Service Corporation International (SCI), the largest provider of deathcare products and services in North America, has demonstrated remarkable resilience and consistent financial performance amidst the evolving industry landscape. With a strong market presence, diversified revenue streams, and a focus on operational excellence, SCI has positioned itself as a reliable investment opportunity for those seeking exposure to the deathcare sector.

Financials

In the fiscal year 2023, SCI reported impressive financial results, showcasing the company's ability to navigate industry challenges. The company's annual net income reached $537,317,000, while annual revenue stood at $4,099,778,000. The company's annual operating cash flow was $869,043,000, and its annual free cash flow amounted to $507,250,000, underscoring the strength of its cash generation capabilities.

Looking at the more recent quarterly performance, SCI continued to deliver solid results. In the first quarter of 2024, the company reported net income attributable to common stockholders of $131,301,000, compared to $144,763,000 in the same period of the prior year. Total revenue for the quarter was $1,045,382,000, a slight increase from the $1,028,709,000 reported in the first quarter of 2023.

Funeral Segment Performance

SCI's funeral segment has demonstrated resilience, with comparable funeral revenue declining by 1% in the first quarter of 2024 compared to the same period in the prior year. This decline was primarily attributable to a $12.3 million decrease in non-funeral home preneed sales revenue, which was partially offset by a $3.7 million increase in core funeral revenue. The company's core average revenue per funeral service grew by 3.9%, despite a 3.0% decrease in core funeral services performed.

The company's management team expects low single-digit increases in funeral revenues for the remainder of 2024, driven by improved profitability in the funeral segment.

Cemetery Segment Performance

SCI's cemetery segment has been a standout performer, with comparable cemetery revenue increasing by 5.0% in the first quarter of 2024 compared to the same period in the prior year. This growth was primarily driven by a $18.9 million increase in comparable cemetery core revenue, which benefited from a 7.8% growth in comparable preneed sales production.

The company's management team anticipates mid-single-digit increases in cemetery revenue over the coming nine months, driven by increased sales production and increased revenue recognized from completed construction projects.

Operational Initiatives and Acquisitions

SCI has been actively pursuing strategic initiatives to enhance its operational efficiency and expand its market presence. The company recently reached a settlement with the California Attorney General regarding certain cremation practices, which will allow the company to streamline its SCI Direct model and shift towards an insurance-funded product offering. This transition is expected to generate increased general agency revenues, offsetting the impact of the revenue decline from the operational changes.

Furthermore, SCI has been actively engaged in the acquisition market, closing on $16 million in accretive acquisitions during the first quarter of 2024. The company remains optimistic about the acquisition pipeline and expects to be at the high end of its $75 million to $125 million acquisition investment target for the year.

Liquidity

SCI's financial position remains strong, with ample liquidity and a favorable debt maturity profile. As of the end of the first quarter of 2024, the company had a cash balance of over $200 million and approximately $700 million available on its long-term bank credit facility, providing the necessary resources to fund its growth initiatives and return capital to shareholders.

During the first quarter of 2024, SCI returned $93 million to shareholders through $44 million in dividends and $49 million in share repurchases. The company has continued to be active in the share repurchase program subsequent to the quarter, acquiring an additional $50 million in shares.

Outlook

SCI has confirmed its normalized earnings per share guidance range of $3.50 to $3.80 for the full year 2024, with a midpoint of $3.65. The company expects year-over-year growth in earnings per share in each of the subsequent quarters, driven by increased profitability in both the funeral and cemetery segments.

Management remains optimistic about the company's long-term prospects, citing the continued momentum in preneed cemetery sales production, the successful transition of the SCI Direct model, and the favorable acquisition pipeline as key drivers of future growth.

Conclusion

Service Corporation International's consistent financial performance, operational initiatives, and strategic acquisitions position the company as a compelling investment opportunity in the deathcare industry. With a strong market presence, diversified revenue streams, and a focus on operational excellence, SCI has demonstrated its ability to navigate industry challenges and deliver sustainable growth for its shareholders.