Service Corp. (SCI) Up 0.3% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Service Corp. (SCI). Shares have added about 0.3% 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 the most recent earnings report in order to get a better handle on the important drivers.

Service Corporation's Q2 Earnings Top Estimates, View Raised

Service Corporation posted second-quarter 2021 adjusted earnings of 92 cents per share, which easily surpassed the Zacks Consensus Estimate of 66 cents and increased 58.6% year over year. Year-over-year growth can be attributed to elevated gross profit associated with a robust increase in cemetery-recognized preneed revenues. Further, the bottom line gained from reduced shares outstanding, lower interest expenses, a decline in the adjusted effective tax rate and decreased corporate and general administrative expenses.

Total revenues of $987.5 million advanced 20.4% (or $168 million) year over year, backed by increased funeral and cemetery revenues. Moreover, the figure came ahead of the Zacks Consensus Estimate of $837 million.

Gross profit amounted to $268.7 million, up 22.8% year on year. Corporate general and administrative costs declined $8.1 million to about $29 million owing to a decline in workers’ compensation, as well as lower general liability and auto liability insurance claims in the reported period. Also, the company saw favorable comparisons with elevated charitable contributions in the year-ago period. Operating income of $245.8 million increased 34.8% year over year.

Consolidated Funeral revenues advanced 10.6% to $531.7 million, with core revenues up 6.6% to $441.8 million. Core revenues were backed by an increase in atneed revenues as well as matured preneed revenues. The segment also gained from growth in non-funeral home revenues and recognized preneed revenues. Comparable funeral revenues advanced 10.1% year over year, mainly owing to considerable growth in core funeral revenues as well as higher other revenues. Core funeral revenue growth was backed by elevated core average revenue per service, partly negated by lower core funeral services performed. The comparable core cremation rate fell 10 basis points to 52.7%. Non-funeral home revenues jumped 18.4% on a rise in services performed as well as growth in average revenue per service.

Comparable preneed funeral sales production surged 57.1%, driven by higher digital and direct mail leads, along with the gradual return of in-person seminars and local marketing events. Further, the company witnessed 61.9% growth in core funeral locations and a 40.1% rise in preneed production through the non-funeral home channel. Comparable funeral gross profit declined $7.7 million to $107.3 million. The gross profit margin contracted from 24.1% to 20.5%.

Consolidated Cemetery revenues rose 34.4% to $455.8 million, thanks to increased core revenues. Core revenues gained from an increase in both atneed and total recognized preneed revenues. Comparable Cemetery revenues surged 34.4% year over year on the back of higher core revenues. This, in turn, was fueled by elevated recognized preneed revenues owing to solid comparable preneed cemetery property sales production. Moreover, growth in atneed revenues, which stemmed from a rise in burials performed, was an upside.

Comparable preneed cemetery sales production ascended 35.6% owing to growth in large sales activity, sales averages and sales velocity. The company continued to gain from an efficient sales force, prudent utilization of customer relationship management system and improved conversion rates from direct mail and digital lead campaigns. Further, the company continued to witness elevated conversion and close rates, thanks to customers’ greater awareness of the possible effects of coronavirus. Comparable cemetery gross profit came in at $160.2 million, which grew 55.8% year on year, and the respective margin expanded from 30.3% to 35.2% on increased revenues.

Other Details & Guidance

Service Corporation ended the quarter with cash and cash equivalents of $436.8 million, long-term debt of $3,772.4 million and total equity of $1,918.1 million. Net cash provided by operating activities amounted to $192.2 million during the three months ended Jun 30, 2021. During the same timeframe, the company incurred capital expenditures of $60.9 million. Management now expects adjusted net cash from operating activities to be $700-$775 million in 2021, up from $650-$725 million guided earlier. Expenditures associated with capital enhancements at current locations and cemetery development are still anticipated in a band of $235-$255 million.

Management remains encouraged with the continued strength in preneed cemetery property sales, which is likely to stay sturdy throughout 2021, together with robust funeral results. The company now envisions adjusted earnings per share in the range of $3.20-$3.50 compared with $2.70-$3.00 projected earlier. The company’s guidance for the year is wider than usual owing to the uncertainty surrounding the COVID-19 impact. We note that the company’s earnings came in at $2.91 per share in 2020.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 25.93% due to these changes.

VGM Scores

At this time, Service Corp. has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

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

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Service Corp. has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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