"Acquisition Trends in Funeral Homes are Shifting to Takeovers of Bigger Companies" According to Industry Experts

• On 10:48 am EDT, Thursday August 27, 2009

67 WALL STREET, New York - August 27, 2009 - The Wall Street Transcript has just published its Funeral Services and Tax Preparation Report offering a timely review of the sector to serious investors and industry executives. This 57 page feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Estate Tax Planning - Death and Taxes - Tax Accounting Services - IRS Audit Targets - Cremation Market - Funeral Service Providers - Increasing Competition - Imported Chinese Caskets - Traditional Funeral Service - Membership Retention Rate - Funeral Trends - Potential of the Publicly Traded Companies - Public Funerals

Companies include: Intuit (INTU); Jackson Hewitt (JTX); H and R Block, Service (HRB); Gilman Ciocia (GTAX); Corporation International (SCI); Carriage Services (CSV); Keystone North America (KNA:TSX); Stewart Enterprises (STEI); Hillenbrand (HI); StoneMor (STON); Matthews International Corp. (MATW); Aurora Casket Company.

In the following brief roundtable excerpt from the 57 page report, A.J. Daoud, President of Daoud Holdings, Dan Isard, President and Founder of Foresight Analysts, and Thomas A. Parmalee, Executive Editor of Funeral Service Insider, discuss the outlook for the sector and for investors.

TWST: Would you start by painting a portrait of today's typical funeral home in the United States?

Mr. Isard: The average funeral home services about 116 families a year. A service in funeral industry is referred to as a call, dating back to when the phone would ring, it was a call to service. So when you hear someone say a funeral home does 116 calls, that means they serve 116 families in a typical year. The average funeral home is one location. It typically employs four people. The owner-manager is oftentimes the licensed responsible party. They may have one other licensed person, then they'll have an administrative person and then there will be a bunch of part-time help.Typically we see two licensed or arranger responsible people for the first 125 services or calls, and then they tend to add one full-time person for every 60 to 100 calls thereafter, depending upon the complexity of the call.

TWST: What are the biggest expenditures for the average funeral home?

Mr. Parmalee: Obviously, staffing is a big expense for funeral homes. Benefits is also a big one, especially depending on what sort of benefits they provide. Medical insurance is going up. Cars are a big expense, but you're seeing a lot of funeral homes reducing their car fleets now because of the increase in cremation and they don't need as many. Our newsletter just completed a compensation survey. The average salary for the typical owner is in the range of $100,000 to $150,000.

TWST: What's the average profit margin nowadays?

Mr. Isard: In 1998, it was just under 9% and in 1982, it was almost 14%. So the profit margin as Federated recognizes it has continued to fall. It's rebounded over the last two years, but it did get as low as 5.5% in 2005. It's a problematic issue.There are a few reasons why profit margins have changed. I think that we can focus on overhead, which is certainly an issue. We can focus on the fact that consumers are spending more, 5% more. To me, the problem is the owner-operator is very unsophisticated analytically and, therefore, they're not setting their prices intellectually. Anytime you have increasing consumer spending and you don't get it to match your increasing overhead, that's more the operator's problem than it is a consumer rebellion.

TWST: Do you find that same problem applies to corporate-owned funeral homes?

Mr. Daoud: I came into the funeral and cemetery industry on the corporate side of the industry managing local funeral homes, and then I went on to do regional management in a four-state area. I got to a point where I decided I needed to jump the fence and became an independent myself about 10 years ago. Tom is correct in that there is a big emphasis on cost cutting and cost management. What I have seen on the corporate side is basically a real efficient, business-like acumen, where you are focused on not only business expense, but also on how to generate your maximum revenue. There's a big effort in collections and making sure your dollars come in, and running it like a business. Where they lack in the communities is sometimes they lose the public relation factor; they lose the contact with the community and the customer, as well as the ability to maintain good service. It may be related to a cutback in personnel, or maybe there's no money in their budget for advertising, but that's what you run into under the corporate model funeral homes. The independents are the other way around. They emphasize service and spending a lot of money on advertising. Sometimes it's wasted, sometimes it's good.

TWST: Looking ahead five years or so, what do you see for funeral services, both for funeral homes on an individual level, as well as for the public funeral service companies?

Mr. Isard: I'd say that from the public companies, the investors, first and foremost, have to change their perspective. People have for years been saying, "When the Baby Boomers start dying, the public death care-oriented stocks are going to be great investments." They're not. The reality is they are more akin to a utility than they are an operating growth-oriented business. It's a service business that's going through changes on how to provide services, what services they're providing and what the profitability is on those services. The independent is sitting at a very serious crossroads where, going from 40 years ago when people bought funeral homes so that they'd have a job for life. Today people are recognizing that these are businesses, and they have to operate them as businesses. If you don't have the entrepreneurial mentality, maybe you're best off working for someone else than trying to buy your own place.

TWST: Thank you. (VRC)

A.J. DAOUD President, Daoud Holding/American Funeral Partners Cox-Needham Funeral Home 822 West Main Street Pilot Mountain, NC 27041 (336) 368-2233

DAN ISARD President and Founder, Foresight Analysts 6520 North 7th Street Suite 200 Phoenix, AZ 85014 (602) 274-6464 (602) 277-6722 -FAX

THOMAS A. PARMALEE Executive Editor, Funeral Service Insider Kates-Boylston Publications 3349 Route 138 Bldg. D, Suite D Wall, NJ 07719 (732) 730-2586 (732) 730-2515 - FAX

The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This 57 page special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online .

The Wall Street Transcript does not endorse the views of any interviewees nor does it make stock recommendations.

For Information on subscribing to The Wall Street Transcript, please call 800/246-7673

Buzz up!