SCI 3rd Quarter 2024 – My opinion: Pretty much status quo

November 1, 2024/Finance/

You can access the report on Service Corporation International’s (SCI) 3rd Quarter of 2024 here. When you do, I’m of the opinion that you will see it looks pretty much like the 3rd Quarter of 2023.

Here’s a couple of Top-Line highlights as presented early in the report by SCI:

Revenue grew $12.1 million over the third quarter of 2023
Earnings per share was $0.81 compared to $0.80 in the third quarter of 2023
Adjusted earnings per share was $0.79 compared to $0.78 in the third quarter of 2023

And, here is what Tom Ryan, SCI’s Chairman and CEO said in prepared remarks in the presentation, “. . . We are excited to see the positive impact in funeral revenue from our new marketing agreement with our new preferred preneed insurance provider, which launched during the quarter. Additionally, we are pleased both funeral and cemetery gross profit were relatively stable versus the prior year third quarter with modest revenue growth reflecting our continued focus on managing fixed costs.”

CEO Ryan also made mention of some impressive activity in the acquisition market for SCI when he made these prepared comments, “We also had a very active quarter on the acquisition front including premier locations in major metropolitan markets. We invested $123 million adding 10 funeral homes and 2 cemeteries, including one combination location.”

Tom Anderson
Funeral Director Daily

Funeral Director Daily take: In doing some of the math, the $12.1 million improvement in top-line revenue on top of 2023’s 3Q revenue amounts to a 1.2% increase in revenue.

Operating Income came in for 3Q24 at $212.4 million in comparison to a number of $223.0 million in 3Q23 (one year ago). That’s an approximate additional 1.26% of margin loss to revenue for this quarter as compared to last year – and in raw numbers about $10.5 million. So, from my point of view, the slight increase in revenue for the quarter was virtually offset by slightly lower margins — most likely caused by continuing inflationary issues.

Looking at another metric to somewhat strenghen this point, the company’s “Cost of Revenue” line item increased to $761 million for 3Q 2024 as compared to $748 million in 3Q 2023. That’s a $13 million difference and virtually even to the increase in revenue ($12.1 million) for the quarter.

Again, from my point of view, that issue of “inflationary costs” seems to be the issue that is troubling traditional funeral homes at this time. . . . They are getting some increases in top-line revenue — SCI’s “Consolidated Funeral Segment Revenue per Service” jumped to $5,669 in 3Q24 as compared to $5,605 in 3Q23, but that increase is virtually taken up by higher costs of doing business.

On that same point, SCI’s 9-month numbers for “Consolidated Funeral Segment” ending September 30, 2024, show that their “Gross Profit Percentage was at 19.6% of Revenue”. That’s a 2% decrease over the same period of 2023 which is listed as 21.7% of Revenue. . . . . and basically tells a person that for every $100 brought in in Revenue that it is costing the company $2 more dollars to provide service on that revenue this year over last year.

Putting that number into perspective for the family funeral home owner. If your experience with inflationary costs is the same as SCI is realizing, then a funeral home that does $1 million in revenue annually will have approximately $20,000 in additional inflationary costs to service that revenue than they did the year before. . . . That’s $20,000 that could have been paid in wages, or given out in profit-sharing, or reducing debt principal. . . In essence, inflationary costs are reducing one’s options of how they (owners) can use that revenue resource.

There’s always more numbers that we could discuss and disect, but I think what individual funeral home operators need to take from this report is that controlling costs are difficult for everybody at this time. . . .even those companies that go around with efficiency experts looking at operations. And, until this inflationary spiral is brought under control traditional funeral home profits may be depressed unless they can find a way to add death calls or market share.

Two final things to watch for the future: In the part of the report that SCI calls “Comparable Funeral Services Performed”, the only type of service that increased in death call numbers was what they call “Non-funeral home”. The company defines “Non-Funeral Home” as “Non-funeral home revenue represents services sold on a preneed or atneed contract through one of our non-funeral home sales channels (e.g. SCI Direct) and performed once death has occurred.”

The number of “Core Funerals Performed” dropped by 1.1%. Here’s how SCI defines “Core Funerals” — “Core revenue represents the sum of merchandise and services sold on an atneed contract or preneed contract, which were delivered or performed once death has occurred through our core funeral homes.

Finally, SCI reports that its Total Comparable Cremation rate has increased to 63.7% of services for 3Q2024 as compared to 63.3% for the same period one year ago.

Disclaimer — The author of this article for Funeral Director Daily holds a stock position in Service Corporation International.

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