Service International(SCI) - 2024 Q3 - Quarterly Results

Q3 2024 Financial Results Announcement Executive Summary & Highlights Service Corporation International reported modest growth in its third quarter 2024 results, with revenue increasing by $12.1 million and adjusted EPS rising to $0.79, while highlighting significant acquisition spending Key Financial Highlights | Metric | Q3 2024 | Q3 2023 | Change | | :--- | :--- | :--- | :--- | | Revenue Growth | $12.1 million | - | - | | Earnings per share | $0.81 | $0.80 | +$0.01 | | Adjusted earnings per share | $0.79 | $0.78 | +$0.01 | | Net cash from operating activities | $263.8 million | $227.8 million | +16% | | Acquisition spend | $123 million | $33 million | +272% | - The company's CEO highlighted several key strategic points - A new marketing agreement with a preferred preneed insurance provider, launched in the quarter, is showing positive impacts on funeral revenue[7] - The company was very active in acquisitions, investing $123 million to add 10 funeral homes and 2 cemeteries[7] - SCI is targeting a return to the high end of its 8-12% long-term growth framework in 2025[7] Financial Performance Overview SCI's Q3 2024 revenue slightly increased to $1.014 billion, though operating income declined, with nine-month revenue growing to $3.093 billion Consolidated Financial Summary | Metric (in millions, except per share) | Three months ended Sep 30, 2024 | Three months ended Sep 30, 2023 | Nine months ended Sep 30, 2024 | Nine months ended Sep 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $1,014.0 | $1,001.9 | $3,093.4 | $3,044.0 | | Operating income | $212.4 | $223.0 | $665.5 | $702.1 | | Net income | $117.8 | $122.0 | $367.3 | $398.9 | | Diluted earnings per share | $0.81 | $0.80 | $2.50 | $2.60 | | Adjusted diluted EPS | $0.79 | $0.78 | $2.47 | $2.55 | Consolidated Financial Statements Consolidated financial statements show Q3 2024 revenue growth but declining gross profit, with total assets increasing to $17.4 billion and operating cash flow rising significantly - Statement of Operations (Q3 2024 vs Q3 2023): - Revenue: $1,014.0 million vs $1,001.9 million[17] - Gross Profit: $252.6 million vs $253.7 million[17] - Operating Income: $212.4 million vs $223.0 million[17] - Net Income: $117.8 million vs $122.0 million[17] - Balance Sheet (as of Sep 30, 2024 vs Dec 31, 2023): - Total Assets: $17.41 billion vs $16.36 billion[19][20] - Total Liabilities: $15.78 billion vs $14.81 billion[19][20] - Total Equity: $1.63 billion vs $1.54 billion[19][20] - Cash Flow (Nine months ended Sep 30, 2024 vs 2023): - Net cash from operating activities: $680.8 million vs $591.5 million[21] - Net cash used in investing activities: ($484.6 million) vs ($356.6 million)[21] - Net cash used in financing activities: ($230.8 million) vs ($262.2 million)[21] Segment Performance In Q3 2024, the Funeral segment's gross profit margin contracted to 19.1%, while the Cemetery segment maintained a stable gross margin of 32.3% on increased revenue Q3 2024 Segment Performance | Segment (Q3 2024) | Revenue (in millions) | Gross Profit (in millions) | Gross Profit % | | :--- | :--- | :--- | :--- | | Consolidated Funeral | $566.0 | $107.9 | 19.1% | | Consolidated Cemetery | $448.0 | $144.8 | 32.3% | Q3 2023 Segment Performance | Segment (Q3 2023) | Revenue (in millions) | Gross Profit (in millions) | Gross Profit % | | :--- | :--- | :--- | :--- | | Consolidated Funeral | $554.8 | $109.7 | 19.8% | | Consolidated Cemetery | $447.1 | $143.9 | 32.2% | Operational Analysis (Comparable Store Results) Comparable store analysis reveals a 1.3% growth in funeral revenue offset by a slight gross profit decrease, while cemetery revenue remained flat with a marginal gross profit increase Comparable Funeral Results Comparable funeral revenue increased by 1.3% due to higher average revenue per service, despite a decline in services performed, leading to a 1.4% decrease in gross profit - Core funeral revenue increased by 1.0% due to a 2.1% rise in average revenue per service, despite a 1.1% drop in the number of services performed[27] - Comparable gross profit declined by 1.4% to $107.4 million, with the gross margin decreasing from 19.8% to 19.3%[24][28] - Comparable preneed funeral sales production fell by $22.2 million (7.1%), primarily attributed to the transition to a new preneed insurance provider and a shift from trust to insurance-funded contracts in the non-funeral home channel[28] Comparable Cemetery Results Comparable cemetery revenue remained flat in Q3 2024, with core revenue declines offset by increased other revenue, leading to a slight 0.4% gross profit increase - Total comparable cemetery revenue was flat year-over-year, as a decline in core revenue was offset by a 16.5% increase in other revenue (primarily trust fund income)[29][30] - Comparable gross profit increased by 0.6% to $144.9 million, and the gross profit margin improved by 10 basis points to 32.4%, highlighting effective fixed cost management[29][30] - Comparable preneed cemetery sales production decreased by $7.9 million (2.5%), mainly due to a reduction in large sales[30] Other Financial Details Corporate G&A expenses and interest expense increased, while the effective tax rate decreased, and net cash from operating activities showed strong growth driven by working capital Corporate Expenses and Taxes Corporate G&A expenses increased due to stock price-related compensation, interest expense rose from floating-rate debt, and the effective tax rate decreased to 20.9% - Corporate G&A expenses rose from $33.2 million to $43.7 million year-over-year, pressured by long-term incentive compensation costs linked to stock price growth[31] - Interest expense increased by $4.3 million to $65.8 million due to higher average balances on floating-rate debt[31] - The adjusted effective tax rate for Q3 2024 was 20.9%, significantly lower than the 25.1% in Q3 2023, due to greater tax benefits from share-based awards[32] Cash Flow and Capital Expenditures Adjusted net cash from operating activities grew by $41.2 million to $269.0 million, driven by favorable working capital, while total capital expenditures increased to $101.0 million - Adjusted net cash from operating activities grew 18% to $269.0 million in Q3 2024, primarily due to favorable working capital changes, including higher cash receipts from preneed contracts[10][33] Capital Expenditures Summary | Capital Expenditures (in millions) | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Maintenance, cemetery development, etc. | $88.4 | $81.8 | | Growth capital expenditures | $12.6 | $8.9 | | Total capital expenditures | $101.0 | $90.7 | Trust Fund Performance The company's consolidated trust funds generated positive returns, with a 6.0% return for Q3 2024 and a stronger 12.8% for the nine-month period Trust Fund Returns Overview | Trust Fund Returns | Three Months | Nine Months | | :--- | :--- | :--- | | Preneed funeral | 5.8% | 12.7% | | Preneed cemetery | 6.1% | 13.2% | | Cemetery perpetual care | 6.1% | 12.4% | | Combined trust funds | 6.0% | 12.8% | 2024 Outlook The company updated its full-year 2024 guidance, narrowing adjusted EPS to $3.47-$3.57 and raising adjusted operating cash flow to $940-$960 million 2024 Financial Guidance | Metric (in millions, except per share) | Q4 2024 Outlook | Full-Year 2024 Outlook | | :--- | :--- | :--- | | Diluted EPS excluding special items | $1.00 - $1.10 | $3.47 - $3.57 | | Net cash from operating activities excluding special items | $230 - $250 | $940 - $960 | - The full-year 2024 adjusted EPS guidance of $3.47 - $3.57 is a revision from the previous expectation of being in the lower half of a $3.50 - $3.80 range[11] - The midpoint of the full-year 2024 adjusted operating cash flow guidance was raised from $930 million to $950 million[11] Non-GAAP Financial Measures The company provides non-GAAP measures to clarify core performance, adjusting GAAP net income and EPS for special items like divestiture gains Q3 2024 Non-GAAP Reconciliation | Reconciliation (Q3 2024, in millions) | Net Income (in millions) | Diluted EPS | | :--- | :--- | :--- | | As reported (GAAP) | $117.8 | $0.81 | | Gains on divestitures, net (pre-tax) | ($3.5) | ($0.02) | | Tax effects and other | $1.0 | $0.00 | | Excluding special items (Non-GAAP) | $115.3 | $0.79 | Nine Months 2024 Non-GAAP Reconciliation | Reconciliation (Nine Months 2024, in millions) | Net Income (in millions) | Diluted EPS | | :--- | :--- | :--- | | As reported (GAAP) | $367.3 | $2.50 | | Gains on divestitures, net (pre-tax) | ($4.8) | ($0.03) | | Tax effects and other | $0.6 | $0.00 | | Excluding special items (Non-GAAP) | $363.1 | $2.47 | Risk Factors & Forward-Looking Statements The report outlines various forward-looking risks, including market conditions, inflation, competition, changing consumer preferences, and information security - Key identified risks include: - Market conditions affecting affiliated trust fund investments[16] - Adverse effects of inflation on results[16] - Competition in the funeral and cemetery industry[16] - Changing consumer preferences, including the rising cremation rate[16] - Failure to maintain the security of customer and associate information[16] - Declines in the number of deaths or an upward trend in life expectancy[16]