Service Corporation International Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Business Performance: Adjusted earnings per share was $0.87, a more than 10% increase from prior year. Cemetery revenue and gross profit increased, while corporate G&A expense was lower, partially offset by lower funeral revenues and gross profits.
• Funeral Details: Comparable funeral revenue down, core funeral services down but average revenue up. Non-funeral home revenue up, but preneed sales down. Funeral gross profit down due to revenue decline, higher selling costs, and moderate fixed cost increase.
• Cemetery Details: Cemetery revenue up, core revenue up, preneed sales production up. Cemetery gross profit up due to strong revenue growth.
• Outlook: Confirmed 2025 normalized earnings per share guidance midpoint $3.85, range $3.80-$3.90, narrowed range. Slightly raised cash flow outlook. Funeral volume expected to be slightly down to up 1% in 2025, cemetery preneed sales production expected to have low to mid-single-digit growth.
• Cash Flow and Capital Investments: Generated adjusted operating cash flow $268 million, invested $140 million in capital, returned $123 million to shareholders. Updated 2025 adjusted operating cash flow guidance to $910 million to $950 million midpoint $930 million.

Segment Performance

• Funeral Segment: Total comparable funeral revenue declined by almost $2 million or less than 1% compared to prior year. Comparable core funeral revenue declined by $3 million or just under 1%, with 3.5% decrease in core funeral services performed offset by 3% increase in core average revenue per service. Core cremation rate was 57.3% (50 basis points higher). Non-funeral home revenue increased by $3 million due to 13.4% increase in average revenue per service. Non-funeral home preneed sales revenue decreased by $4.6 million. Funeral gross profit decreased by $9.5 million, gross profit percentage declined by 170 basis points to about 18%. Preneed funeral sales production increased by $6 million or about 2% over third quarter 2024.
• Cemetery Segment: Comparable cemetery revenue increased by $31 million or almost 7%. Core revenue increase of $27.5 million or 7% due to $27 million increase in recognized preneed revenue (21% from property, 6% from merchandise/services) and $3.5 million increase in other revenue. Cemetery gross profit grew by $18 million, gross profit percentage increased by 160 basis points to 34%. Comparable cemetery preneed sales production increased by $30 million or almost 10%, large sales grew by $8 million or 19% over prior year, core sales accounted for $22 million of the increase.

Guidance

• Confirmed 2025 normalized earnings per share guidance midpoint $3.85, range $3.80-$3.90.
• Slightly raised cash flow outlook to adjusted operating cash flow range $910 million to $950 million midpoint $930 million.
• Funeral volume expected to be slightly down to up 1% in 2025, cemetery preneed sales production expected to have low to mid-single-digit growth.
• Expect share repurchase program to favorably affect earnings per share, with a slightly higher tax rate anticipated in the fourth quarter of 2025.

Risks

• Risks include factors identified in the earnings release and SEC filings, such as uncertainties that could cause actual results to differ materially from forward-looking statements, including those related to market conditions, regulatory changes, and operational challenges.

Question and Answer

Q: Discuss cemetery preneed sales production velocity trend and outlook.

A: Thomas Ryan talked about strong velocity growth in the quarter, driven by flexible financing, good sales management, and large sales growth, expecting continued trends into 2026.

Q: Follow-up on EPS growth confidence and cash flow.

A: Thomas Ryan and Eric Tanzberger discussed confidence in 8%-12% EPS growth over the long term, with cash flow influenced by cash taxes and positive working capital trends.

Q: Cemetery preneed sales next year and cremation customer education.

A: Thomas Ryan expects low to mid-single-digit growth in cemetery preneed sales next year, focusing on educating cremation customers to tap into growth opportunities.

Q: Expense control and cremation customer education.

A: Thomas Ryan discussed expense control via staffing metrics, technology, and ongoing efforts to educate cremation customers about cemetery options.

Q: Noninsured flex product and funeral volume pull forward.

A: Thomas Ryan explained the noninsured flex product was introduced to meet consumer needs in certain markets, and funeral volume pull forward is expected to be negligible, positively impacting preneed cemetery leads.

Q: SCI Direct transition and funeral volume impact.

A: Thomas Ryan discussed the impact of SCI Direct transition on sales production, expecting growth in 2026 and the pull forward effect on preneed cemetery business as a lead source.