Carriage Services is a funeral home and cemetery acquisition company that, according to Reuters, operated 181 funeral homes in 29 states and operated 32 cemeteries in 11 states as of August 28,2018. According to their own history from their web-site they were founded in 1991 and had their initial public offering (IPO) to become a public company in 1996. You can see a map of their properties from the web-site here.
I would like to begin and inform any reader, that with many of the public companies in the death care space, I am a stockholder, and that holds for Carriage Services as well. The perspective I give in this article is not from an investing viewpoint, however, it is from a viewpoint of someone who has held life-long funeral home ownership and worked in the funeral profession for over 33 years.
From my perspective, if you take the number of funeral “contracts” (36,816) that Carriage Services reports in their 5-Year Operating Trend sheet, which you can access here, and divide by the 181 funeral homes that they operate you come up with an “average number of contracts per funeral home” of 203. So, that number may not be totally accurate for what we are looking for, but it does give an indication that the “average” Carriage Funeral Home does 203 calls per year. Reuters states that “the company serves suburban and rural markets”.
Those numbers, and a look at the map, does indicate to me that the funeral homes that Carriage Services operates would probably fit in the national group of traditional funeral homes that has seen, over the past 7-10 years, a rapid movement from earth burial disposition to cremation disposition. That disposition movement would explain why what they call their “Same Store Funeral Operating Revenue” has grown only from $155 million to $160 million in the past five years. That is an annual growth rate of less than 1% from existing businesses. It appears, like many family owned firms in America, “Revenue per Service” growth is difficult to come by for them in this disposition environment.
That disposition type trend is a difficult thing to stop and as cremation percentages grow, “Revenue per Service” usually drops. Carriage Services is working on the issue from the expense side by trying to drive their “overhead as a percent of revenue” downward. It appears that they are succeeding at that as that number, according to their 2019 Investor Presentation, has moved from 15.3% in 2012 to 12.6% in 2018. That movement should help margins grow even if “Revenue per Service” does not.
We also noticed in the Operating Trend Report that “Same Store Funeral Contracts” have grown at a less than optimal clip. According to that report what was a contract number of 29,682 in 2014 only increased to 30,088 in 2018. That is only a 1.3% increase in a five year time period — in my opinion, that is under what an internal growth number should be for healthy internal growth.
What we do like about Carriage Services is their decentralized, entrepreneurial system whereby they acquire an existing funeral home and then seem to prefer to keep the former owner employed, with an incentive plan, as what they call a Managing Partner. That system would seem to give stability to the acquired firm and give the former owner added incentive to continue growing the business for the benefit of not only himself, but Carriage Services as well. The challenge here is to keep the former owner “hungry” knowing that he just received a payout from the sale.
This is a timely article as just this month (March 2019) Carriage Services put out an investor presentation on their company. You can access that presentation here.