SCI 2Q 2024 results illustrate funeral home challenges

August 5, 2024/Finance/

Service Corporation International (SCI) reported their 2nd Quarter 2024 report last Wednesday and if the stock market is an indication, because as I write this on Thursday morning SCI stock is off its Wednesday close by over 7%, that report, that you can access here, brought to light some of the issues challenging SCI funeral homes and the greater funeral home industry at this time.

The SCI report shows a quartet of issues that funeral homes are going to have to overcome:

Percentage wise, SCI’s Cost of Revenue for 2Q24 was higher than the Cost of Revenue in 2Q23 indicating inflationary costs
“Comparable” funeral home “Atneed Revenue” was down from 2Q23, indicating a loss of service numbers
Interest expenses were higher indicative of today’s interest rate environment
“Comparable” Atneed funeral services were down 4.7% for the three months ended June 30 as compared to the same period last year, which may indicate a shift in allegiance among consumers or even a shift to low-cost alternatives. When preneed services are included in the equation, SCI’s “Comparable” funeral services performed dropped only 2.5%.

All of those issues, in spite of increasing Cemetery segment revenues and Cemetery segment gross profit, caused an Operating Income decline of about 5.5%. Operating Income for 2Q24 was $220.8 million as compared to $233.5 million in 2Q23 in spite of slightly higher revenue this year. For the 6-month period ending June 30, 2024, again while posting slightly higher total revenues, the Operating Income was also about 5.5% lower than the same period in 2023.

Those issues caused the company’s “Earnings per Share” to fall from $0.83 in 2Q23 to $0.79 in 2Q24. Here’s what SCI’s CEO Thomas Ryan said in prepared statements in the SCI Earnings Press Release, “During the latter part of the quarter, we experienced a higher than anticipated decline in funeral services performed, which in light of our high fixed cost structure, impacted our quarterly performance.”

Service Corporation’s Cemetery segment continued to be a strong performer increasing Total Revenue for the 2nd Quarter to $468.2 million as compared to $448.0 million for the period a year ago — an increase of 4.5% and for the half-year of 2024 they have increased that Total Revenue by 4.6%.

Another highlight for the company was that the “Comparable” average revenue per service for the Funeral Home segment did increase by 1.5% — from an average service price of $5,562 to an average price of $5,646 in a year’s time.

*By the way, SCI defines “Comparable” as comparing results for businesses that have been open at least one year. . . the measure leaves out newly acquired funeral homes so you can get a real glimpse of comparative results.

Tom Anderson
Funeral Director Daily

Funeral Director Daily take: I’m a fan of SCI and over the years it is hard to find many companies that have performed for their stockholders much better than SCI. . . .see this past article from Funeral Director Daily on that topic. I’m sure that they will manage these issues going forward in a positive perspective.

However, I’m of the opinion that the issues that they have faced in the 2nd Quarter of 2024 are not issues unique to SCI. They are issues for funeral homes nationwide and some issues that will have sticky resolutions to them. Some funeral home companies have started to resolve these issues, but it takes a great deal of effort and will continue to take some patience to get to what I call the “New funeral home method”.

What are those issues that I see tackling almost all traditional funeral homes. . .here’s a short list:

Inflationary costs — Costs have, according to the CPI, increased about 20% in a period of four years. They are not going to be de-flationary and come back down. For instance if your utility bill was $100 in 2020, it is about $120 in 2024. That’s about a 5% annual cost increase. These costs have to somehow be built into the costs you charge consumers for your services.

Slow Inflationary Pricing — I mentioned that SCI had a positive in that they increased their “Comparable” revenue per service. . . Yet, that was increased by about 1.5% in the last year. . . So, if your costs are going up 5% and your pricing is going up 1.5%, you will be losing margin.

Alternative Services — SCI did less “At-Need” services last quarter than the year prior by about 4.7%. Why? Maybe there was less deaths, but maybe they are losing some to Alternative services or lower-cost providers or niche providers such as direct cremation providers or green funeral providers, or alkaline hydrolysis providers. And, I’m aware that SCI owns direct cremation provider Neptune Society, but while their preneed revenue sales were up slightly their Non-Funeral Home (I believe these include Neptune Society) preneed contracts sold were down 3%. Again, Why?

Finally, interest rate costs continue to stay high for most death care providers cutting into profits.

So, in a nutshell, we know the consumer has changed. We know from the NFDA Consumer surveys that the consumer is no longer as loyal and will shop around to find the services that they want. North American funeral homes are now in a situation where they have to figure out the puzzle that includes selections to offer, input costs, consumer pricing, and case volume necessary for their traditional funeral homes, with high fixed costs, to get to a point that they can once again bring their profits back up.

It’s not so easy, but I think there are companies that are doing that ahead of the pack. . . and they will be greatly rewarded.

Disclaimer — The author of this article for Funeral Director Daily is a stockholder in Service Corporation International.

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