Security National reports Year End 2022 results. . . . meshes with national economic data




Last week death care conglomerate Security National Financial Corporation reported their 2022 Year End results.  As I was reading the press release, which you can access here, it occurred to me that their businesses were affected exactly as you would have thought considering the happenings in America’s business and social environments during the calendar year 2022.


Security National Financial Corporation (SNFC) is broadly based in the death care business.  They operate in the retail funeral and cemetery business as well as in the preneed insurance and assignment funding areas.  They are about as broad-based and industry diversified as any one company in the death care space.


In addition they also compete in the mortgage and mortgage servicing businesses as well.  The company operates on a three-legged stool formula with their three divisions being Life Insurance, Cemeteries/Mortuaries, and Mortgages.  Here’s what I found interesting and prompted the headline of “. . .meshes with national economic data”.


Last year, 2022, interest rates went up which one would expect would cause mortgage demand to go down.  Deaths from the pandemic dropped which would lead one to believe that there would be less overall deaths in the United States — which would lead one to believe that funeral homes did less business than the prior year.  Inflation continued which would lead one to believe costs would go up and margins would be compressed.  Finally, one would also believe that a company that funded preneed insurance would benefit from paying out less death claims because of fewer deaths, generally related to the pandemic.


And that is almost exactly what happened with SNFC last year.  With the exception of the company’s Cemetery/Mortuary division increasing their revenue – possibly because of acquisition timing, the company did see a decrease in mortgages and buoyancy in their Life Insurance division which had less claims.


Here’s what Scott Quist, Chairman of the Board and CEO of the company said in the earnings press release. “. . . .We saw death rates decline pretty much throughout the year, which helped our Insurance segment, but hurt our Memorial segment. Mortgage loan demand evaporated beginning in March, which resulted in a roughly 32% year-over-year decline in mortgage loan revenues, but the decline was certainly greater in the later months of the year. For example, December 2022 had a roughly 67% revenue decline as compared to December 2021. We did have a huge earnings boost from our Mortgage Servicing Rights sale, but the operating environment remains very tough. “


Tom Anderson
Funeral Director Daily

With all of those issues Quist was still able to report, “Overall, our after-tax profit of $25.6 million means that the Company earned a net 1.76% return on total assets (2.35% pretax) and an 8.7% return on equity (11.6% pretax). Those are very acceptable overall numbers and is, in fact, our 3rd best year lagging behind only 2020 and 2021. Nevertheless, I would characterize 2022 as being a “rugged” year.”


Of most interest to us at Funeral Director Daily is the operation of the company’s Cemetery/Mortuary division.  The division has grown, and while still not extremely large, cannot be seen as a small player anymore.  For the year this division racked up revenues of $28.9 million as compared to 2021’s revenue of $27.2 million — an increase of 6.2% in a year in which deaths were down year over year.


However, again meshing with the national business indicators, we noticed that the margins, when comparing Earnings before Taxes to Revenue,  for the Cemetery/Mortuary division dropped about 8% in 2022 as compared to 2021.  More than likely that is indicative of a national trend of the cost of doing business — such as wages, interest, and supplies — rising faster due to inflation than funeral homes are able to raise prices to offset those increases.


For SNFC’s Cemetery/Mortuary division the margin of Earnings before Taxes to Revenue for 2022 was 21.1% as compared to the same number in 2021 which came in at 29.1%.  It’s that decrease in margins that has many funeral home owner/operators searching for answers to overcome that troubling trend.


Disclaimer — The author of this article holds a stock position in Security National Financial Corporation.


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