Service Corporation International announced their 3Q 2017 results on October 25.  The company, based in Houston, Texas – much like Carriage Services – announced that the results were somewhat skewed by the hurricanes that happened during the quarter and affected some of their locations in Texas and Florida.  In SCI’s case, they announced in their report that they believe the hurricanes caused a probable decrease in funeral production of $5 million for the quarter.

You can read about SCI’s results in this press release.  Here are some of the data points that we picked up on:

• Revenue for the quarter was $731 million for the quarter. . . .a $10 million increase over the same period in 2016
• Earnings per share was $0.29/share in 2017 as compared to $0.24 in 3Q 2016.
• Funeral  services for both the quarter and year to date are pretty flat. . .for the quarter 72,049 in 2017 vs. 72,680 in 2016.  For the year to date 230,533 for 2017 vs. 230,516 year to date for 2016.
• Revenue per service is exactly the same year to date 2017 vs. 2016 at $ 5,280 per service.
• Cemetery revenues are up about $2 million for the quarter and about $8 million year to date

Service Corporation also breaks out data among what it calls Comparable Funeral Results or “Same Store” statistics and they are also interesting.

• Funeral at need revenue for “same store” comparables show revenue down by over $10 million for the quarter.
• Comparable Operating Margin is also down for the quarter year over year from 16.9% to 16.3%
• Comparable cremation rate is marginally up to 53.5% from 52.7%
• Comparable Revenue per service is marginally down from $5,280 per service to $5,271.
• Average Pre-Need contract amount is down from $6,101 per contract to $5.913 per contract in 2017.  That is an over 2% decline.

Funeral Director Daily take:  I think that we are living in an interesting time for funeral service.  We all know that alternative services such as direct cremation and other low budget services are taking place.  We also know that it takes a certain amount of margin to operate full service funeral homes as we have done in the past.

What we have today is the rubber hitting the road as to how exactly can we service families with the level of care we believe that they expect and still do that at a price point that is both “reasonable” to the consumer and profitable for the business entity.  SCI did raise revenues by about $10 million for the quarter but same store operating margins are moving downward.

One very interesting statistic among all the others to me is that average Pre-Need contracts are down about 2% in revenue per case.  That, to me, is an indication that at-need service revenue will be coming down also as I’m guessing the drop in contract average is not a case of a drop in the price of services, but rather, what services that are selected.  Such as direct cremation over funeral services becoming more popular which would create that overall drop in average price.

If that is the case — then funeral homes have tough treading ahead of them in keeping profitability up.  The easiest cure for this, especially for large firms, is continue to build scale by doing more services under each roof, thus lowering operating costs per case.  That could be done through aggressive advertising – which is not a certainty of pulling business – or by acquisition of a competitor and then moving that business under your existing roof.  However, that move might make way for a competitor to move in and  fill the void the acquired funeral home left.  It is going to be interesting to watch what happens next in this environment.

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