Service Corporation (SCI) Tops Q3 Earnings Estimates, Ups View
Service Corporation International SCI posted third-quarter 2022 results, wherein the top and bottom lines beat the Zacks Consensus Estimate. However, both metrics declined from the year-ago period, which was significantly impacted by the pandemic.
However, the company witnessed better-than-expected growth compared with the third quarter of 2019 (pre-pandemic period).
Management stated that the number of funeral services performed is trending better than expectations. Also, cemetery preneed sales production remains strong. Encouragingly, management raised its guidance for 2022.
Service Corporation International Price, Consensus and EPS Surprise
Service Corporation International price-consensus-eps-surprise-chart | Service Corporation International Quote
Quarter in Detail
Service Corporation posted adjusted earnings of 68 cents per share, surpassing the Zacks Consensus Estimate of 51 cents. However, the metric decreased from $1.16 reported in the year-ago quarter.
The downside in earnings can be attributed to a lower gross profit associated with reduced pandemic-related activity, increased inflationary costs and reduced trust fund income. Higher interest expenses were also a downside, somewhat offset by a reduced number of shares outstanding.
Meanwhile, the bottom line surged 22% on a compounded annual basis since 2019.
However, total revenues of $977.7 million decreased from $1,034.4 million reported in the year-ago quarter. However, the top line came ahead of the Zacks Consensus Estimate of $880 million.
The gross profit decreased to nearly $231 million from around $338 million reported in the year-ago quarter. Corporate general and administrative costs were $41.9 million compared with $41.5 million in the year-ago period. The slight increase was mainly due to higher workers’ compensations and general liability, somewhat compensated by lower incentive compensation costs.
The operating income of $203.4 million decreased from $304.3 million reported in the year-ago quarter.
Segment Discussion
Consolidated Funeral revenues came in at $554 million, down million from $592.3 million reported in the year-ago quarter. Total comparable funeral revenues decreased 8.1% due to lower core funeral revenues.
Core funeral revenues fell 8.3% due to a decline in core funeral services performed (as the year-ago period included the impacts of the pandemic), somewhat made up by higher core average revenues per service. Recognized preneed revenues fell 12.5% due to the timing of merchandise deliveries in the year-ago period.
Comparable preneed funeral sales production increased 2.2% on higher non-funeral home preneed sales production. The comparable funeral gross profit declined by $67.4 million to $102.1 million.
The gross profit percentage contracted from 28.7% to 18.8%, stemming from lower revenues, escalated energy and employee-related inflationary costs and a rise in technology costs.
Consolidated Cemetery revenues came in at $423.8 million, down from $442.1 million reported in the year-ago quarter. Comparable cemetery revenues decreased 4.7%, mainly due to softcore and other revenues.
Core revenues fell $17.5 million due to lower atneed revenues. Meanwhile, comparable preneed cemetery sales production rose 5% due to continued strength in sales average. This was partly negated by a decline in contract velocity.
The comparable cemetery gross profit fell by $41.3 million to $128.3 million. The gross profit percentage contracted from 38.4% to 30.5% in the quarter under review.
Other Financial Details
Service Corporation ended the quarter with cash and cash equivalents of roughly $168 million, long-term debt of $4,127.4 million and total equity of $1,677.4 million.
Net cash from operating activities amounted to $655.4 million during the nine months ended Sep 30, 2020. During the same period, the company incurred capital expenditures of $252.8 million.
2022 Guidance
Service Corporation now expects adjusted earnings per share (EPS) in the range of $3.60-$3.80, up from the earlier guided range of $3.30-$3.70. We note that the company’s earnings came in at $4.57 per share in 2021.
Net cash provided by operating activities (excluding special items and cash taxes) is anticipated in the range of $985-$1,015 million now compared with the prior range of $940-980 million in 2022. Net cash provided by operating activities (excluding special items) is anticipated in the range of $795-$835 million, up from the previously forecast range of $750-800 million.
Management now expects capital improvement at existing field locations, corporate systems development and cemetery development expenditures in the band of $280-$300 million in 2022 compared with the $270-$290 million range projected earlier.
Shares of this Zacks Rank #3 (Hold) company have declined 17.1% in the past three months compared with the industry’s decrease of 17.5%.
Staple Stocks to Consider
Some better-ranked stocks from the sector are Lamb Weston LW, TreeHouse Foods THS and Lancaster Colony LANC.
Lamb Weston, a frozen potato product company, currently sports a Zacks Rank #1 (Strong Buy). LW has a trailing four-quarter earnings surprise of 47.3%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Lamb Weston’s current financial-year sales and earnings suggests growth of 14.6% and 45.7%, respectively, from the year-ago reported numbers.
TreeHouse Foods, which manufactures and distributes private label food and beverages, sports a Zacks Rank #1 at present. TreeHouse Foods has a trailing four-quarter earnings surprise of 45.2%, on average.
The Zacks Consensus Estimate for THS’ current financial-year sales and earnings suggests growth of 16.8% and 15.1%, respectively, from the year-ago reported numbers.
Lancaster Colony, which manufactures and markets food products for the retail and foodservice markets, currently carries a Zacks Rank of 2 (Buy). LANC delivered an earnings surprise of 170% in the last reported quarter.
The Zacks Consensus Estimate for Lancaster Colony’s current financial-year sales and EPS suggests growth of 9.6% and 38.3%, respectively, from the corresponding year-ago reported figures.
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