Service Corporation International’s management presented at Bank of America Merrill Lynch Leveraged Finance Conference on Tuesday. There were some interesting numbers in the transcript of the presentation. We included a snippet below.
SCI stated:
One of the unique things about the industry is that we market to consumers on a pre-need basis where those consumers are selected cemetery property and are select in funeral and cemetery merchandised and services on a pre-need basis is a contractual relationship that’s actually funded by the consumer as well. That creates a tremendous situation for us where we have a backlog of over $7.5 billion of future revenues that again are in the process of being funded with cash or are funded with cash or are supported by a life insurance policy, where the proceeds of that policy comes to the funeral home at the time of need.
SCI currently owns about 13% of the market share and after the purchase of Stewart Enterprises this will increase to 15% and add over $500 million in annual revenue.
If you own SCI stock then you should be excited for this deal to go through.
You can read the full transcript of the presentation here: http://seekingalpha.com/article/1875631-service-corporation-internationals-management-presents-at-bank-of-america-merrill-lynch-leveraged-finance-conference-transcript
I know that number looks big to the uninitiated, but it is also an obligation to perform services and provide merchandise that may not be profitable to procure and offer when that contract comes due. And it’s not like that’s a huge centralized hedge fund which they can leverage and generate outsized returns. That money is caught up in hundreds of thousands of tiny accounts and contracts which have to administered and maintained (in many cases at near zero interest rates) for a dozen or more years.