SCI 4Q Revenue and Year End Revenue lower than comparables

February 17, 2023/Finance/

The largest funeral home and cemetery operator in North America, Service Corporation International, reported 4th Quarter 2022 and Year End 2022 financials earlier this week and one of the things we noticed is that quarterly and yearly revenue was less than 4Q2021 and less than Year End 2021. However, that is not unexpected as we know that the preliminary numbers of pandemic deaths reported in 2022 will more than likely be lower than the number of deaths from 2021.

SCI’s CEO Thomas Ryan pointed that out in his prepared remarks from the press release, that you can read here, when he said, “We are proud to report adjusted earnings per share of $0.92 for the fourth quarter of 2022. These results were below the prior year quarter that was materially impacted by the effects of COVID-19. However, they significantly exceeded our expectations as we continue to experience some impact from COVID-19 as well as a higher number of other excess deaths.”

The report also pointed out that in relation to the pre-pandemic year of 2019, the company was performing to high-performance productivity. When compared to 2019 the report mentioned the following:

For the full year we reported adjusted earnings per share of $3.80, which is an impressive 26% growth on a compounded annual basis since pre-pandemic 2019.

The number of comparable funeral services performed is trending higher than anticipated, about 5% higher than pre-pandemic 2019 levels on a compounded annual growth basis.
Comparable cemetery preneed sales production experienced a remarkable 14.5% compounded annual growth rate over 2019 levels.

Tom Anderson
Funeral Director Daily

Funeral Director Daily take: You can read what you want to in this report. Much of the comparables you see in the public company quarterly and yearly reports during the pandemic have to be taken for what they are — reports of doing business in a pandemic. And, I think it is fair to say that doing business in a deathly pandemic for a Death Care company will skew death and financial number results for those pandemic years.

A couple of items that we did notice, can be taken outside of the realm of pandemic numbers, and potentially tell us about funeral service and death care going forward. Because SCI is so large, from some people’s take they are thought to do about 12% of United States death care services — that’s about 1 out of every 8 death calls — we can generally learn something from the statistics in their reports.

Here’s a couple items that we learned about the state of Death Care in general from their recent statistics. At least, these are a couple hypotheses I make.

More Minimal Services?

When you look at the chart below, which is from the 4Q22 press release, it shows that, probably pandemic related because of higher deaths in 2021, that they did 5,260 less death care services in 4Q22 than they did in 4Q21. That is a total of about 5.5% less services for the quarter. Again, more than likely, probably easily explained by a lower number of deaths in the United States in that time period.

However, two things pop out to me from the chart. #1 is easy and shows the “Comparable Cremation Rate” jumping 1.7% in a year’s time to a rate of 61.9%. The other thing that is really interesting to someone who is a trend watcher is that even though they did 5.5% less deaths in the latest comparable quarter, they actually grew what they call “Non-funeral home” services. It’s my opinion that “Non-funeral home” services represent those services that are purchased (or carried out) through SCI’s non-traditional funeral channel options like the Neptune Society and/or SCI Direct. If that is true, it would indicate to me that SCI, and probably the United States as a whole, is seeing an increase in “Direct Cremation with No Services” death care choices even in a time when the number of deaths overall has dropped.

Comparable Funeral Services
	4Q 22	4Q21	Pct. Change

At Need	43,395	54,383	-9.20%
Matured PreNeed	27,123	27,549	-1.50%
Non-Funeral Home	13,593	13,349	1.10%

Total	90,111	95,373	-5.50%


Comparable Cremation Rate	61.9	60.2	1.70%

Inflation taking a Bite?

I would also point out the chart below which shows SCI’s Revenue and Operating Income for comparable periods in 2022 and 2021. First of all, the financial numbers are less because the number of services, or deaths, was less. Let’s take that as a given.

However, when you look at the percentage of Operating Income to Revenue over the comparable periods you will find that Operating Income is less in 2022 when looked at as a percentage of revenue.

4Q 2022 Operating Income is 16.26% of Revenue
4Q 2021 Operating Income is 28.6% of Revenue.

Yearly 2022 Operating Income is 22.%5 of Revenue
Yearly 2021 Operating Income is 28.7% of Revenue.

One could make the argument that the lower number of services/deaths in the highly fixed cost business environment of funeral homes could be the reasons that these margins are less. Or, it could be that expenses to operate have inflated to a level where they are really cutting into margins. We cannot tell from these numbers which of these reasons, or maybe both, caused the lower margin, but if you operate a funeral home you need to realize that inflationary costs will eventually make their way to the bottom line.

Dollars in millions, except for per share amounts)	Three Months Ended December 31,		Twelve Months Ended December 31,
	2022	2021	2022	2021
Revenue	$ 1,027.7	$ 1,043.3	$ 4,108.7	$ 4,143.1
Operating income	$ 167.0	$ 298.5	$ 927.3	$ 1,190.7