It’s a common theme — Park Lawn reports higher sales, lower margins in 2Q 2022 report

Park Lawn Corporation (PLC) reported their financial results for the 2nd Quarter of 2022 (April thru June) last week and their report was like many others we have seen  — higher revenues, lower margins.  You can see the press release here.

For the quarter PLC reported Net Revenue of $75.9 million as compared to last year’s 2nd Quarter Net revenue of $72.0 million — a 5.4% increase.  That increase, however, relied on new acquisition revenue because revenue from “comparable operations” decreased by just over $5.0 million.  In the press release, this is what was said about that circumstance, “. . .   revenue growth from Comparable Operations decreased by $5,055,834, primarily due to decreases in property sales in certain cemetery businesses.”

Adjusted EBITDA for the quarter dropped to $15.6 million as compared to 2Q 2021 Adjusted EBITDA of $18.5 million — a drop of 24.6%.

CEO J. Bradley Green made this comment about the situation in the Earnings Call transcript which you can read here:

Brad Green
Park Lawn CEO

“During the second quarter of this year, there was a decline in year-over-year mortality which contributed to a difficult comparison to last year’s COVID impacted second quarter. From a high level, while our funeral homes were not as heavily impacted, we did see some challenges in our cemetery businesses.

Specifically, our revenue for the second quarter increased 5.4% to $75.9 million, but was negatively impacted as a result of the decrease in high margin (cemetery) property sales at certain of our legacy cemetery businesses.

Breaking this down a bit more in our funeral businesses, we were pleased to see an increase in our market share and many of the communities we serve, and a strong demand and our average revenue per call.”

Green went on to say in the earnings call that Revenue per Call increased about 2% that he attributed to ” . . .families with a strong desire to memorialize and celebrate their loved ones with enhanced services and merchandise.”

CEO Daniel Millett shared these comments in the earnings call transcript:

“. . my comments this morning will focus on the operating results from the second quarter 2022 relative to Q2 2021. This year remains a difficult year in comparison to 2021 as last year continued to experience the effects of the COVID pandemic.

While our revenue increased from $72 million dollars to $75.9 million, our call volumes fell as the mortality rate decreased. Revenue growth from high-quality acquisitions was offset by slight revenue decreases in our funeral home businesses from the aforementioned decrease in call volumes, but decreases in high margin at-need and pre-need property sales had a larger impact.

In addition, the Company’s operating expenses including general and administrative, advertising and selling and maintenance expenses increased by approximately $5.8 million dollars for the 3 month period ended June 30, 2022 over the same period in 2021. While this increase was primarily the result of acquired operations, other cost increases and the timing of certain costs impacted margins.”

Funeral Director Daily take:  This type of report — slightly increased dollar sales, lower volumes, and higher expenses has been the norm this earnings quarter among the companies that we have heard from to date.  And, those variables will cause lower margins.

I think it is important for our independent funeral home operators who read Funeral Director Daily to realize that the big public companies with their rafts of financial and operational people are probably still showing the same results as your small firm.  I see it as a unique time that we are in — slightly increased pricing, less covid deaths, and higher expenses because of inflation.  That’s the formula that the big, nationally-sized companies are seeing this quarter.  Quite frankly, smaller firms may be doing better — dependent on the pull forward effect of covid deaths in their area.

If you have time read the earnings call transcript.  There is a lot in it. . .and a lot of good sense too.  For instance, CEO Green emphasizes that these are the results, but they are the results of just one quarter and, like I did at my funeral home, it is good to pull back and look at the bigger picture.  One quarter does not make a business.

Tom Anderson
Funeral Director Daily

I also think that there may be something to be learned of CEO Green’s answer to a question about raising prices to stop margin erosion.  Here’s his answer to that question and being deliberate about raising prices if and when needed:

“. . .And if you listen to our other publicly traded company, competitors, there is a few things that you will hear absolute consistency on but this happens to be one of them. And that is everyone’s cautious about their pricing.

You have to look at it market-per-market, you have to really make sure that you are making the right decision. Because it is a lot harder to get market share than it is to just basically, it is a lot harder to get market share than it is to do a lot of other things. So you don’t want to do anything to lose market share.

So we feel like we have plenty of runway, but we are also not going to run out and ask our managers to raise their prices, because of a quarter. So we are doing it and we are and we are looking at it closely. And sometimes we may do it multiple times in a market if there is room to do it, and the inflationary pressures stay there. So we are keeping a close eye on it.

But that is very, very location specific. And then that happens with the managers and the VPs. And then it gets to Jay (COO Jay Dodds) for approval, and then we all look at it. So we feel like we got plenty of opportunity to do it without hurting ourselves, but we are going to be very deliberate about it.”

From my experience operating a funeral home for almost 35 years that is probably good advice.  I was always deliberate with an annual price increase of about 3% and did not let current inflationary pressures greatly influence my decisions. I always felt a small, annual increase could be absorbed by the at-need public and it also also allowed sometimes small-growth  increasing pre-need account benefits to not get out of whack or upside down with our prices.

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