Service Corporation International Announces Second Quarter 2009 Financial Results
Service Corporation International (NYSE: SCI),
a leading provider of deathcare products and services, today reported
results for the second quarter 2009. Our unaudited condensed
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 .
