Service International(US:SCI)2023-02-15 17:53Financial Data and Key Metrics Changes - The company reported adjusted earnings per share of $3.80 for 2022, which represents a 26% compounded annual growth rate from a pre-COVID 2019 base of $1.90 [84] - Adjusted operating cash flow for the quarter was $170 million, which is at the high end of the guidance range but $20 million lower than the prior year [70] - The leverage at the end of the quarter was approximately 3.25% net debt-to-EBITDA, with expectations to enter a targeted leverage range of 3.5x to 4x by the end of the year [1] Business Line Data and Key Metrics Changes - In the Funeral segment, volume was down 4.6% for the year but exceeded expectations, representing a 5% compounded annual growth rate from 2019 levels [86] - Preneed cemetery sales production grew by 14.5% compounded annual growth rate from 2019, while atneed revenues declined by 7% [88] - Funeral gross profit decreased by about $35 million, with the gross profit percentage declining to about 23% [92] Market Data and Key Metrics Changes - The company experienced a 5% increase in excess deaths, which contributed to higher funeral volumes [7] - The cremation rate increased by 150 basis points year-over-year, indicating a potential new normal [50] - The company anticipates a comparable volume decrease in the mid-single-digit percentage range for 2023, reflecting the waning effect from COVID [103] Company Strategy and Development Direction - The company plans to deploy $75 million to $125 million towards acquisitions and approximately $45 million in new funeral home construction and real estate opportunities [73] - The company aims to continue its capital investment strategy in 2023, focusing on enhancing facilities, cemetery inventory, and digital platforms [90] - The company expects to return to normalized earnings per share growth off the 2023 base in 2024 [105] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the financial position, highlighting a strong liquidity of about $1.2 billion [1] - The company expects inflationary pressures to lessen but remain above recent historical trends in the 3% to 4% range [47] - Management believes that the trends of excess deaths will continue into 2023, albeit at a reduced level compared to 2022 [8] Other Important Information - The company entered into a new $2.175 billion bank credit agreement, consisting of a $675 million term loan and a $1.5 billion revolving credit facility, both maturing in January 2028 [74] - The company reported a decline in trust fund income due to lower capital gains, with trust assets declining by about $800 million year-to-date [117] Q&A Session Summary Question: Clarification on 2024 growth expectations - Management expects to grow at a normalized rate of 8% to 12% off a $3.60 earnings base [4] Question: Insights on funeral services performance - The funeral segment performed better than anticipated, with excess deaths contributing to higher volumes [6] Question: Details on legal settlements - Management provided details on a $65 million settlement related to customer cancellations and legal expenses [10][11] Question: Impact of FEMA funeral assistance program - Management noted no material impact from the end of the FEMA funeral assistance program [40] Question: Trust income assumptions in EPS guidance - Management indicated that while there has been a good start to the year, no changes have been made to trust income assumptions [44] Question: Wage inflation and input costs - Management observed easing wage inflation and expects inflationary pressures to be around 3% to 4% [47]