HOUSTON, Oct. 24, 2012 /PRNewswire/ — : Service Corporation International (NYSE:  SCI), the largest provider of deathcare products and services inNorth America, today reported results for the third quarter 2012. Our unaudited condensed 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 35.7% to $0.19 in the third quarter 2012 compared to $0.14 in the prior year third quarter, reflecting improved operating performance driven by higher recognized preneed cemetery revenues and effective management of our cost structure.
• Funeral gross profit increased by $7.0 million, or 10.1%, and the gross margin percentage increased to 19.6% for third quarter 2012 from 18.0% in 2011. This was primarily a result of prudent management of expenses in our comparable businesses and improved performance from our recent acquisitions.
• Cemetery gross profit increased $7.3 million, or 19.2%, and cemetery gross margin percentage increased to 23.5% from 20.1% due primarily to higher revenues associated with the completion of certain cemetery construction projects.
• Net cash provided by operating activities excluding special items increased to $123.0 million compared to $116.3 million in 2011, driven primarily by higher earnings that were partially offset by timing differences in preneed working capital.

Tom Ryan, the Company’s President and Chief Executive Officer, commented on the third quarter of 2012:
“We are very pleased with the solid performance of our business during the third quarter. Higher cemetery revenues, effective cost containment and strategic deployment of capital combined to deliver a solid performance for our shareholders. Once again it is a testament to our hardworking and dedicated team of over 20,000 professionals who are focused on delivering a more productive platform while continuing to enhance our customer experience.”

REVIEW OF RESULTS FOR THIRD QUARTER 2012

• Comparable funeral revenues decreased by $1.3 million driven by a decrease in the number of funeral services performed, partially offset by higher average revenue per funeral service.
• The comparable average revenue per funeral service grew 0.7% over the prior year quarter. Excluding an unfavorable Canadian currency impact and lower trust fund income, the average revenue per funeral service grew approximately 1.0% despite the increase in cremation services. The cremation rate increased to 45.3% in the third quarter of 2012 compared to 44.7% for the same period of 2011.
• Comparable funeral services performed decreased 1.8%, which we believe is consistent with trends experienced by other funeral service providers and industry vendors.
• Comparable funeral gross profit increased $3.7 million, or 5.4%, compared to the prior year quarter, while the gross margin percentage increased 100 basis points to 19.9%. The slight decline in overall revenues was more than offset by lower merchandise expense, selling costs and field overhead, which led to improvements in both gross profit and gross margin percentage.
• Comparable preneed funeral sales production stayed relatively flat compared to the prior year quarter. Comparable total funeral contracts sold increased 0.8% while average revenue per contract sold decreased 0.8%. For the first nine months of 2012, comparable preneed funeral sales production increased 4.1% over the prior period. Preneed funeral sales are deferred and recognized as revenues in future periods when the funeral service is performed.

• Comparable cemetery revenues increased $4.4 million, or 2.3%, primarily as a result of higher recognized preneed revenues related to the completion of construction projects.
• Cemetery gross profit increased $6.9 million, or 17.9%, and the gross margin percentage increased to 23.6% compared to 20.4%. The improvements in gross profit and gross margin resulted from the completion of new construction projects which typically generate comparatively higher margin because the associated selling costs have been recognized in prior periods.
• Preneed and atneed cemetery sales production was $172.5 million in the current quarter compared to $173.5 million last year. In the first nine months of 2012, preneed and atneed sales production increased 5.9% over the prior period.

Other Financial Results

• General and administrative expenses increased $2.5 million to $26.4 million in the third quarter of 2012. The current year quarter included $2.3 million of costs related to the implementation of a new purchase order system and the transition to new outsource providers for certain accounting and administrative functions.
• Other income was $2.3 million in the third quarter primarily reflecting a favorable foreign currency impact from liability settlements between the U.S. and Canadian subsidiaries.

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.

• Net cash provided by operating activities excluding special items increased to $123.0 million compared to $116.3 million in 2011. Higher earnings, led by higher recognized preneed revenues, were partially offset by timing differences in preneed working capital.
• 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 nine months ended September 30, 2012 is set forth below:

OUTLOOK FOR REMAINDER OF 2012 AND 2013

Our outlook for potential earnings and cash flow in the fourth quarter and full year of 2012 as well as our initial outlook for fiscal 2013 is detailed below.  Included in our 2013 outlook of net cash provided by operating activities excluding special items is our expectation of cash taxes to be paid in 2013 of $35 million to $45 million compared to $17 million of cash taxes expected to be paid in 2012.

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”.

NON-GAAP FINANCIAL MEASURES

Earnings from continuing operations excluding special items and diluted earnings per share from continuing operations 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 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 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.

Conference Call and Webcast

We will host a conference call on Thursday, October 25, 2012, at 9:00 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) 413-3237 with the passcode of 33535704. 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 November 24, 2012 and can be accessed at (630) 652-3042 with the passcode of 33535704#. 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 fund.
• 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 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.
• 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.
• 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.

For further information on these and other risks and uncertainties, see our Securities and Exchange Commission filings included in our 2011 Annual Report on Form 10-K, which was filed February 13, 2012. 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 September 30, 2012, we owned and operated 1,429 funeral homes and 374 cemeteries (of which 215 are combination locations) in 43 states, eight Canadian provinces and the District of Columbia.  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