Investor News

HOUSTON, Feb. 10, 2015 /PRNewswire/ -- Service Corporation International (NYSE: SCI), the largest provider of deathcare products and services in North America, today reported results for the fourth quarter 2014. Our 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 by 37.0% to $0.37 in the fourth quarter 2014 compared to $0.27 in the prior year quarter, led by an increase in comparable funeral and cemetery gross profits and the contribution from the legacy Stewart properties acquired in December 2013.
• Consolidated funeral gross profit increased by $15.8 million, or 19.1%, driven by an increase in comparable funeral services performed along with the addition of the legacy Stewart funeral homes.
• Consolidated cemetery gross profit increased $41.8 million, or 64.3%, primarily due to an increase in preneed cemetery sales production of developed and completed cemetery property, an increase in perpetual care trust fund income, and the contribution from the legacy Stewart cemeteries.
• Net cash provided by operating activities excluding special items increased 16.5%, or $17.5 million, to $123.3 million primarily driven by the strong earnings performance described above.
• During the fourth quarter, we returned $131.2 million to our shareholders through a combination of share repurchases and dividends. Additionally, today our Board of Directors approved a quarterly dividend of ten cents per share, which represents an increase in our quarterly dividend of 11%.

Tom Ryan, the Company's President and Chief Executive Officer, commented on the fourth quarter of 2014:
"We ended the year on a high note with strong operating performance in the fourth quarter that resulted in an impressive 21% improvement in full-year normalized earnings per share and a 16% increase in adjusted cash flow from operations. This is a testament to the dedicated efforts of our 24,000 associates who made this possible, while at the same time progressing through a very successful integration of the Stewart acquisition. Our strong free cash flow in 2014 allowed us to return a significant amount of capital to our shareholders which we expect to continue into 2015 as substantiated by our most recent quarterly dividend increase of 11% announced today."

OUTLOOK FOR 2015

"We are also pleased today to announce an increase in our cash flow guidance of $25 million as a result of lower than expected cash taxes and to confirm our previous earnings outlook for 2015," continued Mr. Ryan. "When reviewing our guidance, keep in mind that businesses we were required to divest by order of the Federal Trade Commission contributed an approximate $0.08 per share during the year to 2014 earnings per share. Additionally, our cash tax payments are still expected to increase by approximately $85 million as the previous benefit from net operating losses will be substantially reduced in 2015."

Our updated outlook for potential earnings and cash flow in fiscal 2015 is detailed below.

QUARTERLY DIVIDEND

Our Board of Directors approved a quarterly cash dividend of ten cents per share of common stock. The quarterly cash dividend declared today represents an 11% increase from previously declared dividends of nine cents per share of common stock per quarter. The quarterly cash dividend announced today is payable on March 31, 2015 to shareholders of record at the close of business on March 16, 2015. While the Company intends to pay regular quarterly cash dividends for the foreseeable future, all subsequent dividends, and the establishment of record and payment dates, are subject to final determination by the Board of Directors each quarter after its review of the Company's financial performance.

REVIEW OF FINANCIAL RESULTS FOR FOURTH QUARTER 2014

Comparable Funeral Results

The table below details comparable funeral results of operations ("same store") for the three months ended December 31, 2014 and 2013. We consider comparable operations to be those owned for the entire period beginning January 1, 2013 and ending December 31, 2014.

• Comparable funeral revenues increased $9.1 million, or 2.2%, primarily due to a 1.8% increase in funeral services performed. Average revenue per funeral service grew 0.2%, which was impacted by a higher cremation rate and a downturn of the Canadian dollar. Excluding the unfavorable Canadian currency impact, the average revenue per funeral service grew 1.1%. This increase in average was also impacted by a 140 basis point increase in the cremation rate to 52.3% in the fourth quarter of 2014.
• Comparable funeral gross profit increased $6.4 million, or 8.1%, and the gross margin percentage increased 110 basis points to 20.6% primarily as a result of the increase in revenues and the natural leveraging of overhead support costs being allocated to both our comparable locations and the newly acquired Stewart locations.
• Preneed funeral sales production, excluding terminally imminent contracts, increased $16.8 million for the quarter or 11.7%. A terminally imminent contract is used when a family chooses to make arrangements several weeks or a few months in advance of need. In mid-2014, we changed our policy for serving terminally imminent contracts as they are now predominately recorded directly into atneed sales instead of recorded as preneed sales that quickly convert into atneed business.

Comparable Cemetery Results

The table below details comparable cemetery results of operations ("same store") for the three months ended December 31, 2014 and 2013. We consider comparable operations to be those owned for the entire period beginning January 1, 2013 and ending December 31, 2014.

• Comparable cemetery revenues grew $38.4 million, or 16.7%, primarily from an increase in preneed cemetery sales production of developed and completed cemetery property and an increase of $15.0 million in recognized perpetual care trust fund income. This increase in recognized perpetual care trust fund income was due to cash distributions to us from the perpetual care trust funds as a result of realizing net capital gains created by the new SCI trust structure.
• Preneed cemetery sales production increased $14.4 million, or 10.2%, in the current quarter compared to the same period last year.
• As the result of higher revenues during the quarter, comparable cemetery gross profit increased $33.6 million and the gross margin percentage increased to 36.0% from 27.3% in the prior year quarter.
• Excluding the $15.0 million of perpetual care trust fund income recognized in the quarter, our gross margin percentage grew to 32.2%, reflecting the high margins associated with increased cemetery sales production.

Other Financial Results

• General and administrative expenses were $43.0 million in the current quarter compared to $59.1 million in the prior year quarter. The current quarter included $4.3 million of costs related to the integration of Stewart and $1.3 million of system integration costs. The prior year included $25.7 million of costs related to the acquisition of Stewart, $3.3 million of integration costs, and $3.1 million of legal defense fees. Excluding these one-time costs in both periods, general and administrative expenses increased $10.4 million over the prior year. The majority of this increase reflects the overhead costs of the new combined entity; however, approximately $5.1 million is associated with the timing of increases in long-term incentive compensation and pension costs.
• Interest expense increased to $42.9 million compared to $38.8 million in the prior period as expected due to the incremental debt associated with the Stewart acquisition.
• As a result of divestitures required by the Federal Trade Commission (FTC) in connection with the Stewart acquisition, we recognized a gain on divestitures of $57.9 million during the fourth quarter of 2014. Our GAAP effective tax rate of 51.2% for the quarter is the result of higher tax gains on the FTC divestitures as there was no deductible goodwill associated with such divestitures.

Cash Flow and Capital Spending

Set forth below is a reconciliation of our reported net cash provided by operating activities prepared in accordance with GAAP to net cash provided by operating activities excluding special items (or sometimes referred to as normalized operating cash flow). 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 $17.5 million to $123.3 million for the fourth quarter due primarily to higher earnings and cash receipts associated with increased cemetery preneed sales production. These increases were partially offset by expected higher interest payments of $3.6 million related to incremental debt associated with the Stewart acquisition.
• 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 twelve months ended December 31, 2014 is set forth below:

NON-GAAP FINANCIAL MEASURES

Earnings from continuing operations excluding special items, diluted earnings per share from continuing operations excluding special items (or sometimes referred to as normalized earnings per share), and adjusted comparable gross profit 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.

Conference Call and Webcast

We will host a conference call on Wednesday, February 11, 2015, at 8:30 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) 619-6396 with the passcode of 38836160. 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 February 25, 2015 and can be accessed at (630) 652-3042 with the passcode of 38836160#. Additionally, a replay of the conference call will be available on our website for approximately two weeks.

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 funds.
• The funeral home and cemetery industry is 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.
• 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.
• 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 impairments to goodwill and/or other intangible assets.
• Any failure to maintain the security of the information relating to our customers, their loved ones, our associates, and our vendors could damage our reputation, could cause us to incur substantial additional costs and to become subject to litigation, and could adversely affect our operating results.
• Our Canadian business exposes us to operational, economic, and currency risks.
• Our level of indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, and prevent us from fulfilling our obligations under our indebtedness.
• Failure to maintain effective internal control over financial reporting could adversely affect our results of operations, investor confidence and our stock price.
• There can be no assurance that future dividends will be declared. The actual declaration of future dividends, and the establishment of record and payment dates, is subject to final determination by our Board of Directors each quarter after its review of our financial performance. Important factors which could cause actual results to differ materially from those in forward-looking statements include, among others, restrictions on the payment of dividends under existing or future credit agreements or other financing arrangements; changes in tax laws relating to corporate dividends; a determination by the Board of Directors that the declaration of a dividend is not in the best interests of the Company and its shareholders; an increase in our cash needs or a decrease in available cash; or a deterioration in our financial condition or results.

For further information on these and other risks and uncertainties, see our Securities and Exchange Commission filings included in our 2014 Annual Report on Form 10-K, which will be filed later this week.  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.

Revision of Prior Period Financial Statements

In 2014, the Company determined it had made misstatements related to the determination of certain deferred tax amounts originating in 2013 and prior periods. The financial statements included at the end of this press release have been revised to correct these misstatements in all prior periods. For further information, please refer to our 2014 Annual Report on Form 10-K, which we expect to file later this week.

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 December 31, 2014, we owned and operated 1,559 funeral homes and 466 cemeteries (of which 258 are combination locations) in 45 states, eight Canadian provinces, the District of Columbia, and Puerto Rico. 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