Core Viewpoint - Service Corp. (SCI) has shown a positive performance with a 3.4% increase in shares since the last earnings report, outperforming the S&P 500, raising questions about the sustainability of this trend leading up to the next earnings release [1] Financial Performance - Service Corp. reported second-quarter 2025 adjusted earnings of 88 cents per share, exceeding the Zacks Consensus Estimate of 84 cents and up from 79 cents in the same quarter last year [2] - Total revenues reached $1,065.4 million, a 2.9% increase from $1,034 million in the prior year, surpassing the Zacks Consensus Estimate of $1,050 million [3] Profitability Metrics - Gross profit increased by 5% to $271.4 million from $257.9 million year over year, with gross margin expanding by 60 basis points to 25.5% [4] - Operating income rose 1.7% to $224.5 million, while operating margin contracted by 30 basis points to 21.1% [4] Segment Performance - **Funeral Operations**: Total funeral revenues were $591.4 million, exceeding the consensus estimate of $579 million, with gross profit up 15.5% to $116 million [5] - **Cemetery Operations**: Total cemetery revenues reached $474.4 million, surpassing the consensus estimate of $471 million, although gross profit decreased to $155.5 million from $157.5 million [6] Financial Health - The company ended the quarter with cash and cash equivalents of $255.4 million, long-term debt of $4.98 billion, and total equity of $1.56 billion [7] Future Guidance - For 2025, adjusted earnings per share are projected to be between $3.70 and $4.00, aligning with the company's long-term growth framework of 8% to 12% [8] - Net cash provided by operating activities is expected to be between $1,025 million and $1,085 million, with total capital expenditure forecasted at $315 million [9][10] Market Sentiment - There has been a flat trend in estimates revision over the past month, indicating stable market expectations [11] - Service Corp. holds a Zacks Rank 3 (Hold), suggesting an expectation of in-line returns in the coming months [13]

Core Viewpoint - The funeral industry in China is driven more by the economic conditions of the living rather than the number of deceased individuals, highlighting a disconnect between increasing mortality rates and declining revenues for funeral companies [4][13][56]. Group 1: Industry Overview - The funeral profession, despite being considered niche, has a near 100% employment rate, with some students securing jobs before graduation [5]. - The aging population in China has reached 310 million, with an estimated 10.93 million deaths in 2024, a 10% increase from four years ago [7][16]. - Major listed funeral companies, including Fushouyuan and Fucheng Co., experienced a 19.3% decline in total revenue in 2024 [9][17]. Group 2: Business Dynamics - The funeral business is fundamentally a perception-driven industry, where collective beliefs about death create significant pricing power, leading to gross margins exceeding 80% [11][12]. - Despite the increase in the number of deaths, profits for funeral companies have halved, indicating that economic conditions, rather than mortality rates, dictate business performance [14][13]. - Fushouyuan's revenue in 2024 was 2.078 billion yuan, down 20.9%, with net profit dropping 52.8%, marking a significant break in its growth trajectory [20]. Group 3: Revenue Composition - The funeral industry consists of three main segments: funeral services, cremation, and burial plots, with burial plot sales accounting for 50%-70% of total funeral costs [21]. - Fushouyuan relies heavily on burial plot sales, which constituted 80% of its revenue in 2024, but the number of plots sold decreased by 23.2% to 12,569 [22][23]. Group 4: Market Trends - The decline in burial plot sales is attributed to alternative burial methods gaining popularity, such as eco-burials and traditional burials, which divert demand from commercial burial plots [24]. - The high prices of burial plots, averaging 121,200 yuan, are significantly higher than real estate prices in major urban areas, indicating a market driven by scarcity and emotional value [30][32]. Group 5: Future Outlook - The traditional growth strategy of price increases in the funeral industry is becoming unsustainable, as evidenced by the decline in sales volume despite rising prices [42][43]. - The average cost of funeral services has decreased from over 6,000 yuan in 2019 to around 5,200 yuan in 2024, reflecting a shift in consumer spending behavior [38]. - Companies are exploring new business avenues, such as AI technology for digital memorials, but these innovations have yet to demonstrate significant market differentiation or growth potential [54][55].

Financial Data and Key Metrics Changes - For Q2 2025, the company reported adjusted earnings per share of $0.88, an increase of over 11% compared to $0.79 in the prior year period [6] - Total comparable funeral revenue increased by over $15 million, or about 3%, compared to the prior year quarter [6] - Funeral gross profit increased by about $15 million, with the gross profit percentage rising by 20 basis points [8] Business Line Data and Key Metrics Changes - Comparable core funeral revenues increased by $8 million, or about 2%, driven by a 3.3% growth in core average revenue per service [7] - Comparable cemetery revenue increased by $2 million, or almost 1%, with core revenue up by about $1 million [10] - Preneed funeral sales production decreased by $29 million, or about 9%, primarily due to a transition to a new preneed insurance provider [9] Market Data and Key Metrics Changes - The company anticipates comparable core preneed sales production growth in 2025, despite a decrease in the first half of the year [9] - Cemetery gross profit decreased by $4 million, with the gross profit percentage declining by 110 basis points [12] - The company expects preneed cemetery sales production to grow at low to mid single-digit percentages over the prior year's six-month period [13] Company Strategy and Development Direction - The company confirmed its normalized earnings per share guidance range of $3.7 to $4 for 2025 and raised its cash flow outlook due to stronger working capital trends [12] - The company plans to invest $100 million in capital expenditures for existing locations, cemetery development, and new builds [19] - The acquisition pipeline remains optimistic, with an anticipated investment target of $75 million to $125 million for 2025 [21] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving revenue and margin growth for both funeral and cemetery segments for the remainder of 2025 [12] - The company noted that cash taxes will revert to a more normalized level in 2025 compared to 2024, following a tax accounting method change [24] - Management highlighted the importance of their team in navigating challenges and providing exceptional service to customers [16][25] Other Important Information - The company returned $239 million of capital to shareholders in Q2 2025 through dividends and share repurchases [21] - Adjusted operating cash flow for the quarter was $168 million, with a significant increase in cash taxes impacting the overall cash flow [17][19] - The company ended the quarter with liquidity of about $1.4 billion, consisting of cash on hand and available credit [25] Q&A Session Summary Question: What drove the dip in the recognition rate in the current quarter? - Management attributed the dip to normal volatility in cemetery production and expects the recognition rate to improve in the second half of the year [28][30] Question: What are the expectations for the cremation rate moving forward? - Management indicated that the pace of increase in the cremation rate may moderate, with expectations adjusted to 50 to 80 basis points [32][34] Question: How will cash flow and tax benefits from the federal bill affect long-term cash taxes? - Management expects a $30 million benefit from cash taxes this year, with ongoing benefits from capital improvements [36][41] Question: What are the expectations for funeral volumes in the back half of the year? - Management noted that the third quarter will be a tougher comparison for funeral volumes, while cemetery revenues are expected to be strong [44] Question: What is the financial benefit of the shift in life insurance partner? - Management expects incremental benefits from the type of insurance products sold, with potential for a couple of points increase in production [54][56] Question: What is the outlook for preneed sales production growth? - Management expects low to mid single-digit growth in preneed sales production for both funeral and cemetery segments in the second half of the year [62][64]

Financial Data and Key Metrics Changes - The company reported adjusted earnings per share of $0.96 for Q1 2025, an increase from $0.89 in the prior year, reflecting a growth of approximately 7.9% [6][7] - Total comparable funeral revenue increased by over $23 million, or about 4%, compared to the prior year quarter [8] - Funeral gross profit increased by about $21 million, with the gross profit percentage rising by 240 basis points to over 24% [10] Business Line Data and Key Metrics Changes - Comparable core funeral revenue increased by $18 million, or about 4%, driven by a 2.5% growth in core average revenue per service and a 1% increase in core funeral services performed [9] - Preneed funeral sales production decreased by $32 million, or about 10%, primarily due to the transition to a new preneed insurance provider [11] - Comparable cemetery revenue decreased by $8 million, or about 2%, with a core revenue decline of $10 million attributed to lower recognized preneed property revenue [12][13] Market Data and Key Metrics Changes - The company anticipates flat to slightly down funeral volume compared to 2024, with average revenue per case growing at inflationary rates [15] - Preneed cemetery sales production is expected to grow in the low single-digit percentage range, resulting in cemetery revenue growth of about 1% to 2% [16] Company Strategy and Development Direction - The company is transitioning from a trust to an insurance-funded preneed model, which is expected to stabilize and grow in the latter half of 2025 [12][16] - The company confirmed its normalized earnings per share guidance range of $3.7 to $4 for 2025, representing a midpoint of 9% year-over-year growth [15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the sales pipeline, indicating a strong outlook for the remainder of the year despite external pressures [34][37] - The company is focused on managing inflationary costs and expects to maintain impressive gross margin percentages in the 32% to 33% range [17] Other Important Information - The company generated adjusted operating cash flow of $316 million in the quarter, exceeding expectations and showing a substantial improvement over the prior year [21] - Capital investments in Q1 2025 totaled $95 million, with $67 million allocated to maintenance capital and $15 million towards business acquisitions [22][24] Q&A Session Summary Question: Can you discuss the cemetery preneed sales production being down? - Management noted that large sales were worse than core production, but they expect a strong pipeline moving forward [32][34] Question: How do you view the impact of tariffs on costs? - Management indicated that they have long-term contracts that protect against immediate impacts and do not expect material effects on guidance [41][44] Question: What drove the increase in funeral volume in Q1? - Management attributed the increase to slight growth in market share and the effects of their strong preneed program [48][50] Question: What is the outlook for preneed funeral volume to insurance? - Management expects the annual premium generated from preneed funeral contracts to be higher than initially thought as they transition to insurance [60][62] Question: How do you see the impact of M&A on funeral volumes? - Management indicated that M&A could contribute 1% to 2% growth, depending on the timing and nature of acquisitions [92][94]