Service Corporation (SCI) Q4 Earnings In Line, Increase Y/Y
Service Corporation International SCI posted fourth-quarter 2019 results, wherein earnings were in line, while sales surpassed the Zacks Consensus Estimate. Further, both metrics improved year over year. Results were driven by solid performance in the funeral segment, partly offset by unfavorable timing of revenue recognition related to the cemetery sales production.
Q4 in Detail
Service Corporation reported adjusted earnings of 60 cents per share, which were in line with the Zacks Consensus Estimate. Further, the bottom line improved 11.1% from the year-ago quarter, driven by strength in funeral services, and lower general and administrative expenses. However, soft cemetery revenues and an elevated tax hurt the bottom line to some extent.
Total revenues of $850.8 million moved up 3.7% from $820.8 million in the year-ago quarter, backed by solid funeral revenues. Moreover, the figure beat the consensus mark of $844 million.
General and administrative costs dipped 34.4% to $25 million. The decline resulted from reduced costs incurred in the quarter due to its long-term and short-term incentive compensation plan.
Additionally, the company’s interest costs fell 5.5% to $44.5 million in the reported quarter.
Service Corporation International Price, Consensus and EPS Surprise
Service Corporation International price-consensus-eps-surprise-chart | Service Corporation International Quote
Segment Discussion
Comparable Funeral revenues grew 5.1%, backed by improved preneed revenues along with higher core revenues. Core revenues were up, owing to increased funeral services performed and higher average revenue per service conducted. Recognized pre-need revenues improved 29.7% on high non-funeral home sales production, courtesy of growth in the number of contracts sold and a hike in average revenue per contract sold.
Comparable pre-need funeral sales production rose 12.1%, driven by rise in pre-need production in non-funeral home channel and an increase in core funeral locations.
Comparable funeral gross profit advanced 10% to $100.8 million, driven by sales growth, partly offset by rise in selling compensation, owing to higher pre-need funeral sales production. Also, the gross margin expanded 100 basis points (bps) to 21.1%.
Comparable Cemetery revenues inched up 0.5% year over year on solid recognized pre-need property revenues. This was partly offset by a decline in recognized pre-need merchandise and service revenues. Comparable pre-need cemetery sales production rose 5.2%.
Comparable cemetery gross profit declined 3% to $114.6 million and the respective margin contracted 120 bps to 32.5%. The decline can be attributable to flat cemetery sales as well as cost inflation.
Other Financial Details
The company ended the quarter with cash and cash equivalents of $186.3 million, long-term debt of $3,513.5 million, and total equity of $1,823.3 million.
Net cash provided by operating activities (excluding special items) amounted to $156.6 million in the quarter compared with $163.5 million in the prior-year period.
During the fourth quarter, Service Corporation returned $110.2 million to its shareholders via dividends and share buybacks, and invested $48.2 million in land for building funeral homes and buyout purposes.
Further, it incurred capital expenditure of $62.8 million in the fourth quarter of 2019.
Outlook
For 2020, the company projects net cash from operating activities (excluding special items) of $590-$640 million. Adjusted earnings are anticipated to be $1.96-$2.16 per share, whereas it reported $1.90 in the last year. Notably, the Zacks Consensus Estimate for 2020 is pegged at $2.11.
Service Corporation plans to allocate about $230 million toward capital enhancements at existing facilities and cemetery development.
Price Performance
We note that shares of the Zacks Rank #3 (Hold) company have gained 15.1% in the past three months compared with the industry’s growth of 7.4%.
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US Food Holdings USFD has an expected long-term earnings growth rate of 7.5% and a Zacks Rank #2 (Buy).
Lamb Weston Holdings LW, also a Zacks Rank #2 stock, has an expected long-term earnings growth rate of 8.8%.
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