Service Corporation International Announces Second Quarter 2009 Financial Results

August 6, 2009
Advertisement

image

Service Corporation International (NYSE: SCI),

a leading provider of deathcare products and services, today reported

results for the second quarter 2009. Our unaudited condensed

Advertisement

consolidated financial statements can be found at the end of this press

release. The table below summarizes our key financial results:

                                  Three Months Ended      Six Months Ended
(In millions, except for June 30, June 30,
per share amounts) ------------------- -------------------
2009 2008 2009 2008
------ ------ ------ ------
Revenues $513.9 $548.8 $1,024.5 $1,122.2
Operating income $69.1 $83.3 $154.6 $182.7
Net income attributable to
common stockholders $23.1 $31.4 $57.6 $72.9
Diluted earnings per share $.09 $.12 $.23 $.28
Earnings from continuing
operations excluding special
items(1) $30.0 $36.4 $60.9 $88.2
Diluted earnings per share
from continuing operations
excluding special items(1) $.12 $.14 $.24 $.33
Diluted weighted average
shares outstanding 251.1 263.1 250.7 264.2
Net cash provided by
operating activities $69.7 $70.2 $211.1 $116.5
Net cash provided by
operating activities
excluding special items(1) $69.7 $70.2 $211.1 $209.8

(1) Earnings from continuing operations excluding special items, diluted
earnings per share from continuing operations excluding special
items, and net cash provided by operating activities excluding
special items are non-GAAP financial measures. A reconciliation to
net income, diluted earnings per share, and net cash provided by
operating activities computed in accordance with GAAP can be found
later in this press release under the heading "Non-GAAP Financial
Measures" or "Cash Flow and Capital Spending".

Highlights:

  • Diluted earnings per share (EPS) from continuing

    operations excluding special items was $0.12 in the second quarter 2009

    compared to $0.14 in the prior year second quarter. These results

    exceeded our internal expectations as cost reduction initiatives,

    better than expected trust fund performance, and better than expected

    preneed cemetery production more than offset lower than expected

    funeral services performed.

  • While funeral gross profit

    decreased slightly, funeral gross profit margins improved to 20.7% from

    19.9% as declines in funeral services performed were more than offset

    by cost control initiatives.

  • Cemetery gross profit

    decreased $4.2 million due to a decline in cemetery property sales and

    lower cemetery trust fund income compared to prior year levels, which

    were partially offset by lower variable costs. Cemetery gross profit

    exceeded our expectations as cost control initiatives helped to offset

    expected cemetery revenue declines.

  • Despite the decline

    in earnings, net cash provided by operating activities excluding

    special items for the quarter was flat to the prior year at

    approximately $70 million due primarily to favorable working capital

    initiatives and the cost control initiatives mentioned above.

Tom Ryan, the Company’s President and Chief Executive Officer, commented on the second quarter of 2009:

“We are very pleased with our solid operational results

this quarter, which were better than expected and reflect the actions

we’ve taken to mitigate the economic and near-term pressures on our

business. We also benefited from positive developments in the external

environment, including a rebound in the financial markets and an

improvement in consumer confidence. Cash flow performance continues to

be strong and we have been actively deleveraging our capital structure,

retiring more than $100 million of debt in the first half of 2009. Our

solid financial position and healthy cash flow outlook provide us the

flexibility to pursue opportunities to invest in the long-term growth

of our business and to return value to our shareholders.”

REVIEW OF RESULTS FOR SECOND QUARTER 2009

Consolidated Segment Results

    (In millions, except funeral services performed       Three Months Ended
and average revenue per funeral service) June 30,
--------
2009 2008
---- ----
Funeral
-------
Funeral atneed revenue $222.9 $235.4
Funeral recognized preneed revenue 102.6 110.6
Other funeral revenue(1) 17.2 17.3
----- -----
Total funeral revenues $342.7 $363.3

Gross profit $71.1 $72.3
Gross margin percentage 20.7% 19.9%

Funeral services performed 63,749 67,919
Average revenue per funeral service $5,106 $5,094

Cemetery
--------
Cemetery atneed revenue $61.0 $65.8
Cemetery recognized preneed revenue 89.5 96.1
Other cemetery revenue (2) 20.7 23.6
----- -----
Total cemetery revenues $171.2 $185.5

Gross profit $30.7 $34.9
Gross margin percentage 17.9% 18.8%

(1) Other funeral revenue consists primarily of General Agency (GA)
revenues, which are commissions we receive from third-party insurance
companies for life insurance policies or annuities sold to preneed
customers for the purpose of funding preneed funeral arrangements.

(2) Other cemetery revenue is primarily related to cemetery merchandise
and service trust fund income, endowment care trust fund income, and
interest and finance charges earned from customer receivables on
preneed installment contracts.

Comparable Funeral Results

The table below details comparable funeral results of

operations (“same store”) for the three months ended June 30, 2009 and

2008. We consider comparable operations to be those owned for the

entire period beginning January 1, 2008 and ending June 30, 2009.

    (Dollars in millions, except average     Three Months Ended
revenue per funeral service and June 30,
average revenue per contract sold) --------------
2009 2008 Change
---- ---- ------
Comparable funeral revenue:
Atneed revenue $218.1 $232.3 $(14.2)
Recognized preneed revenue 101.5 109.1 (7.6)
Other funeral revenue(1) 17.1 17.2 (0.1)
------ ------ ------
Total comparable funeral revenues $336.7 $358.6 $(21.9)

Comparable gross profit $70.4 $73.0 $(2.6)
Comparable gross margin percentage 20.9% 20.4%

Comparable funeral services performed:
Preneed 21,879 22,809 (930)
Atneed 40,554 44,360 (3,806)
------ ------ ------
Total 62,433 67,169 (4,736)

Comparable average revenue per funeral
service $5,119 $5,083 $36

Comparable preneed funeral production:
Sales $119.9 $122.9 $(3.0)
Total preneed funeral contracts sold 20,868 22,275 (1,407)
Average revenue per contract sold $5,746 $5,517 $229


(1) Other funeral revenue consists primarily of General Agency (GA)
revenues, which are commissions we receive from third-party
insurance companies for life insurance policies or annuities sold
to preneed customers for the purpose of funding preneed funeral
arrangements.
  • Comparable funeral services

    performed decreased 7.1%, primarily related to soft demand experienced

    at the beginning of the quarter. We believe the decline in deaths in

    our markets is consistent with trends experienced by other funeral

    service providers and industry vendors.

  • The comparable

    average revenue per funeral service grew 0.7% over the prior year

    quarter. Excluding an unfavorable Canadian currency impact and lower

    funeral trust fund income, the average revenue per funeral service grew

    approximately 3.5%.

  • The cremation rate increased 20 basis

    points to 42.9% in the second quarter of 2009 compared to 42.7% for the

    same period of 2008.

  • Comparable funeral gross

    profit decreased $2.6 million, or 3.6%, due to the impact of lower

    funeral services performed and a decrease in funeral trust fund income,

    which were partially offset by lower variable merchandise costs and a

    decline in personnel costs related to work force initiatives. The gross

    margin percentage increased to 20.9% compared to 20.4% in 2008.

  • Preneed

    funeral sales production decreased $3.0 million, or 2.4%. Total funeral

    contracts sold decreased 6.3% while the average revenue per contract

    sold increased 4.2%. Preneed funeral sales are deferred and recognized

    as revenues in the future when the funeral service is performed.

Comparable Cemetery Results

The table below details comparable cemetery results of

operations (“same store”) for the three months ended June 30, 2009 and

2008. We consider comparable operations to be those owned for the

entire period beginning January 1, 2008 and ending June 30, 2009.

                                          Three Months Ended
(Dollars in millions) June 30,
--------------
2009 2008 Change
---- ---- ------
Comparable cemetery revenue:
Atneed revenue $59.7 $65.6 $(5.9)
Recognized preneed revenue 88.8 96.0 (7.2)
Other cemetery revenue(1) 20.5 23.3 (2.8)
---- ---- -----
Total comparable cemetery revenues $169.0 $184.9 $(15.9)

Comparable gross profit $29.4 $34.8 $(5.4)
Comparable gross margin percentage 17.4% 18.8%

Comparable preneed and atneed cemetery
sales production:
Property $86.3 $94.9 $(8.6)
Merchandise and services 93.7 95.0 (1.3)
Discounts (16.5) (16.8) 0.3
----- ----- -----
Preneed and atneed cemetery sales
production $163.5 $173.1 $(9.6)
Recognition rate (2) 91% 93%


(1) Other cemetery revenue is primarily related to cemetery merchandise
and service trust fund income, endowment care trust fund income and
interest and finance charges earned from customer receivables on
preneed installment contracts.

(2) Represents the ratio of current period revenue recognition stated as a
percentage of current period sales production.

  • Comparable atneed cemetery revenues

    declined $5.9 million, or 9.0%, which we believe was primarily driven

    by a decline in deaths in our markets.

  • Comparable

    recognized preneed cemetery revenues declined $7.2 million, of which

    approximately $5 million related to a decline in preneed sales

    production. However, this preneed sales production was better than we

    expected as we began to see improvements in consumer sentiment late in

    the quarter.

  • Other cemetery revenue decreased by $2.8

    million, or 12.0%, as cemetery trust fund income recognized from our

    preneed merchandise and service and cemetery perpetual care trusts

    declined $2.4 million due to negative market returns experienced in

    late 2008 and early 2009.

  • Cemetery gross profit

    decreased $5.4 million, due to the revenue declines described above,

    which were largely offset by lower variable selling compensation and

    merchandise expenses and a decline in personnel costs related to work

    force initiatives.

Cash Flow and Capital Spending

Set forth below is a reconciliation of net cash provided

by operating activities excluding special items to our reported net

cash provided by operating activities prepared in accordance with GAAP.

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.

                                       Three Months      Six Months Ended
Ended
(In millions) June 30, June 30,
---------------- ----------------
2009 2008 2009 2008
----- ----- ----- -----
Net cash provided by operating
activities, as reported $69.7 $70.2 $211.1 $116.5
Federal tax payment - - - 90.0
One-time Alderwoods transition
and other costs - - - 3.3
----- ----- ----- -----
Net cash provided by operating
activities, excluding special
items $69.7 $70.2 $211.1 $209.8
===== ===== ====== ======

Net cash provided by operating activities,

excluding special items, was $69.7 million for the second quarter of

2009, down slightly from $70.2 million in the prior year quarter. While

we experienced a decrease in cash receipts related to declines in

revenue during the quarter, these were largely offset by cost control

initiatives mentioned above. Our cash flow also benefitted from

favorable working capital initiatives, all of which resulted in cash

flow that exceeded our expectations in the quarter.

As anticipated, we were also successful in prudently

managing our capital expenditures during the first half of 2009. A

summary of our capital expenditures is set forth below:

                                    Three Months Ended    Six Months Ended
(In millions) June 30, June 30,
--------------- --------------
2009 2008 2009 2008
----- ----- ----- -----
Capital improvements at existing
locations $8.2 $22.9 $17.1 $37.1
Development of cemetery property 6.9 12.4 16.1 23.0
Construction of new funeral home
facilities and other growth 3.9 3.5 9.3 7.9
----- ----- ----- -----
Total capital expenditures $19.0 $38.8 $42.5 $68.0
===== ===== ===== =====

TRUST FUND RETURNS

Total trust fund returns include realized and unrealized

gains and losses and dividends. A summary of our U.S. trust fund

returns for the three and six months ended June 30, 2009 is set forth

below:

                                              Three Months      Six Months
------------ ----------
Preneed Funeral 11.4% 6.4%
Preneed Cemetery 13.4% 8.2%
Cemetery Perpetual Care 10.4% 7.3%
Combined Trust Funds 11.9% 7.4%

NON-GAAP FINANCIAL MEASURES

Earnings from continuing operations excluding special

items, diluted earnings per share from continuing operations excluding

special items, and net cash provided by operating activities excluding

special items shown above are all 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,

expense, and cash items not affecting continuing operations. We also

believe this measure helps facilitate comparisons to our competitors’

operating results.

Set forth below is a reconciliation of earnings from

continuing operations excluding special items to our reported net

income attributable to common stockholders and diluted earnings per

share from continuing operations excluding special items to our GAAP

diluted earnings per share. 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.

                                              Three Months Ended June 30,
------------------------------------
(In millions, except diluted EPS) 2009 2008
--------------- ----------------
Net Diluted Net Diluted
Income EPS Income EPS
------ ------ ------ ------
Net income attributable to
common stockholders, as
reported $23.1 $.09 $31.4 $.12

After-tax reconciling items:
Losses on dispositions and
impairment charges, net 5.7 .02 3.4 .01
Gain on early extinguishment
of debt (1.2) - - -
Change in certain tax
reserves 2.4 .01 1.2 .01
Discontinued operations - - 0.4 -
------ ------ ------ ------
operations excluding
special items $30.0 $.12 $36.4 $.14
====== ====== ====== ======

Diluted weighted average shares
outstanding (in thousands) 251,130 263,132


Six Months Ended June 30,
------------------------------------
(In millions, except diluted EPS) 2009 2008
---------------- ---------------
Net Diluted Net Diluted
Income EPS Income EPS
------ ------ ------ -----
Net income attributable to
common stockholders, as
reported $57.6 $.23 $72.9 $.28

After-tax reconciling items:
Losses on dispositions and
impairment charges, net 3.0 .01 11.6 .04
Gain on early extinguishment
of debt (2.1) (.01) - -
One-time Alderwoods
transition and other costs - - 0.7 -
Change in certain tax
reserves 2.4 .01 2.6 .01
Discontinued operations - - 0.4 -
------ ------ ------ -----

Earnings from continuing
operations excluding special
items $60.9 $.24 $88.2 $.33
====== ====== ====== ======

Diluted weighted average
shares outstanding (in
thousands) 250,672 264,228

UPDATED OUTLOOK FOR FISCAL 2009

Due to the better than anticipated performance in the

first half of the year, primarily related to sales production and cost

control initiatives, and the positive trust fund returns at the end of

the second quarter among other factors, we are updating our guidance

for potential earnings and cash flow in fiscal 2009 as follows:

                                                      Original      Updated
(In millions except per share amounts) Guidance Guidance
-------- --------
Diluted earnings per share from continuing $.26 to $.36 $.36 to $.42
operations excluding special items (1)
Net cash provided by operating activities $220 to $300 $320 to $370
Capital improvements at existing facilities and $80 to $90 $70 to $80
cemetery development expenditures


(1) Diluted earnings per share excluding special items is a non-GAAP
financial measure. We normally reconcile this non-GAAP financial
measure to diluted earnings per share; however, diluted earnings per
share calculated in accordance with GAAP is not currently accessible
on a forward-looking basis. Our updated outlook for 2009 excludes the
following because this information is not currently available: Gains
or losses associated with asset dispositions, gains or losses
associated with the early extinguishment of debt, potential tax
reserve adjustments, and potential costs associated with settlements
of litigation or the recognition of receivables for insurance
recoveries associated with litigation. The foregoing items,
especially gains or losses associated with asset dispositions, could
materially impact our forward-looking diluted EPS calculated in
accordance with GAAP, consistent with the historical disclosures found
earlier in this press release under the heading "Non-GAAP financial
measures".

This outlook reflects management’s current views

and estimates regarding future economic and financial market

conditions, company performance and financial results, business

prospects, the competitive environment and other events. This outlook

is subject to a number of risks and uncertainties, many of which are

beyond the control of SCI, that could cause actual results to differ

materially from the potential results highlighted above. A further list

and description of these risks and uncertainties and other matters can

be found later in this press release under “Cautionary Statement on

Forward-Looking Statements”.

Conference Call and Webcast

We will host a conference call on Thursday, August 6,

2009, at 9:00 a.m. Central Daylight Time. A question and answer session

will follow a brief presentation made by management. The conference

call dial-in number is (617) 213-8851 with the passcode of 51206268.

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 August 13,

2009 and can be accessed at (617) 801-6888 with the passcode of

51762101. 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:

  • Changes in general economic conditions, both

    domestically and internationally, impacting financial markets (e.g.,

    marketable security values, access to capital markets, as well as

    currency and interest rate fluctuations) that could negatively affect

    us, particularly, but not limited to, levels of trust fund income,

    interest expense, and negative currency translation effects.

  • Changes in operating conditions such as supply disruptions and labor disputes.
  • Our

    inability to achieve the level of cost savings, productivity

    improvements or earnings growth anticipated by management, whether due

    to significant increases in energy costs (e.g., electricity, natural

    gas and fuel oil), costs of other materials, employee-related costs or

    other factors.

  • Inability to complete acquisitions,

    divestitures or strategic alliances as planned or to realize expected

    synergies and strategic benefits.

  • The outcomes of

    pending lawsuits, proceedings, and claims against us and the

    possibility that insurance coverage is deemed not to apply to these

    matters or that an insurance carrier is unable to pay any covered

    amounts to us.

  • Allegations regarding compliance with laws,

    regulations, industry standards, and customs regarding funeral or

    burial procedures and practices.

  • The amounts payable by us with respect to our outstanding legal matters exceeding our established reserves.
  • Amounts

    that we may be required to replenish into our affiliated funeral and

    cemetery trust funds in order to meet minimal funding requirements.

  • The

    outcome of pending Internal Revenue Service audits. We maintain

    accruals for tax liabilities which relate to uncertain tax matters. If

    these tax matters are unfavorably resolved, we will make any required

    payments to tax authorities. If these tax matters are favorably

    resolved, the accruals maintained by us will no longer be required, and

    these amounts will be released through the tax provision at the time of

    resolution.

  • Our ability to manage changes in consumer

    demand and/or pricing for our products and services due to several

    factors, such as changes in numbers of deaths, cremation rates,

    competitive pressures, and local economic conditions.

  • Changes

    in domestic and international political and/or regulatory environments

    in which we operate, including potential changes in tax, accounting,

    and trusting policies.

  • Changes in credit relationships impacting the availability of credit and the general availability of credit in the marketplace.
  • Our ability to successfully access surety and insurance markets at a reasonable cost.
  • Our ability to successfully leverage our substantial purchasing power with certain of our vendors.
  • The

    effectiveness of our internal control over financial reporting, and our

    ability to certify the effectiveness of the internal controls and to

    obtain an unqualified attestation report of our auditors regarding the

    effectiveness of our internal control over financial reporting.

  • The

    possibility that restrictive covenants in our credit agreement and

    privately placed debt securities may prevent us from engaging in

    certain transactions.

  • Our ability to buy our common stock

    under our share repurchase programs which could be impacted by, among

    others, restrictive covenants in our bank agreements, unfavorable

    market conditions, the market price of our common stock, the nature of

    other investment opportunities presented to us from time to time, and

    the availability of funds necessary to continue purchasing common stock.

  • The

    financial conditions of third-party insurance companies that fund our

    preneed funeral contracts may impact our future revenues.

  • Continued

    economic crisis and financial and stock market declines could reduce

    future potential earnings and cash flows and could result in future

    goodwill impairments.

  • The weakening economy may cause

    customers to reassess preneed funeral or cemetery arrangements or

    decrease the amounts atneed customers are willing to pay or consider

    cremation as opposed to burial.

  • Changes in our funeral and

    cemetery trust funds, investments in equity securities, fixed income

    securities, and mutual funds could be significantly negatively impacted

    by the weakening economy.

For

further information on these and other risks and uncertainties, see our

Securities and Exchange Commission filings, including our 2008 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 June 30, 2009, we owned and

operated 1,264 funeral homes and 365 cemeteries (of which 207 are

combination locations) in 43 states, eight Canadian provinces, the

District of Columbia and Puerto Rico. Through our businesses, we market

the Dignity Memorial(R) 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(R), please visit www.dignitymemorial.com .

CDFuneralNews

CDFuneralNews

ConnectingDirectors.com is the leading online daily publication for funeral professionals with a reader base of over 45,000 of the most elite and forward-thinking professionals in the profession. With ConnectingDirectors.com we have created a global community through an online platform allowing funeral professionals to Stay Current. Stay Informed and Stay Elite.
CDFuneralNews
Advertisement

You may be interested

What Does It Mean To You To Be a Funeral Director?
News
105 views
News
105 views

What Does It Mean To You To Be a Funeral Director?

CDFuneralNews - October 10, 2017

Guest article was written and provided by Dylan Stopher, Wilbert Vaults of Houston “Show me the manner in which a…

Memory Glass Partners With Messenger
Funeral Industry Press Releases
29 views
Funeral Industry Press Releases
29 views

Memory Glass Partners With Messenger

CDFuneralNews - October 10, 2017

Auburn, IN: - Memory Glass and Messenger are pleased to announce their partnership to extend the reach of the custom…

Batesville Inducted into Indiana Manufacturers Hall of Fame
Funeral Industry Press Releases
10 views
Funeral Industry Press Releases
10 views

Batesville Inducted into Indiana Manufacturers Hall of Fame

CDFuneralNews - October 10, 2017

BATESVILLE, Indiana, October 5, 2017 – Batesville, the nation’s largest casket manufacturer and leading provider of comprehensive solutions to the…

Comments