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Service Corporation (SCI) Q2 Earnings In Line, Revenues Top

Zacks Equity Research

Service Corporation International SCI reported mixed financial numbers for second-quarter 2019. Although the company’s earnings came in line with the Zacks Consensus Estimate, revenues surpassed the mark. Meanwhile, both the bottom and the top line increased on a year-over-year basis. The quarterly results gained from a strong performance in the cemetery category and favorable adjusted effective tax rate. 

Encouraged by quarterly results, this Zacks Rank #3 (Hold) company revised its bottom-line view for 2019. The company now anticipates adjusted earnings to be $1.90-$2, the mid-point ($1.95) of which meets the Zacks Consensus Estimate. Meanwhile, the same is up from the sequential quarter's mid-point of $1.93. This might have raised investor’s optimism on this Zacks Rank #3 (Hold) stock.

Q2 in Detail

Service Corporation reported adjusted earnings of 47 cents per share, matching the Zacks Consensus Estimate. However, the bottom line improved 6.8% from the year-ago quarter. Strength in comparable cemetery revenues and favorable adjusted effective tax rate offset the rise in interest expense. 

Adjusted effective tax rate was 23.3% in the second quarter of 2019 compared with 26.7% in the same period last year.

Total revenues of $812.6 million inched up 2.1% from $796.1 million in the year-ago quarter. Both funeral and cemetery revenues aided the top line. Moreover, the figure came ahead of the consensus mark of $810 million.

General and administrative costs fell 5.7% to reach $29.4 million, driven by an efficient cost management.

The company’s interest costs rose $2.8 million to $47.3 million due to higher interest rates on its floating rate debt.

Segment Discussion

Comparable Funeral revenues grew 1.1%, backed by improved preneed revenues along with higher core revenues and non-funeral revenues. Core revenues were up owing to increased funeral services performed that offset the reduced average revenue per service conducted. However, revenues in this category were dented by the absence of last year’s strong flu season. Recognized preneed revenues improved 15.7% on the back of high non-funeral home sales production, courtesy of growth in the number of contracts sold.

These upsides were partly compensated by a decrease in other revenues, driven by weak General Agency revenues. Comparable preneed funeral sales production increased 3.1%, driven by sales growth in non-funeral home channel.

Comparable funeral operating profit was almost flat at $91.4 million while the operating margin contracted 30 basis points (bps) to 19.5%. This downside resulted from lower fixed costs.

Comparable Cemetery revenues rose 0.7% year over year, riding on higher recognized preneed revenues, partially offset by a softness in other revenues. Comparable preneed cemetery sales production dipped 2.9%.

Comparable cemetery operating profit rose around 2.4% to $99.6 million while the respective margin expanded 50 bps to 30.4%. This upside was driven by higher recognized preneed property revenues and cost-containment efforts.

Other Financial Details

The company ended the quarter with cash and cash equivalents of $243.7 million, long-term debt of $3,464.9 million and total equity of approximately $1,744.2 million.

Net cash from operating activities (excluding special items) amounted to $84.4 million in the quarter compared with $103.9 million in the prior-year period. This decrease was due to the elevated tax and interests that more than offset growth in the operating profit and an improved working capital.

During the second quarter, Service Corporation returned $47.9 million to its shareholders via dividends and share buybacks and invested $23.6 million of capital in accretive acquisitions and building new funeral homes.

Also, the company incurred capital expenditures of $61.1 million during the second quarter 2019.

Service Corporation International Price, Consensus and EPS Surprise

Service Corporation International Price, Consensus and EPS Surprise
Service Corporation International Price, Consensus and EPS Surprise

Service Corporation International price-consensus-eps-surprise-chart | Service Corporation International Quote


Management expects the company to be well-positioned for long-term growth, banking on dedicated workforce, solid operating platform and a healthy financial standing. It plans to continue deploying capital efficiently to augment shareholder value. Notably, shares of this company have rallied 13.2% in the past three months, outperforming the industry’s growth of 2.2%.

The company revised its guidance for 2019. It now projects net cash from operating activities (excluding special items) between $640 million and $700 million. The company still plans to allocate about $195 million toward capital enhancements at existing facilities and for cemetery development.

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General Mills, Inc GIS has an expected long-term earnings growth rate of 7% and is a Zacks #2 Ranked player.

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