SCI Lifts Third-Quarter Adjusted EPS 11% To $0.97, Updates Fourth-Quarter Outlook On Lower Funeral Volumes
The funeral operator sees full-year adjusted EPS of $3.94 to $4.04 and holds its cash flow guidance.
Service Corporation International, the North American funeral and cemetery operator behind Dignity Memorial, grew adjusted earnings per share 11% to $0.97 in the third quarter, from $0.87 a year earlier, according to an 8-K filed Wednesday. It also updated its fourth-quarter outlook, citing lower funeral volumes than it originally anticipated.
Outlook built on softer volumes
SCI now expects fourth-quarter adjusted earnings of $1.10 to $1.20 per share and full-year adjusted earnings of $3.94 to $4.04 per share. The company still expects year-over-year revenue growth.
The outlook reflects lower funeral volumes than first anticipated, continued higher healthcare costs, and more spending on selling compensation, advertising and marketing to drive preneed sales, meaning contracts sold in advance of need.
Full-year adjusted operating cash flow guidance is maintained at a midpoint of $1,085 million. With maintenance capital spending of $335 million, SCI expects adjusted free cash flow of about $750 million.
Costs weigh on cemetery margins
Third-quarter revenue reached $1,107.3 million, against $1,058.1 million a year earlier. Standard-accounting earnings per share rose 24% to $1.03 from $0.83, including $11.2 million of net gains on divestitures and impairment charges. Last year's quarter carried $0.4 million of net losses from those items.
Comparable cemetery gross margin slipped to 33.2% from 34.3%. A change in sales compensation raised guaranteed hourly wages, so more selling costs hit the current period instead of being deferred. The company said that will lower selling compensation expense in later periods.
Comparable funeral services performed were 83,638, essentially flat from 83,686. Comparable funeral preneed sales production rose 6% and cemetery preneed sales production rose 5%.
CEO Tom Ryan said the preneed push "will drive revenue and earnings growth as sales are recognized in the future." Cash from operations excluding special items rose 11% to $296.9 million.
Cash returned and the call
SCI, which as of September 30 operated 1,491 funeral service locations and 506 cemeteries, said it has returned $464 million to shareholders this year through dividends and share repurchases. Diluted shares fell to 137.2 million from 141.4 million.
SCI holds its earnings call Thursday at 8:00 a.m. Central Time, with a question-and-answer session after management's prepared remarks.
