Carriage Services, the Houston based funeral home and cemetery consolidator and operator announced 2nd Quarter 2018 earnings yesterday and with that report, that you can access here, found their common stock losing about 5% of its value.  Analysts had predicted earnings in the range of about $0.37 per share and the report brought earnings in for the quarter at only $0.22 per share.  The stock closed at $23.15 per share, off over 5% on the day.

Carriage Services stock had closed as high as $28.96 on April 25, 2018 which makes the $23.15 value equal to over a 20% drop in market capitalization of the company in a little over  three months.

Here is a quote from Carriage Service’s CEO, Mel Payne, in the  company’s press release from yesterday.  ” Our 2018 second quarter earnings performance. . . .was the weakest since we launched Carriage’s Good to Great Journey that never ends at the beginning of 2012.  The reasons were twofold, i.e. broadly lower volumes and average revenue due to a spike in cremation rates in both our Same Store and Acquisition Funeral Portfolios, and higher interest costs and an increase in outstanding common shares after our recent balance sheet recapitalization.”  He went on, “We view the disappointing second quarter as a temporary performance aberration related to challenging revenue and margin vagaries in our funeral portfolio which is not historically symptomatic of long term operating trends.”

The company did also announce that they have signed three letters of intent during the quarter and plan to close and acquire those businesses within the next 90 days.  According to Carriage Services the acquisitions will bring over 600 funerals to the portfolio and each business has a strong competitive standing and market share growth opportunity in its respective market.

Funeral Director Daily take:  We will, later in the week, go “Inside the Numbers” at Carriage but off-hand a couple of interesting numbers we noticed were:

• Same Store at-need contracts dropped 1.6% from last years 2nd quarter
• Same Store Funeral Revenue dropped 4.8% from last years 2nd quarter
• The company refinanced about $290 million of bank debt with unsecured senior notes at a 6.625% interest rate. To us, in today’s world, that seems to be a fairly high rate of interest to pay.

Finally, of the public funeral operating companies we have always viewed Carriage Services as the most traditional funeral home business operating model.  By that we mean that their units, or stores, seem to us to most reflect the “Mom and Pop” 300-call businesses across the country.  We believe that these firms handle all kinds of services from a traditional location.  With that in mind, where CEO Payne mentions in his comments that the 2nd quarter was “not historically symptomatic of long term operating trends”, we believe that Carriage Services has to be careful as the portfolio of business conducted could very easily become long term operating trends if the lower revenues were indicative of the consumer’s changing attitudes towards cremation over earth burial as Payne seems to indicate in his remarks.

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