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Service Corporation International Announces 1998 Fourth Quarter and Year End Results
HOUSTON, Feb. 9 /PRNewswire/ -- Service Corporation International (NYSE: SRV), the world's largest funeral and cemetery company, today reported results for the twelve month and three month periods ended December 31, 1998.
Twelve Months Ended December 31, 1998 (Compared to same period 1997) Revenues $2.875 billion up 13.4% from $2.536 billion Net Income $342.1 million up 2.5% from $333.8 million Diluted earnings per share $1.31 unchanged from $1.31 Three Months Ended December 31, 1998 (Compared to same period 1997) Revenues $773.5 million up 16.2% from $665.9 million Net Income $59.2 million down 35.6% from $91.9 million Diluted earnings per share $0.23 down 36.1% from $0.36
Commenting on the results, Robert L. Waltrip, Chairman and Chief Executive Officer, said: "Since our preliminary announcement on January 26, 1999, our senior management team has worked extensively to identify, analyze and address the issues which caused our fourth quarter earnings to come in below expectations. We are committed to increasing revenues and improving efficiency throughout our operations. Our expanding prearranged funeral activity will continue to benefit our shareholders because it adds economic value today, even though associated revenues, profits and earnings per share are deferred until the services are actually performed."
SCI's President and Chief Operating Officer, L. William Heiligbrodt, added: "For many years, SCI has produced solid earnings and value for our shareholders, and we are disappointed that this did not prove to be the case during the fourth quarter of 1998. We experienced an unexpectedly low level of funeral and cemetery revenues while operating and overhead costs had been geared to the expected revenue levels. The outlook for our Company, however, is a positive one. SCI is a strong business and we are implementing a number of strategic initiatives to return the Company to where we all want it to be."
EXPLANATION OF EARNINGS SHORTFALL
There were a number of factors of unanticipated magnitude that combined during the fourth quarter to contribute to earnings falling short of expectations:
-- Comparable funeral revenue decreased 2.7% from the same period in 1997, generating $21 million less in revenue than expected. This was caused in part by weak death rates. In addition, the average price of funerals booked in the fourth quarter was lower than anticipated due to a changing profile in the sales mix with an increase in the proportion of funerals from preneed contracts going at need and an increase in the number of cremations.
-- Lower than anticipated revenues, coupled with planned increases in our cost base, disproportionately affected earnings. The costs and expenses were associated with necessary investments in acquired properties and our underlying businesses.
-- Fewer preneed cemetery contracts were sold in 1998, resulting in a $19.5 million shortfall in preneed cemetery revenue in North America. This resulted primarily from a shortage of cemetery sales staff combined with disappointing performance.
-- Under-performance by some acquired and constructed businesses, primarily in North America, contributed to $7.5 million in lower than expected revenues.
The Company has undertaken a number of initiatives to enhance regional management's ability to grow revenues in existing locations. These include continued investment in training, marketing and technology. During 1999, 350 cluster managers and 300 sales managers are scheduled to undergo training designed to assist them in managing operations more efficiently and increasing revenues through marketing initiatives. In addition, a senior marketing professional is being appointed to spearhead Company-wide marketing programs of at need and preneed funeral and cemetery sales. Where appropriate, the marketing programs will incorporate value package funerals that will enable many SCI affiliated homes to capture sales in the lower priced funeral market. Further, the roll out of EVA(R) at the operational level will help improve working capital management and efficiency improvements in the field.
These marketing initiatives will assist us in our aim to more than double annual prearranged funeral sales to approximately $1.3 billion by the end of 2003, further locking in future market share.
1998 FOURTH QUARTER REVIEW
Compared to the fourth quarter of 1997, funeral segment revenues increased 5.9 percent to $477.5 million. Funeral segment profits fell $33.9 million to $76.0 million, a decrease of 30.8 percent. Funeral segment margins for the fourth quarter of 1998 fell to 15.9 percent, compared to 24.4 percent in the same period of 1997. For the year ended December 31, 1998, funeral segment revenues were $1.829 billion compared to $1.720 billion. Funeral segment profits were $384.6 million versus $401.4 million in 1997, while margins fell 230 basis points to 21.0 percent, compared to 23.3 percent for the year ended 1997.
During the fourth quarter of 1998, sales of prearranged funeral contracts increased by 26.2 percent to approximately $172.4 million, which expanded the backlog of prearranged funeral contracts to be serviced in future periods to approximately $3.5 billion. For the full year, sales of prearranged funeral contracts totaled $592.8 million, up 5.5% compared to $561.7 million in 1997. Revenues and associated investment earnings from such contracts are deferred and will be recognized during the periods in which the funeral services are actually performed. In 1998, deferred investment earnings and merchandise sales were approximately $200 million and $264 million, respectively.
Compared to the fourth quarter of 1997, cemetery segment revenues increased 12.7 percent to $210.5 million. Cemetery segment profits fell $15.0 million to $55.8 million, a decrease of 21.2 percent, reflecting increased cemetery costs, primarily overhead and maintenance at existing cemeteries, as well as investment returns unchanged from prior year levels from the cemetery merchandise and endowment care trust funds. Cemetery segment margins fell to 26.5 percent, compared to 37.9 percent for fourth quarter of 1997. For the year ended December 31, 1998, cemetery segment revenues were $846.6 million compared to $724.9 million in 1997. Cemetery segment profits were $306.2 million versus $271.9 million in 1997, while margins tightened 130 basis points to 36.2 percent, compared to 37.5 percent for the year ended 1997.
SCI Financial Services performed in line with Company expectations during the fourth quarter of 1998. Revenues of $85.5 million were reported and profits for the segment were $9.5 million. For the year, segment revenues were $199.4 million, an increase of $108.6 million from 1997, of which $81.2 million was related to the acquisition of American Memorial Life Insurance Company from July 1, 1998. Segment profits were $28.0 million in 1998 compared to $14.3 million in 1997.
Costs and Expenses
General and administrative costs decreased 2.3 percent for the fourth quarter of 1998 to $17.2 million as compared to the same period in 1997. For the year ended December 31, 1998, general and administrative costs were unchanged from 1997 at $66.8 million, or 2.3 percent of revenues, compared to 2.6 percent of revenues, for the prior year.
Interest expense for the fourth quarter of 1998 increased $14.7 million to $51.1 million, as a result of increased indebtedness related to acquisitions. For the year ended December 31, 1998, interest expense was $177.1 million, or 6.2 percent of revenues, compared to $136.7 million, or 5.4 percent of revenues, for the prior year.
During the fourth quarter, the Company acquired 53 funeral service locations, 17 cemeteries and 4 crematoria at a cost of $178 million. These businesses are expected to produce approximately $63 million in annualized revenues, including $13 million from North American operations and $50 million from operations outside North America.
During 1998, SCI acquired 308 funeral service locations, 47 cemeteries and 18 crematoria at a cost of $784 million. These businesses are expected to produce approximately $296 million in annualized revenues, including $121 million from North American operations and $175 million from operations outside North America.
The Company also announced today that several class action lawsuits have been commenced on behalf of persons who (i) acquired shares of Company common stock in the merger of a wholly owned subsidiary of the Company with and into Equity Corporation International or (ii) purchased shares of Company common stock during certain specified class periods. The lawsuits allege violations of the federal securities laws and name as defendants the Company and certain of its officers and directors. The lawsuits refer to the Company's January 26, 1999 public announcement that the Company's diluted earnings per share for the fourth quarter of 1998 and for the year ended December 31, 1998 would be lower than analyst expectations. The lawsuits seek, among other things, to recover unspecified damages. The Company believes that the allegations in the lawsuits do not provide a basis for the recovery of damages because the Company has made all required disclosures on a timely basis. The Company has initiated aggressive action to defend these lawsuits.
As of December 31, 1998, SCI operated 3,442 funeral service locations, 433 cemeteries and 191 crematoria. SCI provides funeral and cemetery services in 20 countries on five continents.
Cautionary Statement on Forward-looking Statements
The statements contained in this release that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may be accompanied by words such as "believe," "expect," "anticipate," or "predict," that convey the uncertainty of future events or outcomes. These statements are based on assumptions that the Company believes are reasonable; however many important factors could cause the Company's 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, or on behalf of, the Company. Important factors which could cause actual results to differ materially from those in forward-looking statements include, among others, the following:
1) Changes in general economic conditions both domestically and internationally impacting financial markets (e.g. marketable security values as well as currency and interest rate fluctuations).
2) Changes in domestic and international political and/or regulatory environments in which the Company operates, including tax and accounting policies. Changes in regulations may impact the Company's ability to enter or expand new markets.
3) Changes in consumer demand for the Company's services caused by several factors such as changes in local death rates, cremation rates, competitive pressures and local economic conditions.
4) The Company's ability to identify and complete additional acquisitions on terms that are favorable to the Company, to successfully integrate acquisitions into the Company's business and to realize expected cost savings in connection with such acquisitions. The Company's future results may be materially impacted by changes in the level of acquisition activity.
The Company assumes no obligation to publicly update or revise any forward-looking statements made herein or any other forward-looking statements made by the Company.
For additional information contact: SCI: Todd A. Matherne - Vice President & Treasurer Tel: (713) 525-5243 George R. Champagne - Senior Vice President and CFO Tel: (713) 525-5546 Media: Kate Inverarity, Brunswick Group Tel: (212) 333-3810
Other Service Corporation International and press releases are available
through Company News On-Call by fax, 800-758-5804, extension 104532, or at
http://www.prnewswire.com or SCI's homepage: http:// www.sci-corp.com.
SERVICE CORPORATION INTERNATIONAL CONSOLIDATED STATEMENT OF INCOME (Thousands, except per share amounts) Three Months Ended Twelve Months Ended December 31, December 31, 1998 1997 1998 1997 Revenues: Funeral $477,533 $450,945 $1,829,136 $1,720,291 Cemetery 210,463 186,709 846,601 724,862 Financial services 85,500 28,197 199,353 90,712 773,496 665,851 2,875,090 2,535,865 Cost and expenses: Funeral 401,548 341,095 1,444,529 1,318,920 Cemetery 154,667 115,944 540,440 452,965 Financial services 76,035 24,307 171,351 76,368 632,250 481,346 2,156,320 1,848,253 141,246 184,505 718,770 687,612 General and administrative expense (17,158) (17,566) (66,839) (66,781) Income from operations 124,088 166,939 651,931 620,831 Interest expense (51,063) (36,355) (177,053) (136,720) Dividends on preferred securities of SCI Finance LLC --- --- --- (4,382) Other income 8,383 10,982 43,649 32,167 Gain on sale of investment --- --- --- 68,077 (42,680) (25,373) (133,404) (40,858) Income before income taxes and extraordinary loss 81,408 141,566 518,527 579,973 Provision for income taxes 22,213 49,686 176,385 205,421 Net income before extraordinary loss 59,195 91,880 342,142 374,552 Extraordinary loss on early extinguishment of debt (net of $23,383 income taxes) --- --- --- (40,802) Net income $59,195 $91,880 $ 342,142 $ 333,750 Earnings per share: Basic: Income before extraordinary loss $ 0.23 $ 0.36 $ 1.34 $ 1.53 Extraordinary loss on early extinguishment of debt --- --- --- (0.17) Net income $ 0.23 $ 0.36 $ 1.34 $ 1.36 Diluted: Income before extraordinary loss $ 0.23 $ 0.36 $ 1.31 $ 1.47 Extraordinary loss on early extinguishment of debt --- --- --- (0.16) Net income $ 0.23 $ 0.36 $ 1.31 $ 1.31 Basic weighted average number of shares 258,063 252,112 256,271 245,470 Diluted weighted average number of shares 263,155 259,278 262,520 257,781 Geographic segment information was as follows: (Dollars in thousands) North Other Other America France European Foreign Revenues: Three months ended December 31: 1998 $ 490,034 $ 175,296 $ 77,921 $ 30,245 1997 429,186 151,454 62,156 23,055 Change from prior year $ 60,848 $ 23,842 $ 15,765 $ 7,190 Percentage change from prior year 14.2% 15.7% 25.4% 31.2% Twelve months ended December 31: 1998 $1,877,294 $ 621,359 $ 266,678 $ 109,759 1997 1,658,398 554,648 225,087 97,732 Change from prior year $ 218,896 $ 66,711 $ 41,591 $ 12,027 Percentage change from prior year 13.2% 12.0% 18.5% 12.3% Income from operations: Three months ended December 31: 1998 $ 91,573 $ 19,293 $ 7,335 $ 5,887 1997 129,633 18,248 14,160 4,898 Change from prior year $ (38,060) $ 1,045 $ (6,825) $ 989 Percentage change from prior year -29.4% 5.7% -48.2% 20.2% Twelve months ended December 31: 1998 $ 517,560 $ 71,499 $ 35,666 $27,206 1997 490,430 55,332 46,371 28,698 Change from prior year $ 27,130 $ 16,167 $ (10,705) $(1,492) Percentage change from prior year 5.5% 29.2% -23.1% -5.2% Operating income margin: Three months ended December 31: 1998 18.7% 11.0% 9.4% 19.5% 1997 30.2% 12.0% 22.8% 21.2% Twelve months ended December 31: 1998 27.6% 11.5% 13.4% 24.8% 1997 29.6% 10.0% 20.6% 29.4% Funeral services performed: Three months ended December 31: 1998 66,731 36,812 31,957 7,256 1997 64,744 36,675 26,534 7,145 Percentage change from prior year 3.1% 0.4% 20.4% 1.6% Twelve months ended December 31: 1998 263,094 147,994 117,776 29,946 1997 252,643 148,223 102,985 29,278 Percentage change from prior year 4.1% -0.2% 14.4% 2.3% Number of locations at December 31: 1998 1,843 1,214 840 169 1997 1,720 1,101 704 160
SOURCE Service Corporation International