News Releases

HOUSTON, Feb. 11, 2014 /PRNewswire/ -- Service Corporation International (NYSE: SCI), the largest provider of deathcare products and services in North America, today reported results for the fourth quarter of 2013. Our consolidated financial statements can be found at the end of this press release. The table below summarizes our key financial results:

 

Quarterly Highlights:

• Diluted earnings per share from continuing operations excluding special items increased by 22.7% to $0.27 in the fourth quarter 2013 compared to $0.22 in the prior year fourth quarter, led by strong preneed cemetery sales production, higher cemetery construction revenues, and lower general and administrative expenses excluding one-time items.
• Consolidated funeral gross profit decreased by $7.7 million, or 8.5% primarily due to an anticipated decline in funeral services performed related to the impact of a strong flu season in the prior year.
• Consolidated cemetery gross profit increased $7.8 million, or 13.8% primarily from an increase in cemetery recognized preneed revenues due in large part to a 16.0% growth in preneed sales production and higher recognized construction revenue.
• Net cash provided by operating activities excluding special items increased 14.9% or $13.7 million to $105.8 million driven by the strong earnings performance noted above and higher cash receipts on strong preneed sales activity.

Tom Ryan, the Company's President and Chief Executive Officer, commented on the fourth quarter of 2013:

"We are excited to cap off 2013 with a solid performance in the fourth quarter that exceeded EPS and cash flow expectations. Let me begin first by welcoming our Stewart associates to the SCI family. I would also like to graciously thank our entire SCI team for their hard work and tremendous execution which not only delivered financial success for 2013 but established the platform on which we will grow into the future. Looking forward to 2014, our financial position remains very favorable highlighted by significant liquidity, a favorable debt maturity profile, and anticipated robust cash flow. As we expect to de-lever to our targeted leverage ratios through mid-2014, primarily using divestiture proceeds from the Stewart acquisition, we look forward to returning to a capital deployment strategy that will focus on delivering shareholder value."

OUTLOOK FOR 2014

The Company reiterated today our outlook for potential earnings and cash flow ranges for the full year of 2014.

Commenting on the Company's outlook for 2014, Tom Ryan continued, "Despite a number of factors that have changed since we gave our preliminary outlook last quarter for fiscal 2014, we remain comfortable with our guidance for earnings and cash flow for the full year 2014. We believe that the current momentum of our preneed cemetery sales program coupled with our strategic initiatives centered on leveraging our scale will help to offset the higher than expected level of divestitures required in the Stewart acquisition and increases in other ongoing non-cash costs related to the Stewart transaction."

Our outlook for potential earnings and cash flow in fiscal 2014 is detailed below.

 

REVIEW OF RESULTS FOR FOURTH QUARTER 2013

Consolidated Segment Results

(See definitions of revenue line items later in this earnings release.)

 

Comparable Funeral Results

The table below details comparable funeral results of operations ("same store") for the three months ended December 31, 2013 and 2012. We consider comparable operations to be those owned for the entire period beginning January 1, 2012 and ending December 31, 2013.

 

• Comparable funeral revenues decreased by $3.1 million. The decline was primarily due to lower core funeral revenues of $11.1 million impacted by lower funeral services performed. The core funeral revenue decline was partially offset by higher recognized preneed revenues of $4.1 million (primarily from SCI Direct) and higher other funeral revenues of $3.9 million. Funeral services performed declined 4.3% during the quarter. This decline was in line with our expectations as we experienced higher deaths in the prior year associated with the beginning of a strong flu season.
• The comparable average revenue per funeral service included within our core funeral revenues grew 1.4% over the prior year quarter. Excluding an unfavorable Canadian currency impact and a benefit from higher trust fund income, the average revenue per funeral service growth remained at approximately 1.4%. This was achieved despite a 190 basis point increase in the cremation rate to 50.6% in the fourth quarter of 2013.
• Adjusted comparable funeral gross profit decreased $10.0 million, or 10.9%, compared to the prior year quarter. The adjusted gross margin percentage decreased 230 basis points to 20.1%. The $10.0 million decline is primarily associated with the decrease in core funeral revenues and the effect of inflationary increases in our fixed costs. Additionally, we experienced higher selling and incentive compensation costs resulting from higher preneed funeral sales. While we are focused on our strategic preneed sales program, the effect of growing our preneed funeral sales production generates revenue growth from General Agency commissions; however, these revenues are generally offset by selling costs, which in turn reduces our gross margin percentage.
• Comparable preneed funeral sales production increased $20.4 million, or 13.1%, compared to the prior year. Preneed funeral sales are deferred and recognized as revenues in future periods when the funeral service is performed, unless the corresponding merchandise or product is delivered before death has occurred. However, selling costs associated with preneed sales are expensed as incurred. For the full year 2013, comparable preneed funeral sales production grew $73.3 million, or 11.1%.

Comparable Cemetery Results

The table below details comparable cemetery results of operations ("same store") for the three months ended December 31, 2013 and 2012. We consider comparable operations to be those owned for the entire period beginning January 1, 2012 and ending December 31, 2013.

 

• Higher recognized preneed revenues led by strong preneed sales production and an increase in completed construction revenue led to a $24.4 million, or 11.5%, increase to total comparable cemetery revenues.
• Included in the preneed and atneed cemetery sales production above is an increase of $19.9 million, or 16.0%, in preneed cemetery sales production for the current quarter. For the full year 2013, preneed cemetery sales production grew $54.4 million, or 10.8%.
• Adjusted comparable cemetery gross profit increased $9.3 million and the adjusted gross margin percentage increased to 27.9% in the current quarter. Profits on the higher revenues were partially offset by inflationary cost increases.

Other Financial Results  

• General and administrative expenses increased $17.6 million to $59.1 million. The current quarter included $25.7 million of costs related to the acquisition of Stewart, $3.3 million of other system integration costs, and $3.1 million of legal defense fees and other matters. The prior year included $4.0 million of system integration costs. Excluding these one-time costs in both periods, general and administrative expenses decreased $10.5 million over the prior year which was primarily due to lower legal expenses as well as lower incentive-based compensation costs.
• Interest expense increased to $38.8 million compared to $34.0 million in the prior period. The current period included $5.6 million of interest expense associated with the incremental debt raised for the Stewart acquisition.
• The effective tax rate was 33.4% in the current quarter compared to 37.2% in the prior period primarily due to the release of certain valuation allowances against deferred tax assets.

Cash Flow and Capital Spending

Set forth below is a reconciliation of our reported net cash provided by operating activities prepared in accordance with GAAP to net cash provided by operating activities excluding special items (or sometimes referred to as normalized operating cash flow). We do not intend for this information to be considered in isolation or as a substitute for other measures of performance prepared in accordance with GAAP.

 

• Net cash provided by operating activities excluding special items increased $13.7 million to $105.8 million compared to $92.1 million in 2012 primarily due to an increase in earnings and higher preneed cash receipts. We also benefited by lower cash interest payments in the quarter due to the opportunistic refinancing of debt at lower rates. These increases in cash flow were somewhat offset by higher compensation expense as we partially funded a January 2014 payroll on December 31 of the current quarter. This payroll timing difference will benefit cash flow in the first quarter of 2014.
• A summary of our capital expenditures is set forth below:

 

TRUST FUND RETURNS

Total trust fund returns include realized and unrealized gains and losses and dividends. A summary of our consolidated trust fund returns for the three and twelve months ended December 31, 2013 is set forth below:

  

NON-GAAP FINANCIAL MEASURES

Earnings from continuing operations excluding special items, diluted earnings per share from continuing operations excluding special items (or sometimes referred to as normalized earnings per share), and adjusted comparable gross profit shown above are non-GAAP financial measures. We believe these non-GAAP financial measures provide a consistent basis for comparison between quarters and better reflect the performance of our core operations, as they are not influenced by certain income or expense items not affecting continuing operations. We also believe these measures help facilitate comparisons to our competitors' operating results.

Set forth below is a reconciliation of our reported net income attributable to common stockholders to earnings from continuing operations excluding special items and our GAAP diluted earnings per share to diluted earnings per share from continuing operations excluding special items. We do not intend for this information to be considered in isolation or as a substitute for other measures of performance prepared in accordance with GAAP.

 

 

Set forth below is a reconciliation of our reported  gross profit to adjusted comparable gross profit. We do not intend for this information to be considered in isolation or as a substitute for other measures of performance prepared in accordance with GAAP.

 

Conference Call and Webcast

We will host a conference call on Wednesday, February 12, 2014, at 8:30 a.m. Central Time. A question and answer session will follow a brief presentation made by management. The conference call dial-in number is (847) 619-6396 with the passcode of 36503269. The conference call will also be broadcast live via the Internet and can be accessed through our website at www.sci-corp.com. A replay of the conference call will be available through March 14, 2014 and can be accessed at (630) 652-3042 with the passcode of 36503269#. Additionally, a replay of the conference call will be available on our website for approximately ninety days.

Cautionary Statement on Forward-Looking Statements

The statements in this press release that are not historical facts are forward-looking statements made in reliance on the "safe harbor" protections provided under the Private Securities Litigation Reform Act of 1995. These statements may be accompanied by words such as "believe," "estimate," "project," "expect," "anticipate" or "predict," that convey the uncertainty of future events or outcomes. These statements are based on assumptions that we believe are reasonable; however, many important factors could cause our actual results in the future to differ materially from the forward-looking statements made herein and in any other documents or oral presentations made by us, or on our behalf. Important factors, which could cause actual results to differ materially from those in forward-looking statements include, among others, the following:

• Our affiliated funeral and cemetery trust funds own investments in equity securities, fixed income securities, and mutual funds, which are affected by market conditions that are beyond our control.
• We may be required to replenish our affiliated funeral and cemetery trust funds in order to meet minimum funding requirements, which would have a negative effect on our earnings and cash flow.
• Our ability to execute our strategic plan depends on many factors, some of which are beyond our control.
• Our credit agreements contain covenants that may prevent us from engaging in certain transactions.
• If we lost the ability to use surety bonding to support our preneed funeral and preneed cemetery activities, we may be required to make material cash payments to fund certain trust funds.
• The funeral home and cemetery industry continues to be increasingly competitive.
• Increasing death benefits related to preneed funeral contracts funded through life insurance or annuity contracts may not cover future increases in the cost of providing a price-guaranteed funeral service.
• The financial condition of third-party insurance companies that fund our preneed funeral contracts may impact our future revenues.
• Unfavorable results of litigation, including currently pending class action cases concerning cemetery or burial practices, could have a material adverse impact on our financial statements.
• Unfavorable publicity could affect our reputation and business.
• If the number of deaths in our markets declines, our cash flows and revenues may decrease.
• If we are not able to respond effectively to changing consumer preferences, our market share, revenues and profitability could decrease.
• The continuing upward trend in the number of cremations performed in North America could result in lower revenues and gross profit.
• Our funeral home and cemetery businesses are high fixed-cost businesses.
• Regulation and compliance could have a material adverse impact on our financial results.
• Increased costs, including potential increased health care costs, may have a negative impact on earnings and cash flows.
• Cemetery burial practice claims could have a material adverse impact on our financial results.
• A number of years may elapse before particular tax matters, for which we have established accruals, are audited and finally resolved.
• Declines in overall economic conditions beyond our control could reduce future potential earnings and cash flows and could result in future goodwill impairments and/or other intangible assets.
• Any failure to maintain the security of the information relating to our customers, their loved ones, our associates, and our vendors could damage our reputation, could cause us to incur substantial additional costs and to become subject to litigation, and could adversely affect our operating results.
• We may fail to realize the anticipated benefits of the acquisition of Stewart Enterprises.
• The acquisition of Stewart Enterprises may result in unexpected consequences to our business and results of operations.
• Our level of indebtedness following the completion of the acquisition of Stewart Enterprises could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry and prevent us from fulfilling our obligations under our indebtedness.

For further information on these and other risks and uncertainties, see our Securities and Exchange Commission filings included in our 2013 Annual Report on Form 10-K. Copies of this document as well as other SEC filings can be obtained from our website at www.sci-corp.com. We assume no obligation to publicly update or revise any forward-looking statements made herein or any other forward-looking statements made by us, whether as a result of new information, future events or otherwise.

About Service Corporation International

Service Corporation International (NYSE: SCI), headquartered in Houston, Texas, is North America's leading provider of deathcare products and services. At December 31, 2013, we owned and operated 1,644 funeral homes and 514 cemeteries (of which 283 are combination locations) in 43 states, eight Canadian provinces, the District of Columbia, and Puerto Rico. Through our businesses, we market the Dignity Memorial® brand which offers assurance of quality, value, caring service, and exceptional customer satisfaction. For more information about Service Corporation International, please visit our website at www.sci-corp.com. For more information about Dignity Memorial®, please visit www.dignitymemorial.com.

 

 

                                                                                                                                             

 

 

SOURCE Service Corporation International