Death Care Index mirrors NASDAQ on the year

As we move into the final month of the calendar year it seems like no one has the financial markets figured out.  In a year of rising inflation and rising interest rates, raised with the intention of curbing the inflation, the stock market indices have looked confused as to whether the worst is past or is yet to come.  The major indices have all dropped on the year — from a 5.7% loss year-to-date for the Dow Jones Industrials to a loss of over 24% for the Nasdaq composite.

When you look at Death Care, investors seem to be taking a company by company look at their investments in the sector – as the wide differing rates of return indicate.  Our calculations at Funeral Director Daily show the Death Care Index (DCI) of public stocks involved in the Death Care profession show the six public company stocks we follow to have dropped 23.5% YDT as of last Friday (11/25/22) – very similar to the 24.9% drop of the NASDAQ.

Here is a chart that we put together to show you DCI stocks along with major index numbers over the past three years.  We have calculated stock ownership returns for Year-to-Date and for what we refer to as the Pre-Covid Rate or pandemic period rate of return.  The returns do not take into account any dividends that may have been paid:

Item 1/1/2020 1/1/2021 1/1/2022 11/25/2022 YTD Pre-Covid Rate (1/1/20)
to 11/25/22
Dow Jones 28,538 30,606 36,388 34,347 -5.70% 20.30%
NASDAQ 8,972 12,888 15,644 11,756 -24.90% 31.00%
S&P 500 3,230 3,756 4,766 4,026 -15.60% 24.60%
SCI         46.03 49.10 70.99 71.41 1.00% 55.13%
Carriage Services 25.60 31.32 64.44 24.21 -62.50% -5.50%
Park Lawn Corp 22.52 22.08 30.10 19.15 -36.40% -14.97%
Hillenbrand 33.31 39.80 51.99 48.76 -6.30% 46.38%
Matthews Intl 38.17 29.40 36.67 31.42 -14.40% -17.69%
SNFC 5.57 8.35 9.20 6.71 -27.10% 20.46%
DCI Index 171.20 180.05 263.39 201.66 -23.50% 17.79%

 

Funeral Director Daily take:  While we mentioned that the investment community is trying to figure out if the worst of our country’s recent economic woes are behind us or still in front of us, we probably can say that the death care profession has been affected by the Covid-19 pandemic and those issues, I believe, are more behind us than ahead of us.

It’s interesting to note, that while the DCI has a negative reading year-to-date if you go back three years prior to the onset of the pandemic – almost a complete three years to January 1, 2020, – the DCI has risen 17.79%.  That’s a rate of almost 6% per year in growth.  It’s a reminder to me of Peter Lynch’s book “One up on Wall Street” where he opined as to Death Care having a slow, methodical growth rate. . . .and slow and methodical is not always a bad thing.

Tom Anderson
Funeral Director Daily

During the pandemic death care companies had higher than normal services and lower interest costs, than now, for the most part.  The companies did very well financially and used the low interest rate environments to reduce debt obligations by refinancing debt at lower interest levels.

I think we are now to a point, as many companies indicated in their July thru September quarterly reports that the deaths from Covid are lessening off and we are getting more and more to a pre-pandemic death call level. As a matter of fact, many of the Death Care public companies are now starting to compare their results to their pre-pandemic results — somewhat making the point that they believe that the period of the inordinately high death numbers certainly were an anomaly in the recent history of their results.

While the pandemic seems to be behind us as far as increased deaths, in my opinion there are other challenges ahead for Death Care.  I see the biggest ones being inflationary costs in labor, wholesale materials, and energy.  In addition, rising interest rates will whittle away profits for those businesses that carry lots of debt, especially those businesses with adjustable rates, for the time being.  Everything from a funeral home’s fleet costs to their cost of inventory, if financed, will cost more in raw dollars because of both inflation and interest rates.

It remains to be seen if funeral homes can raise prices to cover those increases and, in doing so, maintain their historical margins on services.

I also believe that inflation brings another challenge ahead for the Death Care funeral home operating companies and companies that manufacture and sell caskets.  It’s my opinion that anytime one sees inflation in a product that can be substituted with a lesser price product consumers will take a look at making that change. .  . .and I see that in the Death Care business with traditional casketed funeral services.  Inflationary times, which raise the cost of those services, may result in client families looking to less expensive options in the care of their loved one — such as cremation.

RelatedHere’s a recent video news story (and print article) from Little Rock (AR) KTHV-TV featuring North Little Rock funeral home owner Jeff Smith commenting on that exact issue.

If inflation is not brought in check soon I firmly believe that we will see the cremation rate rising at a faster clip than the traditional 1 to 1.5% annual rate. . . . and it will be because of cost of other optional services such as casketed traditional services.  If that happens that lower revenue per service will be a continuing challenge for Death Care providers.

Disclosure — The author of this article holds stock positions in Service Corporation International, Carriage Services, Park Lawn Corporation, and Security National Financial Corporation.

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