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Service Corporation International Announces Strong First Quarter 2013 Financial Results
- Conference call on Thursday, April 25, 2013, at 9:00 a.m. Central Time

HOUSTON, April 24, 2013 /PRNewswire/ -- Service Corporation International (NYSE:  SCI), the largest provider of deathcare products and services in North America, today reported results for the first quarter 2013. Our unaudited condensed consolidated financial statements can be found at the end of this press release. The table below summarizes our key financial results: 


(In millions, except for per share amounts)

Three Months Ended

March 31,


2013


2012

Revenues

$

652.4



$

602.5


Operating income

$

127.8



$

101.1


Net income attributable to common stockholders

$

57.6



$

48.0


Diluted earnings per share

$

0.27



$

0.22


Earnings from continuing operations excluding special items(1)

$

60.6



$

45.1


Diluted earnings per share from continuing operations excluding special items(1)

$

0.28



$

0.20


Diluted weighted average shares outstanding

215.2



223.2


Net cash provided by operating activities

$

151.1



$

95.8


Net cash provided by operating activities excluding special items(1)

$

154.1



$

95.8










(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 headings "Cash Flow and Capital Spending" and "Non-GAAP Financial Measures".

Quarterly Highlights:

  • Diluted earnings per share from continuing operations excluding special items increased 40.0% to $0.28 in the first quarter 2013 compared to $0.20 in the prior year first quarter.   
  • Funeral gross profit increased by $20.1 million, or 20.1%, and funeral gross margin percentage increased to 26.0% from 23.6% due primarily to a healthy increase in funeral services performed.
  • Cemetery gross profit increased $11.9 million, or 43.1%, and cemetery gross margin percentage increased to 20.8% from 15.5% due primarily to a solid increase in preneed cemetery property sales production.
  • Net cash provided by operating activities excluding special items increased to $154.1 million compared to $95.8 million in 2012, driven primarily by higher operating earnings and improved working capital performance.

Tom Ryan, the Company's President and Chief Executive Officer, commented on the first quarter of 2013:
"We are very proud of the operating performance of our businesses during the first quarter which delivered an impressive 40% improvement in EPS from continuing operations excluding special items.  Strong preneed cemetery sales production and a meaningful increase in funeral services performed drove earnings to the high end of our expectations.  On this strong performance, we anticipate results for the year trending toward the upper end of the earnings and cash flow guidance ranges previously provided, and we remain confident that our solid operating platform and healthy financial position will allow us to actively pursue our growth strategies throughout the year and continue our focus on increasing shareholder value."

REVIEW OF RESULTS FOR FIRST QUARTER 2013

Consolidated Segment Results

(In millions, except funeral services performed and average revenue per funeral service)




Three Months Ended

March 31,





2013


2012

Funeral







Funeral atneed revenue




$

267.0



$

252.7


Funeral matured preneed revenue




146.4



131.8


Funeral recognized preneed revenue




18.9



13.7


Other funeral revenue




29.7



26.1


   Total funeral revenues




$

462.0



$

424.3









Gross profit




$

120.1



$

100.0


Gross margin percentage




26.0

%


23.6

%








Funeral services performed




79,788



74,706


Average revenue per funeral service




$

5,181



$

5,147









Cemetery







Cemetery atneed revenue




$

60.8



$

58.1


Cemetery recognized preneed revenue




104.0



96.9


Other cemetery revenue




25.5



23.2


   Total cemetery revenues




$

190.3



$

178.2









Gross profit




$

39.5



$

27.6


Gross margin percentage




20.8

%


15.5

%

Comparable Funeral Results

The table below details comparable funeral results of operations ("same store") for the three months ended March 31, 2013 and 2012, including the results of the Neptune Society for both periods. We consider comparable operations to be those owned for the entire period beginning January 1, 2012 and ending March 31, 2013.  

(Dollars in millions, except average revenue per funeral service and average revenue per contract sold)


Three Months Ended

March 31,



2013


2012

Comparable funeral revenue:





Atneed revenue(1)


260.5



251.9


Matured preneed revenue(2)


145.5



131.2


Recognized preneed revenue(3)


17.9



13.6


Other funeral revenue(4)


29.5



26.3


Total comparable funeral revenues


$

453.4



$

423.0







Comparable gross profit


$

118.9



$

100.9


Comparable gross margin percentage


26.2

%


23.9

%






Comparable funeral services performed:





Preneed


30,695



28,852


Atneed


47,021



45,666


Total


77,716



74,518







Comparable average revenue per funeral service


$

5,224



$

5,141


Comparable preneed funeral production:





Sales


$

180.9



$

171.9


Preneed funeral contracts sold – SCI (excluding Neptune Society)


27,297



26,362


Preneed funeral contracts sold – Neptune Society



12,769




10,653


Average revenue per contract sold - SCI (excluding Neptune Society)


$

5,752



$

5,819


Average revenue per contract sold - Neptune Society


$

1,873



$

1,740











(1)

Funeral atneed revenue represents merchandise and funeral services sold after a death has occurred.

(2)

Funeral matured preneed revenue represents merchandise and services sold on a preneed contract but delivered and/or performed after a death has occurred.

(3)

Funeral recognized preneed revenue represents merchandise and services sold on a preneed contract and delivered before a death has occurred, including funeral merchandise and travel protection insurance, which primarily represent sales by the Neptune Society.

(4)

Other funeral revenue consists primarily of General Agency 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 revenues increased by $30.4 million and were primarily driven by an impressive increase in the number of funeral services performed and an increase in the average revenue per funeral service. Additionally, recognized preneed revenue grew by over 31% enhancing both revenues and gross profits. 
  • Comparable funeral services performed increased 4.3%, which we believe is consistent with trends experienced by other funeral service providers and industry vendors.
  • The comparable average revenue per funeral service grew 1.6% over the prior year quarter. Excluding an unfavorable Canadian currency impact and the benefit from higher trust fund income, the average revenue per funeral service grew approximately 1.1%.  This was achieved despite a 60 basis point increase in the cremation rate to 48.9% in 2013.  The addition of Neptune Society fulfilled contracts to our comparable results (which include only the cremation service component in our comparable analysis) has accelerated our cremation mix change and put slight downward pressure on our total average revenue per funeral service. 
  • Comparable funeral gross profit increased $18.0 million, or 17.8%, compared to the prior year quarter, while the gross margin percentage increased 230 basis points to 26.2%. The improvements were led by strong revenue increases partially offset by corresponding higher direct costs for funeral expenses and selling costs related to increased preneed sales production.
  • Comparable preneed funeral sales production increased $9.0 million, or 5.2%, compared to the prior year.  This was primarily driven by a 19.9% increase in Neptune funeral contracts sold with a sales average increase of 7.6%.   Excluding Neptune, SCI's number of preneed funeral contracts sold also increased 3.5%, while the sales average slightly decreased 1.0%.  Preneed funeral sales are deferred and recognized as revenues in future periods when the funeral service is performed, unless the corresponding merchandise or service is delivered before death has occurred.

Comparable Cemetery Results

The table below details comparable cemetery results of operations ("same store") for the three months ended March 31, 2013 and 2012. We consider comparable operations to be those owned for the entire period beginning January 1, 2012 and ending March 31, 2013.  


(Dollars in millions)


Three Months Ended

March 31,



2013


2012

Comparable cemetery revenue:





Atneed revenue(1)


$

60.8



$

58.0


Recognized preneed revenue(2)


104.0



96.9


Other cemetery revenue(3)


25.6



23.0


Total comparable cemetery revenues


$

190.4



$

177.9







Comparable gross profit


$

39.9



$

27.4


Comparable gross margin percentage


21.0

%


15.4

%






Comparable preneed and atneed cemetery sales production:





Property


$

120.0



$

109.2


Merchandise and services


99.8



96.3


Discounts


(24.2)



(22.1)


Preneed and atneed cemetery sales production


$

195.6



$

183.4


   Recognition rate (4)


84

%


84

%








(1)

Cemetery atneed revenue represents merchandise and services sold after a death has occurred.

(2)

Cemetery recognized preneed revenue represents merchandise and services sold on a preneed contract and delivered before a death has occurred.

(3)

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

(4)

Represents the ratio of current period revenue recognition stated as a percentage of current period preneed sales production.

  • Comparable cemetery revenues increased $12.5 million, or 7.0%, primarily as a result of higher preneed property sales, as well as increased trust fund income during the quarter.
  • Led by the strong increase in revenues, cemetery gross profit increased $12.5 million and the gross margin percentage increased to 21.0% compared to 15.4%. Included in the results for the first quarter of 2013 was a benefit of $1.9 million for property insurance claim settlements, partially offset by a $2.0 million increase in selling costs related to increased sales production.
  • Included in the preneed and atneed cemetery sales production above is an increase of $8.3 million, or 6.7%, in preneed cemetery sales production for the current quarter.

Other Financial Results 

  • General and administrative expenses increased $4.9 million to $30.9 million in the first quarter of 2013. This increase in the current year was primarily due to $2.5 million of incremental long-term incentive compensation costs related to total shareholder return as well as a $2.5 million increase in legal fees.

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.

(In millions)





Three Months Ended

March 31,






2013


2012

Net cash provided by operating activities, as reported





$

151.1



$

95.8


System and Process Transition Costs





1.7




Legal Defense Fees





1.3




Net cash provided by operating activities excluding special items





$

154.1



$

95.8


  • Net cash provided by operating activities excluding special items increased to $154.1 million compared to $95.8 million in 2012. Higher earnings in the current quarter were further enhanced by improved working capital performance, primarily from preneed cash collections and accounts payable. 
  • A summary of our capital expenditures is set forth below:

  Capital Expenditures (In millions)





Three Months Ended

March 31,






2013


2012

Capital improvements at existing locations





$

14.7



$

13.7


Development of cemetery property





6.2



8.0


Construction of new funeral home facilities





1.7



1.7


Total capital expenditures





$

22.6



$

23.4


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 months ended March 31, 2013 is set forth below:





Three Months

Preneed Funeral




6.3%

Preneed Cemetery




6.7%

Cemetery Perpetual Care




4.0%

Combined Trust Funds




5.7%

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  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 our reported net income attributable to common stockholders to earnings from continuing operations excluding special items  and our GAAP diluted earnings per share to diluted earnings per share from continuing operations excluding special items.  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 March 31,

(In millions, except diluted EPS)

2013


2012


Net

Income


Diluted

EPS


Net

Income


Diluted

EPS

Net income attributable to common stockholders, as reported

$

57.6



$

0.27



$

48.0



$

0.22


After-tax reconciling items:








Impact of divestitures and impairment charges, net

0.6





0.4




System and process transition costs

0.7








Change in certain tax reserves

0.9



0.01



(3.3)



(0.02)


Legal Defense Fees

0.8








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

$

60.6



$

0.28



$

45.1



$

0.20










Diluted weighted average shares outstanding (in thousands)



215,208





223,212


Conference Call and Webcast

We will host a conference call on Thursday, April 25, 2013, 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 34696233. 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 May 25, 2013 and can be accessed at (630) 652-3000 with the passcode of 34696233#. 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, including currently pending class action cases concerning cemetery or burial practices, 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.
  • If we are not able to respond effectively to changing consumer preferences, our market share, revenues and profitability could 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.
  • Increased costs, including potential increased health care costs, may have a negative impact on earnings and cash flows.
  • 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 and/or other intangible assets.

For further information on these and other risks and uncertainties, see our Securities and Exchange Commission filings included in our 2012 Annual Report on Form 10-K, which was filed February 13, 2013. 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 March 31, 2013, we owned and operated 1,437 funeral homes and 374 cemeteries (of which 213 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.

For additional information contact:








Investors:


Debbie Young - Director / Investor Relations


(713) 525-9088

Media:


Lisa Marshall - Managing Director / Corporate Communications


(713) 525-3066

 

SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)















Three Months Ended

March 31,





2013


2012

Revenues




$

652,352



$

602,506


Costs and expenses




(492,752)



(474,939)


Gross profit




159,600



127,567


General and administrative expenses




(30,866)



(25,959)











(Losses) on divestitures and impairment charges, net




(969)



(490)


Operating income




127,765



101,118


Interest expense




(32,769)



(33,588)


Other (expense) income, net




(984)



3,905











Income from continuing operations before income taxes




94,012



71,435


Provision for income taxes




(35,290)



(23,120)


Net income




58,722



48,315











Net income attributable to noncontrolling interests




(1,102)



(290)











Net income attributable to common stockholders




$

57,620



$

48,025









Basic earnings per share




$

0.27



$

0.22


Diluted earnings per share




$

0.27



$

0.22









Basic weighted average number of shares




211,380



220,132


Diluted weighted average number of shares




215,208



223,212


 

SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED BALANCE SHEET
(In thousands, except share amounts)










March 31, 2013


December 31, 2012

ASSETS




Current assets:




Cash and cash equivalents

$

188,546



$

92,708


Receivables, net

92,955



101,817


Deferred tax asset

42,833



42,864


Inventories, net

25,556



24,560


Other

24,858



20,546


Total current assets

374,748



282,495


Preneed funeral receivables, net and trust investments

1,558,994



1,535,932


Preneed cemetery receivables, net and trust investments

1,897,314



1,826,835


Cemetery property, at cost

1,486,646



1,489,948


Property and equipment, net

1,635,118



1,641,101


Goodwill

1,379,303



1,382,410


Deferred charges and other assets

421,646



425,267


Cemetery perpetual care trust investments

1,128,284



1,099,580



$

9,882,053



$

9,683,568


LIABILITIES & EQUITY




Current liabilities:




Accounts payable and accrued liabilities

$

378,844



$

373,783


Current maturities of long-term debt

37,315



31,429


Income taxes

9,373



6,892


Total current liabilities

425,532



412,104


Long-term debt

1,913,382



1,916,621


Deferred preneed funeral revenues

525,933



536,647


Deferred preneed cemetery revenues

876,553



861,148


Deferred tax liability

507,091



471,198


Other liabilities

392,369



399,950


Deferred preneed funeral and cemetery receipts held in trust

2,714,633



2,624,321


Care trusts' corpus

1,127,479



1,098,752






Stockholders' Equity:




Common stock, $1 per share par value, 500,000,000 shares authorized, 211,785,586 and 211,056,501 shares issued, respectively, and 211,663,639 and 211,046,501 shares outstanding, respectively

211,664



211,047


Capital in excess of par value

1,297,949



1,307,058


Accumulated deficit

(230,098)



(286,795)


Accumulated other comprehensive income

106,205



111,717


Total common stockholders' equity

1,385,720



1,343,027


Noncontrolling interests

13,361



19,800


Total Equity

1,399,081



1,362,827



$

9,882,053



$

9,683,568


 

SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)






Three Months Ended

March 31,


2013


2012

Cash flows from operating activities:




Net income

$

58,722



$

48,315


Adjustments to reconcile net income to net cash provided by operating activities:




Depreciation and amortization

30,447



29,541


Amortization of intangible assets

5,808



6,149


Amortization of cemetery property

8,975



9,569


Amortization of loan costs

1,235



1,194


Provision for doubtful accounts

1,720



2,842


Provision for deferred income taxes

26,134



18,479


Losses on divestitures and impairment charges, net

969



490


Share-based compensation

2,830



2,574


Excess tax benefits from share-based awards

(772)




Change in assets and liabilities, net of effects from acquisitions and divestitures:




Decrease in receivables

5,962



4,471


Increase in other assets

(5,882)



(5,352)


Increase (decrease) in payables and other liabilities

12,215



(7,888)


Effect of preneed funeral production and maturities:




Decrease in preneed funeral receivables, net and trust investments

13,738



16,066


Decrease in deferred preneed funeral revenue

(4,000)



(7,735)


Decrease in deferred preneed funeral receipts held in trust

(14,176)



(10,069)


Effect of cemetery production and deliveries:




Increase in preneed cemetery receivables, net and trust investments

(6,359)



(26,238)


Increase in deferred preneed cemetery revenue

15,912



15,948


(Decrease) increase in deferred preneed cemetery receipts held in trust

(3,419)



642


Other

1,065



(3,214)


Net cash provided by operating activities

151,124



95,784


Cash flows from investing activities:




Capital expenditures

(22,569)



(23,378)


Acquisitions



(804)


Proceeds from divestitures and sales of property and equipment, net

1,816



264


Net withdrawals of restricted funds and other

339



1,176


Net cash used in investing activities

(20,414)



(22,742)


Cash flows from financing activities:




Proceeds from the issuance of long-term debt



907


Payments of debt

(4,948)



(497)


Principal payments on capital leases

(6,468)



(6,084)


Proceeds from exercise of stock options

3,094



2,323


Excess tax benefit from share-based awards

772




Purchase of Company common stock

(1,708)



(75,106)


Payments of dividends

(12,698)



(11,104)


Purchase of Neptune Society non-controlling interest

(8,333)




Bank overdrafts and other

(4,004)



433


Net cash used in by financing activities

(34,293)



(89,128)


Effect of foreign currency

(579)



1,348


Net increase (decrease) in cash and cash equivalents

95,838



(14,738)


Cash and cash equivalents at beginning of period

92,708



128,569


Cash and cash equivalents at end of period

$

188,546



$

113,831


SOURCE Service Corporation International

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements in this press release regarding Service Corporation International's business which are not historical facts are "forward-looking statements" that involve risks and uncertainties. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see "Risk Factors" in the Company's Annual Report or Form 10-K for the most recently ended fiscal year.