SCI’s 1Q24 results point out some Death Care headwinds

May 6, 2024/Finance/

Service Corporation International (SCI) reported their 1st Quarter 2024 financial results last week. North America’s largest death care provider did show an increase in revenue of 1.6% to about $1.045 billion for the quarter, but showed Operating Income dropping 5.6% from the comparable 1st Quarter of 2023 and also showed a decrease of 9.3% in Net Income (to $131 million from $144 million in 1Q23) as compared to the 1st Quarter of 2023.

You can access the SCI 1st Quarter Financial Report here.

In general it was the 4.3% increased expense in Cost of Revenue (What I assume includes operating expenses) and a whopping 19.3% increase in Interest Expense over their 2023 comparable periods that resulted in a lower Net Income.

Again, from my point of view, that “Cost of Revenue” increase indicates the climb funeral homes are having to make due to the inflationary operating cost pressures put on them in the last couple of years. The continually increasing operating costs continue to dig into what would otherwise be profits. . . . and, if that isn’t enough the SCI Statement of Operations indicates that Interest Expense increased about $10 million dollars for the quarter — from about $54 million in 1Q23 to about $64 million in 1Q24.

It appears that most of the other issues are with the funeral side of the business as total revenue for the funeral side dropped about $5 million on the quarter and the cemetery side of the business increased about $20 million. 1st Quarter numbers indicate that the funeral side of the revenues for the company account for about 57.8% of the total revenue and the cemetery side of the equation accounts for about 42.2% of the total revenues.

Here are some of the other “nicks in the armor” that I noticed when looking at the SCI financials for 1Q23:

Total Services Performed — down 2%
“Comparable” or “Same Store” Operations, Funeral Services Performed – down 2.8%
“Comparable” Total Pre-Need Sales — down 2.4%
“Comparable” Core Pre-Need contracts sold — down 5.0%

There’s also some good news from the folks at SCI to their shareholders:

Cemetery business was very strong — Cemetery Revenue was up 5% and Preneed Cemetery was up about 8%
For funerals, “Core Revenue per Service” was up about 4%

Tom Anderson
Funeral Director Daily

Funeral Director Daily take: I think the results of SCI’s 1st Quarter are somewhat of a “Mixed bag” of results, but nothing that is at all surprising. At this point in time we have entered a historical period where there is a lot of transition — not only in death care, but in the world and/or economy as well. In those types of periods, companies begin adjusting to that new reality. . . and that is exactly what SCI will do.

What are those new realities? First of all, I think the era of a high number of raw deaths caused by the pandemic are over. However, if the data is correct going forward, America’s Baby Boomer generation and their eventual demise will soon begin bringing in higher numbers of raw deaths in the not so distant future. So, the number of deaths issue will resolve itself on its own in a short period of time.

Another reality is “inflationary costs”. When costs rise and you are in business you have to raise your prices or you will give up margin leading to less profits. I see Service Corporation International somewhat in this stage at this point in time. . . .they have been successful in raising prices and revenue per service, but not to the extent that inflationary costs and higher interest rates are totally covered. In inflationary times, businesses are generally lagging what is necessary to recover costs because they are cautious moving upward in price not wanting to reach a point where a consumer can make a discretionary decision to spend less — such as moving to cremation from earth burial in death care.

Finally, there is interest rates. A business that carries a high amount of debt has to be able to service that debt. And, depending on your credit situation as your loan term-lengths mature you will probably be faced with higher payments for the money you are borrowing. Those costs will also eat into profits. Until last Friday’s payroll numbers report I was one that believed interest rates may still have to tick up a little before we can get inflation under control. . . Now, I don’t necessarily think that but I do think we will have to live with inflation longer than expected even if we don’t raise interest rates. . . . . With either direction, higher rates or current rates at a longer duration, interest expenses will stay play a major role in profitability.

In my opinion, the best thing a business could do to reduce their financing or interest costs at this time is to pay down debt. It appears, from the SCI Balance Sheet that Long-Term Debt has been paid down a total of about $36 million in the past year, but the company does state that their “weighted average” of “floating debt” is at 7.4%. . . which is 1.4% higher than it was in the same quarter of 2023. With today’s Prime Rate at 8.5% that is a really good rate, but still much higher than it was just 2 years ago.

At the end of the day, it is about “Managing through the times”. I’ve also said this before in this column, over the last 30 or so years “Nobody has done that managing better than SCI” in the death care world. So, I think that last week’s SCI financial report indicates some “headwinds” that funeral homes are facing right now. Managed right, however, your funeral home can come out stronger in the end. . . . .You just have to understand that this is not the time to be running on auto-pilot.

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

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