Service Corporation International (SCI) Bundle
Understanding Service Corporation International (SCI) Revenue Streams
Understanding Service Corporation International’s Revenue Streams
The company's primary revenue sources stem from two main segments: funeral operations and cemetery operations. Below is a detailed analysis of each segment's contribution to overall revenue.
Breakdown of Primary Revenue Sources
| Revenue Source | Q3 2024 Revenue (in millions) | Q3 2023 Revenue (in millions) | Year-over-Year Change (in millions) |
|---|---|---|---|
| Consolidated Funeral Revenue | $566.0 | $554.8 | $11.2 |
| Consolidated Cemetery Revenue | $448.0 | $447.1 | $0.9 |
Year-over-Year Revenue Growth Rate
For the nine months ended September 30, 2024, consolidated funeral revenue was $1,736.5 million, compared to $1,729.9 million for the same period in 2023, marking a growth of $6.6 million or an increase of 0.38%.
Consolidated cemetery revenue for the same periods was $1,356.9 million for 2024 and $1,314.1 million for 2023, reflecting a growth of $42.8 million or an increase of 3.3%.
Contribution of Different Business Segments to Overall Revenue
In the nine months ending September 30, 2024, the contributions from each segment were as follows:
- Funeral Operations: $1,736.5 million
- Cemetery Operations: $1,356.9 million
The overall revenue for the company thus totaled $3,093.4 million for the nine months ending September 30, 2024.
Analysis of Significant Changes in Revenue Streams
In the funeral operations segment, comparable revenue decreased by $6.4 million, primarily due to a $24.8 million decrease in non-funeral home preneed sales revenue, which was partially offset by a $12.6 million increase in core general agency and other revenue. The average revenue per service increased to $5,700 in Q3 2024 from $5,597 in Q3 2023.
In cemetery operations, the comparable revenue increased by $33.1 million, attributed to a $21.3 million rise in core revenue and a $25.8 million increase in total recognized preneed revenue, driven by growth in comparable preneed sales production.
The overall revenue performance indicates a stable growth trajectory, with both segments contributing positively to the company's financial health.
Year-over-Year Revenue Growth Trends
| Period | Funeral Revenue (in millions) | Cemetery Revenue (in millions) | Total Revenue (in millions) |
|---|---|---|---|
| Q3 2024 | $566.0 | $448.0 | $1,014.0 |
| Q3 2023 | $554.8 | $447.1 | $1,001.9 |
| Change | $11.2 | $0.9 | $12.1 |
Overall, the revenue analysis illustrates a slight increase in both primary revenue sources, demonstrating resilience in the company's operations amidst market fluctuations.
A Deep Dive into Service Corporation International (SCI) Profitability
A Deep Dive into Service Corporation International's Profitability
Gross Profit Margin: For the nine months ended September 30, 2024, consolidated funeral gross profit was $340.2 million, down from $374.8 million in the same period of 2023, reflecting a gross profit margin decrease from 21.8% to 19.7%.
Operating Profit: The operating profit for the nine months ended September 30, 2024, was $367.3 million, compared to $398.9 million for the same period in 2023.
Net Profit Margin: The net income attributable to common stockholders for the nine months ended September 30, 2024, was $367.3 million ($2.50 per diluted share), down from $398.9 million ($2.60 per diluted share) in 2023.
Trends in Profitability Over Time
In the third quarter of 2024, consolidated net income was $117.8 million ($0.81 per diluted share), slightly down from $122.0 million ($0.80 per diluted share) in the third quarter of 2023. The decrease in profitability over the year is attributed to higher interest expenses and corporate general and administrative costs.
Comparison of Profitability Ratios with Industry Averages
The gross profit margin of 19.7% for the nine months ending September 30, 2024, is below the industry average of approximately 25% for the funeral services industry. The operating margin also reflects challenges, with a significant decline compared to prior years.
Analysis of Operational Efficiency
The corporate general and administrative expenses increased to $124.1 million for the nine months ended September 30, 2024, compared to $112.3 million in 2023. This increase in expenses, coupled with a 9.2% decrease in funeral gross profit, highlights ongoing challenges in cost management. The company’s focus remains on managing fixed costs amidst fluctuating revenues.
| Metric | 2024 (9 months) | 2023 (9 months) | Change (%) |
|---|---|---|---|
| Consolidated Funeral Gross Profit | $340.2 million | $374.8 million | -9.2% |
| Operating Profit | $367.3 million | $398.9 million | -7.6% |
| Net Income | $367.3 million | $398.9 million | -7.6% |
| Gross Profit Margin | 19.7% | 21.8% | -1.1% |
| Corporate General and Administrative Expenses | $124.1 million | $112.3 million | +10.5% |
Debt vs. Equity: How Service Corporation International (SCI) Finances Its Growth
Debt vs. Equity: How Service Corporation International Finances Its Growth
Overview of the Company's Debt Levels
As of September 30, 2024, the total debt of the company amounted to $4,828.0 million, up from $4,712.5 million at the end of 2023. The total long-term debt was $4,743.7 million, while current maturities of debt were $84.3 million.
Debt Components
| Debt Type | Amount (in thousands) | Due Date |
|---|---|---|
| 7.5% Senior Notes | 136,924 | April 2027 |
| 4.625% Senior Notes | 550,000 | December 2027 |
| 5.125% Senior Notes | 749,258 | June 2029 |
| 3.375% Senior Notes | 769,446 | August 2030 |
| 4.0% Senior Notes | 743,400 | May 2031 |
| 5.75% Senior Notes | 805,632 | October 2032 |
| Term Loan | 645,469 | January 2028 |
| Bank Credit Facility | 110,000 | January 2028 |
| Mortgage Notes and Other Debt | 87,185 | Maturities through 2050 |
Debt-to-Equity Ratio and Comparison to Industry Standards
The debt-to-equity ratio as of September 30, 2024, stands at 2.73, calculated using total debt of $4,828.0 million and total equity of $1,773.1 million. This ratio is higher than the industry average of approximately 1.5, indicating a more leveraged capital structure compared to peers.
Recent Debt Issuances and Credit Ratings
During the nine months ended September 30, 2024, the company issued $1,336.1 million in debt, which included:
- $800.0 million in unsecured 5.75% Senior Notes due October 2032;
- $530.0 million on the Bank Credit Facility;
- $6.1 million in other debt.
The company has maintained a credit rating of Baa3 from Moody's, indicating a moderate credit risk level.
Refinancing Activity
In August 2024, the company entered into a new $129.9 million construction loan agreement due 2037, primarily for financing a new corporate headquarters. The interest rate on the Bank Credit Facility was 6.95% as of September 30, 2024.
Balancing Debt Financing and Equity Funding
The company actively manages its capital structure by balancing debt and equity funding. It aims to maintain a target leverage ratio of 3.5x to 4.0x while returning excess cash to shareholders through dividends, which have increased steadily over the years.
In 2024, the quarterly dividend rate was $0.30 per share, reflecting a payout ratio of approximately 30% to 40% of after-tax earnings excluding special items.
Assessing Service Corporation International (SCI) Liquidity
Assessing Liquidity and Solvency
Current Ratio: As of September 30, 2024, the current ratio is 1.52, indicating a solid short-term liquidity position. This reflects a current asset total of $1,300 million against current liabilities of $855 million.
Quick Ratio: The quick ratio stands at 1.10, calculated with quick assets (current assets minus inventories) of $950 million and current liabilities of $855 million.
Working Capital Trends
Working capital has shown a positive trend, with net working capital increasing from $410 million in 2023 to $445 million in 2024. This improvement is primarily due to increased cash reserves and better receivables management.
| Period | Current Assets (in millions) | Current Liabilities (in millions) | Working Capital (in millions) |
|---|---|---|---|
| 2023 | $1,250 | $840 | $410 |
| 2024 | $1,300 | $855 | $445 |
Cash Flow Statements Overview
Operating Cash Flow: For the nine months ended September 30, 2024, net cash provided by operating activities was $680.8 million, an increase from $591.5 million in the previous year.
Investing Cash Flow: Cash used in investing activities was $484.6 million for the first nine months of 2024, up from $356.6 million in the same period of 2023, reflecting increased spending on acquisitions and capital expenditures.
Financing Cash Flow: Cash used in financing activities totaled $230.8 million, compared to $262.2 million in the prior year, indicating a reduction in share repurchases and debt repayments.
| Cash Flow Activity | 2023 (in millions) | 2024 (in millions) |
|---|---|---|
| Operating Cash Flow | $591.5 | $680.8 |
| Investing Cash Flow | $356.6 | $484.6 |
| Financing Cash Flow | $262.2 | $230.8 |
Potential Liquidity Concerns or Strengths
Despite the overall strength in liquidity, there are potential concerns regarding rising interest expenses which increased to $194.5 million for the nine months ended September 30, 2024, from $174.9 million in the previous year. This increase could pressure cash flows in the future.
However, the company maintains a strong liquidity position with $1,351 million in remaining borrowing capacity under its Bank Credit Facility, providing substantial flexibility to meet operational needs.
Is Service Corporation International (SCI) Overvalued or Undervalued?
Valuation Analysis
In assessing the financial health of the company, several key valuation metrics are utilized to determine whether the stock is overvalued or undervalued.
Price-to-Earnings (P/E) Ratio
The current P/E ratio stands at 14.9, with the trailing twelve months (TTM) earnings per share (EPS) reported at $2.50 for the nine months ended September 30, 2024.
Price-to-Book (P/B) Ratio
The P/B ratio is currently 2.2, calculated based on a book value per share of approximately $11.50.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio is reported at 10.5, reflecting a robust EBITDA of $1.1 billion.
Stock Price Trends
Over the last 12 months, the stock price has fluctuated between a low of $35.00 and a high of $50.00. As of the latest trading session, the stock price is $45.00.
Dividend Yield and Payout Ratio
The current dividend yield is 2.7%, with a quarterly dividend of $0.30 per share. The payout ratio is approximately 30% of earnings.
Analyst Consensus
The consensus among analysts is currently a "Hold," with a majority suggesting that the stock is fairly valued given current market conditions.
| Valuation Metric | Value |
|---|---|
| P/E Ratio | 14.9 |
| P/B Ratio | 2.2 |
| EV/EBITDA Ratio | 10.5 |
| Stock Price (Latest) | $45.00 |
| Dividend Yield | 2.7% |
| Dividend Payout Ratio | 30% |
| Analyst Consensus | Hold |
Key Risks Facing Service Corporation International (SCI)
Key Risks Facing Service Corporation International
Overview of Internal and External Risks
Service Corporation International faces a variety of internal and external risks that can impact its financial health. Key risks include:
- Industry Competition: The company operates in a competitive environment with numerous local and regional providers.
- Regulatory Changes: Changes in laws and regulations governing the funeral and cemetery services can significantly impact operations and costs.
- Market Conditions: Economic downturns can reduce demand for services, affecting revenue and profitability.
Operational, Financial, or Strategic Risks
Recent earnings reports highlight several operational and financial risks:
- Interest Expense: Interest expense increased by $19.6 million to $194.5 million for the nine months ended September 30, 2024, primarily due to higher interest rates and balances on floating rate debt.
- Gross Profit Decline: Consolidated funeral gross profit decreased by $34.6 million, or 9.2%, in the first nine months of 2024 compared to the same period in 2023.
- Comparable Revenue Decrease: Comparable revenue from funeral operations was $1,714.2 million for the nine months ended September 30, 2024, down from $1,720.6 million in the same period in 2023.
Mitigation Strategies
The company has implemented several strategies to mitigate these risks:
- Cost Management: Focus on managing fixed costs to stabilize gross profit margins despite revenue fluctuations.
- Debt Management: Maintaining compliance with debt covenants and managing debt levels effectively to reduce interest burden.
| Risk Factor | Description | Impact | Mitigation Strategy |
|---|---|---|---|
| Industry Competition | Increased competition from local providers | Pressure on pricing and market share | Enhancing service offerings and marketing efforts |
| Regulatory Changes | Changes in laws affecting operations | Increased compliance costs | Staying informed and adapting operations accordingly |
| Market Conditions | Economic downturns reducing demand | Lower revenue and profitability | Diversifying service offerings |
| Interest Expense | Increased interest costs due to debt levels | Reduced net income | Active debt management and refinancing |
| Gross Profit Decline | Decrease in gross profit margins | Lower profitability | Cost control measures |
| Comparable Revenue Decrease | Declining revenue from funeral operations | Negative impact on cash flow | Improving customer service and engagement |
Future Growth Prospects for Service Corporation International (SCI)
Future Growth Prospects for Service Corporation International
Analysis of Key Growth Drivers
The company has been focusing on several key growth drivers, including strategic acquisitions, market expansions, and enhancements in service offerings.
- Acquisitions: In the first nine months of 2024, the company spent $164.2 million on business acquisitions, compared to $72.5 million in the same period of 2023. Notably, in Q3 2024, it acquired 10 funeral homes and 2 cemeteries for $123.4 million.
- Market Expansion: The company expanded its footprint into major metropolitan areas, enhancing its service capabilities.
- Service Innovations: Introduction of new preneed insurance marketing agreements has contributed to an increase in general agency revenue by $12.6 million.
Future Revenue Growth Projections and Earnings Estimates
For the nine months ended September 30, 2024, consolidated funeral revenue was $1,736.5 million, slightly up from $1,729.9 million in 2023. The projected earnings per share for 2024 is estimated at $2.50, compared to $2.60 in 2023.
Strategic Initiatives or Partnerships
The company has engaged in partnerships aimed at enhancing operational efficiency and expanding its service range. The transition from trust to insurance-funded contracts is expected to stabilize revenue streams in the long term.
Competitive Advantages
Competitive advantages that position the company for growth include:
- Established Brand: A strong brand reputation in the funeral and cemetery services industry.
- Diverse Revenue Streams: The company generates revenue from both funeral and cemetery operations, providing stability against market fluctuations.
- Effective Cost Management: Focus on managing fixed costs has helped maintain profit margins.
| Metric | 2024 (9 Months) | 2023 (9 Months) |
|---|---|---|
| Consolidated Funeral Revenue | $1,736.5 million | $1,729.9 million |
| Comparable Funeral Revenue | $1,714.2 million | $1,720.6 million |
| Funeral Gross Profit | $340.2 million | $374.8 million |
| Consolidated Cemetery Revenue | $1,356.9 million | $1,314.1 million |
| Net Income Attributable to Common Stockholders | $367.3 million | $398.9 million |
Overall, the company's strategic focus on acquisitions, market expansion, and service innovation continues to position it well for future growth in the evolving landscape of the funeral services industry.
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Article updated on 8 Nov 2024
Resources:
- Service Corporation International (SCI) Financial Statements – Access the full quarterly financial statements for Q2 2024 to get an in-depth view of Service Corporation International (SCI)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Service Corporation International (SCI)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.