughly 6%, while comparable preneed cemetery sales jumped $32 million, or 10%, supported by seminar initiatives and an expanded insurance product rollout.

Operating Cash Flow Shows Resilience

Adjusted operating cash flow reached $335 million, up nearly $20 million, or around 6%, versus last year despite lower operating income and higher cash interest. Management credited the improvement to strong preneed cash receipts and favorable working capital timing, reinforcing the company’s ability to self-fund growth and shareholder returns.

Disciplined Capital Deployment and Returns

The company invested $108 million in capital expenditures, including $41 million for new cemetery development and $24 million for acquisitions, while also funding growth projects. At the same time, it returned $190 million to shareholders through $143 million of buybacks, roughly 2 million shares at about $80, and $47 million in dividends, with the acquisition pipeline tracking toward the $75–$125 million target.

Solid Liquidity and Controlled Leverage

Service Corporation International ended the quarter with roughly $1.7 billion in available liquidity, including about $260 million of cash and $1.45 billion of untapped credit capacity. Net debt-to-EBITDA stood at 3.68 times, placing leverage at the low end of the company’s long-term 3.5 to 4.0 times target range and giving management flexibility for continued investment.

Trust Fund Performance Rebounds After Q1 Dip

Trust fund returns were modestly negative at down 0.7% in the first quarter but rebounded significantly in April with an estimated 4% to 5% gain. Management reiterated its expectation for approximately 7% trust fund returns for 2026, suggesting that the early-year volatility should normalize across the full period.

Funeral Volumes Decline Sharply

Core funeral services performed fell 6.6% in the quarter, dragging total comparable funeral revenues down about $17 million and core funeral revenue down roughly $18 million. Management tied the decline primarily to a weaker mortality and flu season versus last year, which created a difficult comparison and pressured the top line.

Funeral Margins Come Under Pressure

The drop in volume translated into lower profitability, with funeral gross profit shrinking by around $23 million and gross margins compressing by roughly 300 basis points to just over 21%. While pricing and mix helped raise average revenue per service by about 3.5%, management signaled that funeral margins could remain slightly lower for the full year unless volumes recover.

Persistent Short-Term Volume Headwinds

Every month of the first quarter showed declines, with January and February particularly soft and March only modestly better, and April volumes remained down albeit less severely. This pattern has clouded near-term seasonality expectations, prompting management to maintain a wider earnings range as they wait for clearer evidence of stabilization.

Rising Cemetery Maintenance Costs

Cemetery profitability gains were partially offset by higher fixed maintenance expenses that rose faster than inflation. Management characterized these costs as controllable but emphasized the need for ongoing attention, as they could chip away at margin improvements if left unchecked.

Corporate G&A Influenced by Incentive Accruals

Corporate general and administrative expenses were $44 million, down slightly year over year but above the guided quarterly range because of higher accruals tied to long-term incentive plans. These accruals were driven by strong total shareholder return performance, and management guided to a run rate of about $40 million to $42 million per quarter, while cautioning that timing can cause quarterly swings.

Guidance Reaffirmed Despite Volume Uncertainty

Management reaffirmed 2026 normalized EPS guidance of $4.05 to $4.35 and adjusted operating cash flow of $1.0 billion to $1.06 billion, signaling confidence in the long-term trajectory. The outlook assumes funeral volumes decline 1% to 3%, trust returns near 7%, disciplined cost inflation around 3%, and strong incremental margins of about 80% on funerals and 75% on cemeteries, supported by solid liquidity and a steady acquisition program.

The earnings call painted a picture of a company balancing near-term headwinds with structural strengths, as cemetery and preneed momentum offset softer funeral volumes. Investors were left with a mixed but constructive message: pressure on funeral margins and uncertain volumes in the short run, but healthy cash flow, disciplined capital allocation, and reaffirmed guidance underpin confidence in a back-half and longer-term recovery trajectory.