Just the other day an article on SeekingAlpha.com came out reporting on the status of public funeral home consolidator Service Corporation International (SCI).  As I’ve said before I’ve always kept up with the public companies in the death care industry because by following them I’ve learned things that have improved my own small business.

I would suggest that you read the entire article on SeekingAlpha.com but here are some of the highlights that I gleaned from the article.

• SCI has an estimated 16% market share for death care services (funeral and cremation) in the United States
• The sheer size of the company within the industry means that they have the ability to drive down costs with economies of scale which can make it tougher for competitors to match their pricing.
• The funeral and cemetery is well positioned for long-term growth as far as numbers go because of the large ageing baby boom population.
• The baby boom demographic is driving pre-need sales for SCI.  The article states that the average cemetery Pre-Need customer is in their early 60s and that the average pre-need funeral customer is in their 70s.
• SCI has generated stable returns over the last several years and will probably continue to use funeral home acquisitions to continue this strategy.
• SCI has invested heavily in generating higher sales per case.  They have a new customer relationship management system that will be fully implemented in 2017 and they expect it to deliver a stronger focus on customer appeal and satisfaction.

Under the “What to worry about” side of the equation the article points out that SCI has made good use of debt financing while interest rates have been low to aid in acquisitions.  However, they have greatly raised their debt levels.  In 2013, the article points out, that their Long-term debt to equity ratio was 1.394 and it is almost double that today at 2.784.  This debt level has caused an investment in SCI to be deemed considerably riskier today than in 2013.

Funeral Director Daily take:  We don’t see a lot of surprises here.  Most of what we highlighted makes perfect sense to most funeral directors who have stayed on top of their business.  I think we all know that the baby boom generation will provide great opportunities for funeral home owners in an increased number of calls.  However, it is also my assumption that this cohort will also provide some great challenges due to their affinity for cremation with less services and merchandise sales than small town funeral directors are used to.  This will greatly challenge the revenue per case dollar figure that many small town funeral directors are used to.

It appears that SCI is tackling this challenge head on with their investment in training and customer service to generate higher per case sales volumes.  Small firms shoudl figure out how to do the same.  It is also interesting to me that the Pre-Need side of the business has different age brackets where people look for cemetery and service pre-need items.  I think it is a good practical matter for smaller funeral homes to have at least monthly pre-need discussions with the 55 and up age bracket to plant the seed of pre-need into them.

Finally, the bullet point about SCI’s debt ratio is a cautionary tale for small operators.  In my opinion debt is a necessary part of business, but always use it cautiously and with great judgement so it doesn’t get out of hand.[wpforms id=”436″ title=”true” description=”true”]