It has been about a month since the last earnings report for Service Corp. (SCI). Shares have lost about 5.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Service Corp. due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Service Corporation Q1 Earnings Beat, Sales Fall Y/Y
Service Corporation International posted decent first-quarter 2023 results, with the top and bottom lines beating the Zacks Consensus Estimate. However, metrics declined from the year-ago period’s levels, which was significantly impacted by the pandemic and rising interest rates.
Q1 in Detail
Service Corporation posted adjusted earnings of 93 cents per share, surpassing the Zacks Consensus Estimate of 88 cents. However, the metric fell from $1.34 reported in the year-ago quarter. The downside was caused by softness in gross profit due to lower COVID-19 activity. In addition, a lower number of shares outstanding and lower tax rates more than offset the impact of increased interest expenses.
Total revenues of $1,028.7 million decreased from $1,112.4 million reported in the year-ago quarter. However, the top line came ahead of the Zacks Consensus Estimate of $1,017 million.
The gross profit decreased to $289.1 million from $376.9 million reported in the year-ago quarter. Corporate general and administrative costs were $44.2 million compared with $41.7 million in the year-ago period. The downside was caused by accelerated compensation expenses related to retirement and long-term incentive compensation plan that is linked to growth in total shareholder return.
The operating income of almost $245.6 million decreased from $335.7 million reported in the year-ago quarter.
Segment Discussion
Consolidated Funeral revenues came in at $609.7 million, down from $649.7 million reported in the year-ago quarter. Total comparable funeral revenues declined 7.1% due to lower core funeral revenues partially offset by an increase in recognized preneed revenues and other revenues.
Core funeral revenues fell 10%, mainly due to 12.1% lower core funeral services performed (as the year-ago period included the impacts of the pandemic). This was somewhat offset by a 2.4% rise in the core average revenue per service.
Comparable preneed funeral sales production increased by 8.1% as a result of growth in both core and non-funeral preneed sales production. Improved velocity and sales averages were the primary drivers of both of these increases.
Comparable funeral gross profit came in at $148.4 million, down $48 million from the year-ago quarter’s reported figure. The gross profit percentage came in at 24.6%, down from 30.3% reported in the year-ago quarter. The downside was mainly caused by a decline in revenues and rising selling costs on higher preneed insurance sales production.
Consolidated Cemetery revenues came in at $419 million, down from $463.3 million reported in the year-ago quarter. Comparable cemetery revenues dipped 9.7% due to a decline in core revenues and other revenues.
Core revenues fell $42.2 million as a result of the pandemic's impact on total recognized preneed revenues and atneed revenues. Comparable preneed cemetery sales production fell 15.8% due to a decrease in preneed cemetery property sales production.
The comparable cemetery gross profit fell by $40.7 million to $140.3 million. The gross profit percentage contracted from 39.1% to 33.5% in the quarter under review. The decline in metric was due to a fall in revenues combined with higher maintenance costs.
Other Financial Details
Service Corporation ended the quarter with cash and cash equivalents of $157.8 million, long-term debt of $4,327.8 million and total equity of $1,621.7 million.
Net cash from operating activities amounted to $219.6 million during the first quarter. During the same period, the company incurred capital expenditures of $77.9 million.
2023 Guidance
Service Corporation reaffirmed its previously announced guidance. It expects adjusted earnings per share in the range of $3.45-$3.75. We note that the company’s earnings came in at $3.80 per share in 2022.
Net cash provided by operating activities (excluding special items and cash taxes) is anticipated in the range of $910-$960 million. Net cash provided by operating activities (excluding special items) is anticipated in the range of $740-$800 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
VGM Scores
At this time, Service Corp. has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Service Corp. has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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May 31, 2023 at 10:30PM
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Service Corp. (SCI) Down 5.1% Since Last Earnings Report: Can It Rebound? - Yahoo Finance
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