SCI Reports Steady Growth and Strong Acquisitions in Q3

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SCI Reports Steady Growth and Strong Acquisitions in Q3

Service Corporation International (SCI), the owner and operator of funeral homes and cemeteries, reported a modest increase in its adjusted earnings per share (EPS) for the third quarter of 2024 during its latest earnings conference call. The company announced an adjusted EPS of $0.79, compared to $0.78 in the previous year. SCI management highlighted the increase in operating cash flow, alongside significant investments in acquisitions and real estate, as well as a strong outlook for the coming year.

Key Points:

  • SCI reported a slight increase in adjusted EPS to $0.79 for the third quarter of 2024.
  • The company executed a $123 million acquisition and invested $31 million in real estate for future expansion.
  • Comparable funeral revenues rose by 1%, while cemetery revenues remained stable.
  • Adjusted operating cash flow grew by 18% year-over-year.
  • SCI expects adjusted EPS in a range of $1 to $1.10 for the fourth quarter and an annual EPS growth of 8% to 12% in 2025.
  • Capital investments for the quarter totaled $320 million, including maintenance and growth initiatives.
  • Approximately $65 million was distributed to shareholders through dividends and stock buybacks.
  • The company issued $800 million in bonds at an interest rate of 5.75% to refinance debts and maintain liquidity at $1.5 billion.
  • SCI anticipates increased cash tax payments in 2025 and projects capital expenditures for maintenance.

Company Outlook: SCI expects to return to annual EPS growth of 8% to 12% by 2025. The midpoint of its 2024 adjusted operating cash flow guidance has been raised to a range between $940 million and $960 million. The company targets lower corporate G&A costs for the fourth quarter, forecasting a range of $38 million to $40 million.

Negative Aspects: Cemetery revenue saw a decline in core income, though this was offset by increases in other revenues. The company anticipates approximately $150 million in increased cash tax payments in 2025.

Positive Aspects: SCI made significant acquisitions and real estate investments in strategic locations while maintaining a solid liquidity position of $1.5 billion. Funeral margins are expected to improve by approximately 150 basis points by 2025.

Concerns: There was a 1% decrease in core funeral volume. Market closures in West Florida due to hurricanes caused minor financial difficulties.

Q&A Highlights: Tom Ryan discussed the transition from trust products to insurance products, which could delay growth until the second half of 2025. SCI Direct is expected to see increasing profitability despite licensing issues. The company remains optimistic about future volume trends and acquisition opportunities, particularly in major metropolitan areas.

Service Corporation International (NYSE: SCI) demonstrated resilience in its third-quarter performance, focusing on acquisitions and growth initiatives. The company's financial health remains solid, with a leverage ratio within the targeted range and a proactive approach to debt refinancing. Despite minor disruptions from external events, SCI management maintains confidence in the company's long-term outlook and its ability to create shareholder value. The next earnings call is scheduled for February, where further updates on the company's performance and strategic initiatives will be provided.

InvestingPro Forecasts: Service Corporation International's (SCI) recent financial performance and strategic initiatives align with key metrics and forecasts from InvestingPro. The company's market capitalization stands at $11.0 billion, reflecting its significant footprint in the funeral and cemetery services sector.

SCI's commitment to shareholder returns is clearly illustrated in its dividend history. According to InvestingPro Insights, SCI has increased its dividend for 10 consecutive years and maintained dividend payments for over 20 years, consistent with the approximately $65 million in shareholder returns reported in the last quarter through dividends and stock buybacks. The current dividend yield is 1.47%, with a dividend growth of 3.45% over the last twelve months.

The company's financial health is further underscored by its profitability. InvestingPro data shows that as of the third quarter of 2024, SCI's trailing twelve months revenue was $4.15 billion, with a gross profit of $1.07 billion and operating income of $901.75 million. The operating income margin stands at a robust 22.08%, indicating efficient operations.

SCI's stock performance has been notable, with InvestingPro reporting a total return of 52.49% over the last year and a year-to-date return of 20.71%. This strong performance is also reflected in the stock trading at 99.65% of its 52-week high.

However, investors should note that SCI is trading at a relatively high P/E ratio (adjusted 21.91 as of the third quarter of 2024), which is above the industry average. This valuation metric, along with InvestingPro Insights indicating that SCI is trading at a high P/E ratio relative to near-term earnings growth, suggests that the stock may be priced at a premium.

For investors seeking more comprehensive analysis, InvestingPro offers additional insights and forecasts. There are 13 more InvestingPro Insights available for SCI that can provide valuable context for understanding the company's financial position and future expectations.