Carriage Services, an American death care industry consolidator, again teased investors with some good results coupled with some items that they could improve on when they reported their end of year 2017 results last week.

In a press release from the company that you can read here, Chief Executive Officer Mel Payne stated, “After eight consecutive years of record performance, our 2017 consolidated operational and financial performance did not meet our reported high performance expectations.”  Payne continued that some of the causes of lower performance included weak cemetery preneed sales and lower Field EBITDA margins of funeral home acquisitions.

Here are what we (Funeral Director Daily) took as positives from this report:

• Record Total Revenue for the year of $258.1 million.  An increase of about 4%
• Record Net Income of $37.2 million.  This was helped by a $17.5 million income tax benefit.  Without that benefit the Net Income would have been virtually equal to 2016.
• An outlook for 2018 Adjusted Diluted Eaarnings Per Share of $2.00 – $2.05 as compared to this year’s Adjusted Diluted EPS of $1.39
• An increase in same store comparison At Need contracts of 3.6%, from 23,104 services to 23,947 services.  A 3.6% increase in At Need volume would indicate solid performance by existing branches.

From a November 2017 investor presentation Carriage Services indicated that they owned 174 funeral homes.  This same store number and their acquisition services (combined total of 34,894) would indicate that their average case volume would be about 200 services per funeral home. We will use some of these numbers including the number of 32,558 total services in 2016 and the revenue number of $248 million in 2016 to come to some not so good thoughts about the business performance.

Here are what we at Funeral Director Daily took as impressions from the press release that we believe Carriage Services needs to improve on:

• Same store cemetery revenue dropped 1.9% for the year.
• Pre-Need commission revenue dropped 12.2% for the year
• Gross margin (profit)  decreases for both the 4th quarter and the year.
• While the total revenue recorded was over $258 million as compared to $248 million in 2016 that 4% increase fell well short of Carriage Services stated objective of 7-10% revenue increases per year.
• Also that revenue of $258 million was brought in on 34,894 services for an (un-scientific) average of $7,397 per service compared to $248 million brought in in 2016 on a reported 32,558 total services for an average price per service of $7,623.

Funeral Director Daily take:  The great thing about Carriage Services is that they keep chugging along and making money.  Sometimes we think it is in spite of themselves.  They obviously have some great properties and their same store at-need contracts increased 3.6%.  That is all great news.

In our opinion, however, they really have underperformed on their average price per service.  While they don’t list that number and we have to take some liberties in finding the number – although we do it year to year with consistent formulas – they appear to have dropped their average service sale almost 3%.  That is a rate, that if it continues, will lead to real margin problems – and they did have lower margins for both the 4th Qtr and the year as we pointed out above.

We’ve said it before.  . with smaller volume funeral homes, Carriage Services will suffer more on revenues if their traditional funerals are eroded by direct cremation services at a faster than expected pace.  We will anxiously look forward to their next report to see where their average revenue per service comes in at.