Service Corporation International (SCI) FY Conference Transcript

Summary of Service Corporation International (SCI) FY Conference Call Company Overview - Company: Service Corporation International (SCI) - Industry: Funeral services and cemetery operations - Market Position: Largest operator in the U.S. and Canada with approximately 17% market share by revenue, while other consolidators account for about 9% [4][6] Core Business Model and Strategy - Business Segments: Divided into funeral services and cemetery operations, with a focus on preneed contracts to secure market share and build trust fund portfolios [4][5] - Earnings Growth Target: Aiming for 8% to 12% earnings growth, with 5% to 7% from base business and 3% to 5% from capital deployment (acquisitions, growth capital, share repurchases) [6] Recent Performance and Trends - Funeral Volume Trends: - Increased by 13% in 2020 and 4% in 2021 due to COVID-19 - Declined by 4% to 5% in 2022, 5% to 6% in 2023, and expected to decline by 2.5% in 2024 [8][9] - Anticipating flat to slightly down volumes in 2025 due to normalization post-COVID [9] - Cemetery Operations: - Cemetery sales are closely linked to funeral volumes, with a decline in both areas noted during the pandemic recovery [11][12] Revenue and Pricing Dynamics - Funeral Revenue per Service: - Steady growth in low single digits driven by inflationary pricing power, with a shift towards cremation impacting average sales growth [14][16] - Current cremation mix at 60%, with expectations to stabilize around 75% to 80% in the long term [17] - Preneed Sales: - Transitioning from trust instruments to insurance contracts, which is expected to stabilize and grow preneed production in the future [22][23] - Anticipated low single-digit declines in funeral preneed production for 2025, with expectations for stabilization and growth in 2026 [27] Cemetery Preneed Sales - Core vs. Large Sales: - Core preneed sales account for 85% to 90% of the business, showing low single-digit growth [30] - Large sales (over $80,000) are more volatile and dependent on individual family decisions [31] - Growth Outlook: - Expecting low single-digit growth in cemetery preneed sales for 2025, with potential for stronger performance if macroeconomic conditions improve [35] Margin and Cash Flow Expectations - Margin Dynamics: - Cemetery margins have improved from around 20% to the lower 30s, with expectations for flat margins in 2025 due to low single-digit growth [48] - Funeral margins expected to remain around 21% for 2025 until demographic changes drive volume increases [49] - Free Cash Flow: - Projecting $860 million in operating cash flow for 2025, with expected free cash flow of around $550 million after capital expenditures [51] Land Management and Future Growth - Cemetery Land Availability: - Over 100 years of available inventory across 36,000 acres, but some cemeteries nearing capacity [57] - Strategies include raising prices, reconfiguring land, and acquiring adjacent properties to manage land constraints [59][61] Regulatory Environment - Funeral Rule Compliance: - SCI is prepared to comply with the FTC's funeral rule, with pricing already online at 75% of locations [56] Conclusion - SCI is navigating a post-COVID environment with a focus on stabilizing and growing its preneed sales, managing margins, and leveraging its land assets for future growth. The company remains optimistic about its long-term strategies despite current market challenges.