SERVICE CORP INTERNATIONAL Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Business Performance: Adjusted earnings per share were $0.96 for the first quarter, compared to $0.89 in the prior year. Funeral revenue and gross profit increased, while cemetery revenue and gross profit were slightly lower. The favorable impact of a lower share count and lower interest expense was offset by a higher effective tax rate.
• Funeral Results: Total comparable funeral revenue rose over $23 million, core funeral revenue increased by $18 million. SCI Direct non-funeral home revenue fell $3 million. Funeral gross profit grew by $21 million, with the gross profit percentage up 240 basis points.
• Cemetery Results: Comparable cemetery revenue decreased $8 million, preneed cemetery sales production dropped $8 million. Cemetery gross profit decreased $6 million, with the gross profit percentage down 80 basis points.
• Cash Flow and Capital Investment: Adjusted operating cash flow was $316 million in the quarter, a significant improvement over the prior year. Capital investment in Q1 totaled $95 million, with $176 million returned to shareholders via dividends and share repurchases.

Segment Performance

• Funeral Segment: Total comparable funeral revenue increased over $23 million, or about 4% year-over-year. Comparable core funeral revenue rose by $18 million, or ~4%, driven by a 2.5% growth in core average revenue per service and a 1% increase in core funeral services performed. SCI Direct non-funeral home revenue decreased by $3 million, mainly due to a $7 million drop in non-funeral home pre-need sales revenue, partially offset by growth in general agency commissions. Funeral gross profit increased by about $21 million, with the gross profit percentage up 240 basis points to over 24%. Preneed funeral sales production declined by $32 million or ~10% year-over-year.
• Cemetery Segment: Comparable cemetery revenue decreased by $8 million or ~2%. Core revenue fell by $10 million, partially offset by a $2 million increase in other revenue. Recognized preneed property revenue dropped by $12 million due to lower sales production. Comparable preneed cemetery sales production declined by $8 million or ~3%. Cemetery gross profit decreased by $6 million, with the gross profit percentage down 80 basis points.

Guidance

• 2025 Earnings: Confirmed normalized earnings per share guidance range of $3.70 to $4.00, with a midpoint of $3.85, representing a 9% year-over-year growth. Neutralizing the higher tax rate would result in 12% earnings per share growth.
• Funeral Segment: Expected flat to slightly down funeral volume in 2025, with average revenue per case growing at inflationary rates and healthy profit growth, aiming for a gross margin percentage increase of 80-120 basis points.
• Cemetery Segment: Anticipates low single-digit percentage growth in pre-need cemetery sales production, with cemetery revenue growth of 1%-2%.
• Cash Flow: Adjusted operating cash flow guidance range is $830 million to $890 million, with a midpoint of $860 million, and adjusted operating free cash flow expected to be almost $550 million for the full year.

Risks

• Discretionary Purchases: Pressure on discretionary purchases, but preneed sales seen as responsible decisions and likely to recover quickly.
• Tariffs: Impact on merchandise costs, with 60%+ sourced in the US, using long-term contracts and active management to mitigate, and no material impact on guidance.
• Regulatory Changes: Uncertainty around funeral rule and other regulations, but the company feels prepared to adapt to any changes.

Question and Answer

Q: Cemetery preneed sales production and Rose Hills impact A: Large sales have timing issues, but April sales are strong; Rose Hills was impacted by wildfires but momentum continues.

Q: Tariffs impact A: Majority merchandise is sourced in the US, with long-term contracts and active management to mitigate, and the impact is immaterial to guidance.

Q: Funeral volume drivers A: Pull forward effect, preneed program, and market share growth; the first quarter is trending well.

Q: Insurance pre-need funeral premium A: Transition from trust to insurance product, timing and mix of products affect prediction, with expected growth in 2026.

Q: Sales force initiatives A: Focus on lead pipeline efficiency, retention, and using technology to enhance the sales process.

Q: M&A impact on earnings A: M&A can be a 1%-3% growth driver, depending on the timing and type of deals.