SCI’s CEO Tom Ryan on 2021 results, 2022 expectations

Tom Ryan
SCI CEO

Recently Service Corporation International (SCI) reported on their 2021 financial results.  As is customary, SCI’s top officers then took part in a discussion with financial services analysts on the results and other thoughts as how they relate to the company moving forward.  You can see a transcript of that discussion here.

What we have done for you at Funeral Director Daily is condensed those remarks in this article.  We’ve tried to highlight what SCI’s CEO Tom Ryan mentioned in the earnings call and summarize those thoughts, on different subjects, below.  Here’s what CEO Ryan said on several different issues:

On Year End 2021 Results:

“We ended the year with a strong performance in both our cemetery and funeral segments. For the year, we grew revenue $632 million, or 18%; and adjusted earnings per share to $4.57, or 57% compared to the prior year. While we saw 4% comparable funeral volume growth, even growing over a COVID-impacted 2020, the primary drivers of our revenue was mid-20% growth in both preneed and at-need cemetery revenues, combined with a strong 7% increase in our funeral sales average. Timely, meaningful action in our share repurchase program and debt refinancing also drove healthy increases in our full year 2021 earnings per share.”

On a presumed Return to Normal:

“Our percentage of families selecting to have funerals and celebrations of life has essentially returned to pre-COVID levels, and the funeral sales average is being further positively impacted by an uptick in ancillary revenues, such as flowers and catering. This increase in average was achieved despite a 120-basis-point increase in the core cremation rate. Comparable core funeral volume declined 1.5% compared to the prior year quarter, slightly offsetting the positive impact of the funeral sales average.”

On Managing Costs:

“. . . our fixed costs have increased 6% over the two-year period, or let’s say, 3% on a compounded annual basis while we are caring for 17% more customers than we did in 2019. So bottom line, I believe we’re managing our costs very well against an unusual and difficult 2020 fourth quarter comparison.”

On PreNeed:

Preneed funeral sales production for the quarter exceeded our expectations, growing $30 million from nearly 14% over the fourth quarter of 2020. Both our core funeral homes and SCI Direct businesses posted strong production increases against an easier fourth quarter comparison in 2020. . . .Our core preneed funeral average revenue per contract . . . is over $6,300. This is an 8% increase over 2020 and more than $300 higher than our at-need average for the quarter. We continue to see positive momentum in generating significantly more high-quality marketing leads at a lower cost through increased focus on digital leads, as well as more sophisticated data targeting for our direct mail and seminar programs. 

Looking Forward in 2022:

Now let’s shift to a discussion about our outlook for 2022. . . . As you think about the cadence for the year as we compare back to a $4.57 (earnings per share in) 2021, we would expect negative comparisons for each quarter. We should see continued elevated earnings in the first quarter due to COVID as we are continuing to experience increased demand with funeral volume and at-need cemetery sales. As the year goes on, we would anticipate that the COVID impact becomes immaterial and that we should begin to see the pull-forward impact from 2020 and 2021 having a mildly negative effect on funeral volumes and at-need cemetery revenue, thereby making the quarterly comparisons increasingly more difficult. For the year, we believe the favorable COVID impact from the fourth quarter and the pull-forward effect later should effectively offset into an impact that will not be material.”

Funeral Director Daily take:  Those are just some of the highlights I took from the SCI management discussion on results.  From my point of view, I find it interesting that SCI management believes that from the 2nd Quarter of 2022 and on, they believe that Covid-related death impacts will become “immaterial”.  If they are correct, that is good news for the entire world.

They also seem to believe something that we have wondered about since the inception of the pandemic – that is what, if any, “pull-forward” effect will there be on death numbers. It is interesting to note that SCI management believes the pull-forward effect will be there, but only in a “mildly negative” manner and not in a business crippling manner.

More good news in this report is that “Service” revenue seems to be getting back to normal, ancillary revenue is better than pre-covid, and families seem to have a more concrete concept about the reasons for pre-arranging.  That’s all good news. . .even if you operate a small, family-owned funeral home where you don’t see a large variance in year-over-year numbers.  Selection of more service offerings by families and increased preneed sales can go right to the bottom line.

Finally, the remarks seem to indicate that preference for cremation remains strong and continues to grow — possibly faster than what was expected.

Disclaimer – The author of this article holds a stock position in Service Corporation International

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