Service Corporation Reports 4th Quarter and Year End

Foundation Partners why I partnered

Service Corporation International of Houston, Texas, the nation’s largest provider of deathcare services reported 4th Quarter and Year End 2017 results on Tuesday, February 13.  You can see the financials and read the commentary here.

In a statement, Chief Executive Officer Tom Ryan commented, “We delivered a solid quarter as we close out 2017.  . . . . Looking ahead to 2018 we believe we are well-positioned to deliver solid results. . . We are announcing an adjusted earnings per share range of $1.72 to $1.90 and an adjusted cash flow operations range of $540 million to $600 million expected for 2018.”

Here are some of the highlights that we have noticed:

  • For the 4th Quarter total revenue grew to $812.7 million from last year’s $809.1 million
  • For the year total revenue grew 2% to $3.095 billion from $3.031 billion in 2016.
  • For the year Service Corporation International conducted 308,786 services as compared to 307,980 in 2016.

SCI also offers “comparison” operations data.  Comparable data criteria is that the facility had to be owned for the entire time from January 1, 2016 thru December 31, 2017.  This leaves out newly acquired business units for a more accurate portrayal of trends.  Here is some comparable data for the 4th Quarter of 2017:

  • The company conducted 76,626 services as compared to 75,666 in 4Q 2016.  That is an increase of 1.3%
  • Comparable At-Need Revenue per Service dropped to $5,809 per service from $5,868 per service in 4Q 2016.
  • The cremation rate jumped to 53.9 from 52.9% in 4Q 2016.  The 3Q 2017 cremation rate was 53.5%
  • The average  Revenue per Pre-Need contract sold continues to decline.  SCI reports that number to be $6,065 for 4Q 2017 compared to $6108 in 4Q 2016 and $6,101 in 3Q 2017.

Funeral Director Daily take:  From our point of view there is nothing surprising in this report.  Our belief is that operating profitable death care businesses continues to get tougher and tougher to do.  It is not like the days of the mid and late 20th century where the cremation numbers were very low.

We do, however, see bright spots for SCI.  For instance their comparable year over year services increased in what we would call “same store” sales by 1.3%.  I used to think that if I could pick up 1% market share per year that was pretty good as funeral consumers are loath to change brands.  So, increasing their services 1.3% , is in my opinion, pretty good work.

The opposite side of the coin, and the challenge, in my opinion, is in stopping the slide of the revenue per case number or, better yet,  starting to grow it.  SCI’s comparable revenue per case dropped $59 per case from 4Q 2016 to 4Q 2017.  That is probably just a result of a 1% rise in their client cremation rate and not reflective of client families choosing to spend less.   It is a pretty simple equation — as cremation percentage rises, average revenue per case will drop.  However, that slide, wherever it comes from, is a real hindrance on overall profitability

Service Coporation’s size gives them a lot of advantages in this business.  It is our opinion that in the future they will be able to continue to make use of this economy of scale to even more advantages.

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