Service Corporation (SCI) Raises '20 View on Q3 Earnings Beat

Zacks Equity Research
·6-min read

Service Corporation International SCI posted robust third-quarter 2020 results, as both top and bottom lines surged year over year and cruised ahead of the Zacks Consensus Estimate. Results were backed by increased funeral services performed as well as greater burials in the company’s cemeteries amid the pandemic. Markedly, with curbs being lifted, Service Corporation has seen unexpected increases in its preneed cemetery sales. Also, it has seen considerable growth in the number of families opting for memorial services.

Notably, management raised its bottom-line view for 2020, though it expects the impact of coronavirus to linger throughout the fourth quarter. For 2020, Service Corporation now envisions adjusted earnings per share of $2.50-$2.75, up from the previous guidance of $1.78-$2. The company’s earnings came in at $1.90 in 2019.

Q3 in Detail

Service Corporation posted adjusted earnings of 79 cents per share, which came way ahead of the Zacks Consensus Estimate of 43 cents. Further, the bottom line more than doubled from the year-ago quarter’s reported figure of 37 cents. The upside can be attributed to increased gross profit stemming from greater funeral services and burials performed. Also, robust growth in recognized preneed revenues in the company’s cemetery business was a driver.

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

Total revenues of $918.2 million advanced 19.4% year over year, backed by increased funeral and cemetery revenues. Moreover, the figure beat the consensus mark of $801 million.

Corporate general and administrative costs escalated $11.3 million to around $41 million owing to greater healthcare self-insurance reserves and costs related to community outreach efforts. The company’s interest costs fell $6 million to $40.7 million in the quarter.

Segment Discussion

Consolidated Funeral revenues grew 12.7% to $518.6 million on higher core revenues. Core revenues gained from a rise in atneed and matured preneed revenues. Further, non-funeral home revenues improved year over year, while recognized preneed revenues saw a decline of 2.7% to $32.7 million.

Comparable funeral revenues climbed 11.7% year over year, courtesy of an increase in core funeral revenues, backed by higher core funeral services performed. However, core funeral services performed were somewhat negated by a fall in core average revenue per service, stemming from social-distancing measures that led to smaller and lesser funeral memorial services. Moreover, the core cremation rate rose 110 basis points.

Comparable preneed funeral sales production dropped 2.8% due to declines at core funeral locations and a fall in preneed production in the non-funeral home channel. This was accountable to the continued effect of social distancing on two of the company’s key lead sources — at-home follow-up visits and in-person seminars.

Comparable funeral gross profit jumped 62.7% to $122 million. Also, the gross profit margin increased 750 basis points to 24%, courtesy of core business growth and a lower cost structure somewhat due to the smaller and lesser memorial services performed.

Consolidated Cemetery revenues rose 29.3 to $399.6 million, thanks to increased core revenues. Core revenues gained from an increase in both atneed and total recognized preneed revenues.

Comparable Cemetery revenues improved 29.4% year over year on the back of higher core revenues. This, in turn, was fueled by elevated atneed revenues, which stemmed from a rise in burials performed. Moreover, recognized preneed revenues grew, courtesy of solid comparable preneed cemetery property sales production. Comparable preneed cemetery sales production surged 46.9% owing to growth in sales velocity and sales averages, and higher sales. Sales velocity was driven by the continued expansion of virtual tools, increased customer sales incentives and greater leads from atneed services. Further, the company saw higher conversion and close rates, thanks to customers’ greater awareness of the possible effects of coronavirus, along with a rise in location traffic as a result of greater funeral services performed.    

Comparable cemetery gross profit soared 64% to $139.9 million and the respective margin expanded 740 bps to 35%. The upside can be attributable to higher cemetery revenues together with an improved cost structure. This was partly countered by increased selling compensation-related expenses.

Other Financial Details

The company ended the quarter with cash and cash equivalents of $220.3 million, long-term debt of $3,584.5 million and total equity of $1,743.1 million.

Net cash provided by operating activities amounted to $559.4 million in the first nine months of 2020. During the same time frame, the company incurred capital expenditures of $155.6 million. The company now expects adjusted net cash from operating activities to be $740-$790 million in 2020, up from the previous projection of $600-$660 million. The adjusted earnings guidance continues to include an estimated $40 million related to payroll tax payments, which are being deferred from 2020 to 2021 and 2022.

Expenditures associated with capital enhancements at current locations and cemetery development are still anticipated in a band of $165-$195 million.

Shares of this Zacks Rank #2 (Buy) company have gained 5.9% in the past three months compared with the industry’s growth of 5.3%.

Looking for More Consumer Staples Stocks? Check These

General Mills GIS, which carries a Zacks Rank #2, has a long-term earnings growth rate of 7.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Lamb Weston LW has a Zacks Rank #2 and a long-term earnings growth rate of 7%.

Nu Skin NUS, which also carries a Zacks Rank #2, has a long-term earnings growth rate of 6.8%.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.

Ignited by referendums and legislation, this industry is expected to blast from an already robust $17.7 billion in 2019 to a staggering $73.6 billion by 2027. Early investors stand to make a killing, but you have to be ready to act and know just where to look.

See the pot stocks we're targeting >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
General Mills, Inc. (GIS) : Free Stock Analysis Report
 
Nu Skin Enterprises, Inc. (NUS) : Free Stock Analysis Report
 
Service Corporation International (SCI) : Free Stock Analysis Report
 
Lamb Weston Holdings Inc. (LW) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.