Carriage Service’s 3rd Quarter. . . CEO speaks on new opportunities, letter of intent

November 6, 2019/Finance/

Last week funeral home and cemetery consolidator and operator Carriage Services reported their 3rd quarter results for 2019. After some disappointing results in the past year, the 3Q report was filled with enough upside results to put a little jump in the step of Carriage Service executives and stockholders. You can see the company results here.

Strictly from a revenue point of view, Total Revenue jumped almost 3% (or about 5.5% if “divestment revenue” is taken out from the equation in both comparable quarters) from the same quarter in 2018 and Cemetery Revenue jumped a whopping 15.6% to $12.8 million for the quarter. Even more impressive, not by percentage terms, but because it is a larger portion of the revenue for the company, is the fact that Funeral Operating Revenue increased by 3.4% in the year over year quarter which resulted in funeral revenues of almost $50 million ($49.2m) for the quarter.

And, another very impressive number that shows the operating units of Carriage Services must be doing something right is that the overall number of funeral contracts at “Same Store” units increased by 6.6% in the year over year quarter from 7,420 in 2018 to 7,910 in 3Q 2019. That’s an impressive 6.6% increase in just one year.

While we find a lot to like about Carriage’s 3Q report we would be remiss if we didn’t point out some concerns that we have also. These concerns are not out of the ordinary, but like almost all operating funeral homes in the country, we find the company bringing in less revenue per service and we also see the cremation rate growing. Again, like all funeral homes in the country, the long-term health of funeral operators will depend on the revenue that can be brought in on a per case basis.

For instance when you look at the “Same Store” Funeral Operating Revenue for 3Q 2019 over 3Q 2018 you will notice that Carriage Service increased that number by almost $1.3 million for the quarter or about 3.2%. But then when you look at the Total Same Store Funeral Contracts (number of families served) for the comparable quarters you will see that they increased by 6.6% which caused the net result to be 3Q 2019 “Same Store” Funeral Operating Revenue per case of $5,242 as compared to 3Q 2018’s number of $5,416 per case — a decline of 3.2% or $174 per case.

As for cremation, we noticed in the Earnings Call transcript, which you can access here, that CFO Ben Brink mentioned that the companies cremation rate has increased about one percent to 53.3% for the year.

Speaking of the Earnings Call, we noticed two items that readers may find interest in and we have quoted them verbatim below. The first item deals with the recent acquisition of the Rest Haven Funeral Home and Cemetery in the Dallas Metroplex and what opportunities that may present to Carriage Services going forward and the second item deals with Carriage CEO Mel Payne mentioning a letter-of-intent with StoneMor Partners concerning, what CEO Payne believes is a tremendous opportunity for Carriage Services to acquire a large StonMor funeral/cemetery combination in California.

About new opportunities because of the Rest Haven acquisition:

Mel Payne:

I’ll answer that. Dewayne is one of the great innovators in our industry. He is in a couple of lines of business that we are not in, a bit intrigued by these lines of businesses. And I guess Dewayne follows when it gets intrigued by something, he goes and experiments and tries it out and studies it and does a lot of trial and era until he gets it right. So, he is in the Pet Memories business. We’ve looked at that around the country. We haven’t found many people, who have successfully figured it out the emotional connection between a pet that is dearly loved by a family and the family itself when they have a family member die. Dewayne has that figured out and he has put in place a large Pet Memories business that has been growing very rapidly in the Dallas-Fort Worth area, beyond the Rockwall area.

He also is an innovator in software. He is into – he created his own proprietary software for online cremations and has spread that business into three or four locations. If we get, Dewayne, is it three or four now? And that’s quite a growing business. The average is very – as you would imagine, smaller. And so we’ve decided on a reporting methodology, which I haven’t seen any example of, but we’ve all talked about it, because these are two new lines of business for Carriage. The overall revenue right now in those two lines of business are not the greatest share of revenue and the average revenue per unit of volume is small. So, we’re going to break that out in our normal reporting. So, it doesn’t get co-mingled with our normal funeral and cemetery business, including normal cremation business, which Dewayne has a great cemetery business in the Rockwall area that is separate and distinct.

On a potential StonMor acquisition:

Mel Payne:

Yes, this is a big one. It’s a primo combination business in the midst of our best portfolio of cemeteries in Northern California. We’ve known about this business for 25 years. When we first went into California in 1997, Mark Wilson, who owned our largest cemetery and then later acquired our second largest cemetery in San Jose. These are our two biggest and best cemeteries. This one is right there in the middle of that is just the prime. When I ask our people about it and check it out, and we have some people, who were there, it’s a – I guess I can say this, it’s part of the StoneMor portfolio and their divesting and under the control of a new chairman and – Executive Chairman and he is restructuring that company, shrinking it. We think he is doing a great job.

So, we went through the possible divestitures and out of everything in that company, this was the premier business. And our people are just gaga, overheading it in our portfolio. And it will close in very early January to a large cemetery first-class funeral home operation. And it will fit into our Northern California portfolio. It won’t miss a beat.