Conference call on Tuesday, July 31, 2018, at 8:00 a.m. Central Time
- Conference call on Tuesday, July 31, 2018, at 8:00 a.m. Central Time.
HOUSTON, July 30, 2018 /PRNewswire/ -- Service Corporation International (NYSE: SCI), the largest provider of deathcare products and services in North America, today announced results for the second quarter of 2018. Our unaudited 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 June 30, Six Months Ended June 30,
2018 2017 2018 2017
---- ---- ---- ----
Revenue $796.1 $773.2 $1,590.6 $1,551.0
Operating income $162.0 $143.9 $325.6 $283.8
Net income
attributable to
common
stockholders $103.2 $68.5 $185.2 $243.2
Diluted earnings
per share $0.55 $0.36 $0.98 $1.26
Earnings
excluding
special items(1) $82.4 $67.5 $171.3 $140.5
Diluted earnings
per share
excluding
special items(1) $0.44 $0.35 $0.91 $0.73
Diluted weighted
average shares
outstanding 187.2 192.1 188.5 192.5
Net cash provided
by operating
activities $103.9 $34.4 $315.4 $222.5
Net cash provided
by operating
activities
excluding
special items(1) $103.9 $74.9 $309.8 $263.0
(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. These items are also
referred to as "adjusted
earnings per share" and
"adjusted operating cash flow".
A reconciliation from net income
attributable to common
stockholders, diluted earnings
per share, and net cash provided
by operating activities computed
in accordance with generally
accepted accounting principles
in the United States (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 were $0.55 in the second quarter of 2018 compared to $0.36 in the second quarter of 2017. The second quarter of 2018 was positively impacted by a $6.9 million gain on divestitures coupled with favorable remeasurement of deferred taxes which resulted in a lower effective tax rate. Diluted earnings per share excluding special items were $0.44 in the second quarter of 2018 compared to $0.35 in the second quarter of 2017. The nine cent increase in diluted earnings per share excluding special items was primarily driven by three cents of higher operating income after taking into account hurricane expenses, four cents primarily from a lower effective tax rate, and two cents from the impact of the revenue recognition accounting standard implemented January 1, 2018.
- Net cash provided by operating activities was $103.9 million in the second quarter of 2018 compared to $34.4 million in the second quarter of 2017. The second quarter of 2017 was negatively impacted by an IRS tax settlement payment and a pension settlement payment. Net cash provided by operating activities excluding special items was $103.9 million in the second quarter of 2018 compared to $74.9 million in the second quarter of 2017. This increase of $29.0 million was primarily due to a reduction in cash taxes compared to the prior year.
- During the second quarter, we returned $141.0 million to shareholders through a combination of share repurchases and dividends and deployed $140.5 million of capital to accretive acquisitions and the construction of new funeral homes. For the six months ended June 30, 2018, we returned $291.1 million to shareholders through a combination of share repurchases and dividends and deployed $179.1 million of capital to accretive acquisitions and the construction of new funeral homes.
Tom Ryan, the Company's Chairman and Chief Executive Officer, commented on the second quarter of 2018:
"We are pleased to report over 25% growth in both adjusted earnings per share and adjusted operating cash flow during the quarter. Increased cemetery and funeral revenue resulting from strong preneed sales production, effects of tax reform, and the impact of our share buybacks during the year were key to delivering these solid financial results. The resulting cash flows allowed us to deploy an impressive $281.5 million of capital towards acquisitions, new funeral home construction, dividends, and share repurchases. Based on our mid-year performance, we are confirming our adjusted earnings per share guidance, while raising our adjusted cash flow guidance range to $575 million to $615 million. I would like to thank our hardworking and dedicated team of over 23,000 professionals for their continued focus on delivering extraordinary service to our client families. As we move into the back half of the year we believe we are on track to grow our revenues by remaining relevant with the consumer, drive future market share by growing our preneed sales, continue to leverage our scale, and deploy capital to enhance shareholder value."
UPDATED OUTLOOK FOR 2018
Our outlook for diluted earnings per share from continuing operations excluding special items is anticipated to be in line with our expected long-term growth framework of 8%-12% after consideration of special items, expected positive impact from revenue recognition accounting changes, and tax reform. Our updated outlook for higher net cash provided by operating activities excluding special items reflects a $25 million decrease in anticipated cash taxes compared to our original expectations as a result of effective tax planning, bringing the expected total cash tax payments for the year to approximately $90 million. We are also increasing our 2018 capital improvements at existing facilities and cemetery development expenditures guidance by $10 million to $195 million primarily to reflect increased investments in our websites, sales production technology, and funeral homes as part of our strategy of remaining relevant with our consumers.
(In millions,
except per
share amounts) Original 2018 Revised 2018
Outlook Outlook
------- -------
Diluted earnings
per share
excluding
special
items(1) $1.72 to $1.90 $1.72 to $1.90
Net cash
provided by
operating
activities
excluding
special
items(1) $540 to $600 $575 to $615
Capital
improvements at
existing
facilities and
cemetery
development
expenditures Approximately $185 Approximately $195
(1) Diluted earnings per share excluding
special items and Net cash provided
by operating activities excluding
special items are non-GAAP
financial measures. We normally
reconcile these non-GAAP financial
measures from diluted earnings per
share and net cash provided by
operating activities; however,
diluted earnings per share and net
cash provided by operating
activities calculated in accordance
with GAAP are not currently
accessible on a forward-looking
basis. Our outlook for 2018 excludes
the following because this
information is not currently
available for 2018: Expenses net of
insurance recoveries related to
hurricanes, gains or losses
associated with asset divestitures,
gains or losses associated with the
early extinguishment of debt,
potential tax reserve adjustments
and IRS payments and/or refunds,
acquisition and integration costs,
system implementation and transition
costs, and potential costs
associated with settlements of
litigation or the recognition of
receivables for insurance recoveries
associated with litigation. The
foregoing items, especially gains or
losses associated with asset
divestitures, could materially
impact our forward-looking diluted
EPS and/or our net cash provided by
operating activities calculated in
accordance with GAAP, consistent
with the historical disclosures
found in this press release under
the headings "Cash Flow and Capital
Spending" and "Non-GAAP Financial
Measures".
REVIEW OF RESULTS FOR SECOND QUARTER 2018
Consolidated Segment Results
(See definitions of revenue line items later in this earnings release.)
(In millions,
except funeral
services
performed and
average revenue
per service) Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
---- ---- ---- ----
Funeral:
--------
Atneed revenue $243.0 $249.1 $517.4 $520.9
Matured preneed
revenue 146.0 138.3 311.3 290.1
----- ----- ----- -----
Core revenue 389.0 387.4 828.7 811.0
Non-funeral home
revenue 11.9 11.7 25.7 24.0
Recognized
preneed revenue 33.9 30.2 66.4 62.2
Other revenue 33.8 29.6 62.2 60.4
---- ---- ---- ----
Total revenue $468.6 $458.9 $983.0 $957.6
Operating profit $90.4 $92.1 $210.9 $204.7
Operating margin
percentage 19.3% 20.1% 21.5% 21.4%
Funeral services
performed 76,210 75,566 162,495 158,484
Average revenue
per service $5,260 $5,281 $5,258 $5,269
Cemetery:
---------
Atneed property
revenue $22.1 $22.7 $45.2 $47.3
Atneed
merchandise and
service revenue 58.8 57.8 118.8 114.8
---- ---- ----- -----
Total atneed
revenue 80.9 80.5 164.0 162.1
Recognized
preneed property
revenue 143.2 134.9 252.1 249.0
Recognized
preneed
merchandise and
service revenue 73.1 73.3 141.5 137.1
---- ---- ----- -----
Total recognized
preneed revenue 216.3 208.2 393.6 386.1
Core revenue 297.2 288.7 557.6 548.2
Other cemetery
revenue 30.2 25.7 50.0 45.1
---- ---- ---- ----
Total revenue $327.4 $314.4 $607.6 $593.3
Operating profit $97.7 $91.4 $173.0 $156.1
Operating margin
percentage 29.8% 29.1% 28.5% 26.3%
Comparable Funeral Results
The table below details comparable funeral results of operations ("same store") for the three months ended June 30, 2018 and 2017. We consider comparable operations to be those owned for the entire period beginning January 1, 2017 and ending June 30, 2018.
(Dollars in
millions, except
average revenue per
service and average
revenue per
contract sold) Three Months Ended June 30,
2018 2017 Var %
---- ---- --- ---
Comparable revenue:
Atneed revenue(1) $237.0 $244.8 $(7.8) (3.2)%
Matured preneed
revenue(2) 144.0 136.9 7.1 5.2%
----- -----
Core revenue(3) 381.0 381.7 (0.7) (0.2)%
Non-funeral home
revenue(4) 11.8 11.7 0.1 0.9%
Recognized preneed
revenue(5) 33.7 30.2 3.5 11.6%
Other revenue(6) 33.5 29.5 4.0 13.6%
---- ----
Total comparable
revenue $460.0 $453.1 $6.9 1.5%
Comparable
operating profit $90.0 $93.2 $(3.2) (3.4)%
Comparable
operating margin
percentage 19.6% 20.6% (1.0)%
Comparable services
performed:
Atneed 41,041 41,867 (826) (2.0)%
Matured preneed 23,390 22,930 460 2.0%
------ ------ ---
Total core 64,431 64,797 (366) (0.6)%
Non-funeral home 9,547 9,669 (122) (1.3)%
----- ----- ----
Total comparable
funeral services
performed 73,978 74,466 (488) (0.7)%
Core cremation rate 48.0% 46.6% 1.4%
Total comparable
cremation rate 54.6% 53.4% 1.2%
Comparable sales
average revenue
per service:
Atneed $5,775 $5,847 $(72) (1.2)%
Matured preneed 6,156 5,970 186 3.1%
----- -----
Total core 5,913 5,891 22 0.4%
Non-funeral home 1,236 1,210 26 2.1%
----- ----- ---
Total comparable
average revenue
per service $5,310 $5,283 $27 0.5%
Comparable preneed
sales production:
Total preneed sales $236.9 $213.1 $23.8 11.2%
Core contracts sold 31,381 28,183 3,198 11.3%
Non-funeral home
contracts sold 18,581 17,644 937 5.3%
Core average
revenue per
contract sold $6,004 $6,056 $(52) (0.9)%
Non-funeral home
average revenue
per contract sold $2,609 $2,402 $207 8.6%
(1) Atneed revenue represents
merchandise and services sold and
delivered or performed once death
has occurred.
(2) Matured preneed revenue represents
merchandise and services sold on a
preneed contract through our core
funeral homes which have been
delivered or performed as well as
the related merchandise and service
trust fund income.
(3) Core revenue represents the sum of
merchandise and services sold on an
atneed contract or preneed contract
which were delivered or performed
once death has occurred through our
core funeral homes.
(4) Non-funeral home revenue represents
services sold on a preneed or
atneed contract through one of our
non-funeral home sales channels
(e.g. SCI Direct) and performed
once death has occurred.
(5) Recognized preneed revenue
represents merchandise and travel
protection sold on a preneed
contract and delivered before death
has occurred.
(6) Other revenue primarily comprises
general agency revenue, which is
commissions we receive from third-
party insurance companies for life
insurance policies sold to preneed
customers for the purpose of
funding preneed arrangements.
- Total comparable funeral revenue increased by $6.9 million, or 1.5%, in the second quarter of 2018 compared to the same period of 2017 primarily from a $4.0 million increase in other revenue (primarily general agency revenue) and a $3.5 million increase in recognized preneed revenue.
- The $0.7 million core revenue decrease was primarily the result of a 0.6% decrease in core funeral services performed somewhat offset by a 0.4% increase in the core average revenue per service. Organic sales average growth, coupled with favorable trust income and currency impacts more than offset a 140 basis point increase in the core cremation mix.
- The $3.5 million increase in recognized preneed revenue is the result of higher non-funeral home sales production.
- The $4.0 million increase in other revenue is primarily due to higher general agency revenue resulting from an 11.2% increase in preneed funeral sales production.
- Comparable funeral operating profit decreased $3.2 million to $90.0 million and the operating margin percentage decreased 100 basis points to 19.6%. Our fixed costs in the funeral segment were higher by $8.7 million, or 3.4%, as expected wage increases for critical customer-facing employees and the timing of self-insured medical claims added to the increase. Additionally, we experienced higher selling costs associated with marketing and sales lead procurement that we believe is helping drive the increase in funeral preneed sales production.
- Comparable preneed funeral sales production increased $23.8 million, or 11.2%, in the second quarter of 2018 compared to 2017. We experienced double-digit growth in both our core and non-funeral home channels resulting from newly implemented sales technology and investments in new marketing campaigns.
Comparable Cemetery Results
The table below details comparable cemetery results of operations ("same store") for the three months ended June 30, 2018 and 2017. We consider comparable operations to be those owned for the entire period beginning January 1, 2017 and ending June 30, 2018.
(Dollars in millions) Three Months Ended June 30,
2018 2017 Var %
---- ---- --- ---
Comparable revenue:
Atneed property revenue $21.9 $22.6 $(0.7) (3.1)%
Atneed merchandise and
service revenue 58.1 57.4 0.7 1.2%
---- ---- ---
Total atneed revenue (1) 80.0 80.0 - - %
Recognized preneed
property revenue 141.9 134.6 7.3 5.4%
Recognized preneed
merchandise and service
revenue 72.0 72.8 (0.8) (1.1)%
---- ---- ----
Total recognized preneed
revenue (2) 213.9 207.4 6.5 3.1%
Core revenue(3) 293.9 287.4 6.5 2.3%
Other revenue(4) 30.4 25.5 4.9 19.2%
---- ----
Total comparable revenue $324.3 $312.9 $11.4 3.6%
Comparable operating
profit $97.2 $91.6 $5.6 6.1%
Comparable operating
margin percentage 30.0% 29.3% 0.7%
Comparable preneed and
atneed sales
production:
Property $178.8 $173.2 $5.6 3.2%
Merchandise and services 144.5 141.1 3.4 2.4%
Discounts and other (1.2) (0.6) (0.6) (100.0)%
---- ---- ----
Preneed and atneed sales
production $322.1 $313.7 $8.4 2.7%
Recognition rate(5) 91.2% 91.6%
(1) Atneed revenue represents
property, merchandise, and
services sold and delivered or
performed once death has
occurred.
(2) Recognized preneed revenue
represents property, merchandise,
and services sold on a preneed
contract which were delivered or
performed as well as the related
merchandise and service trust
fund income.
(3) Core revenue represents the sum of
property, merchandise, and
services that have been delivered
or performed as well as the
related merchandise and service
trust fund income.
(4) Other revenue is primarily related
to endowment care trust fund
income, royalty income, and
interest and finance charges
earned from customer receivables
on preneed installment contracts.
(5) Represents the ratio of current
period core revenue stated as a
percentage of current period
preneed and atneed sales
production.
- Total comparable cemetery revenue grew $11.4 million, or 3.6%, in the second quarter of 2018 when compared against the second quarter of 2017. The revenue growth over the prior year quarter is due to increased sales into existing developed property projects, the completion of cemetery property construction projects, and higher endowment care trust fund income.
- Comparable preneed cemetery sales production increased $8.4 million, or 3.6%, which was slightly ahead of our expectations based on a tough comparison in the prior year second quarter. The main drivers of this growth are 3.9% growth in preneed property production and 2.7% growth in preneed merchandise and services production.
- Comparable cemetery operating profit increased $5.6 million to $97.2 million and the operating margin percentage increased 70 basis points to 30.0%. The improvement was partially due to the increased revenue described above and a $4.7 million net benefit of deferring selling compensation under the new revenue recognition accounting standard. These increases were partially offset by investments in our marketing programs and search engine optimization that are leading to increased sales production, as well as higher labor costs due to permanent wage increases for certain of our critical customer-facing employees.
Other Financial Results
- General and administrative expenses decreased $9.2 million to $31.1 million in the second quarter of 2018. The prior year quarter included a pension termination charge of $1.1 million. Excluding this pension settlement, general and administrative expenses were favorable by $8.1 million primarily related to decreased expenses related to the Company's long-term and annual incentive compensation programs and unusually high legal expenses in the prior year.
- Hurricane expenses, net, reflects $1.9 million in expenses incurred through June 30, 2018 as we continue repairs at various locations caused by the 2017 hurricanes.
- Interest expense increased $2.4 million to $44.5 million in the second quarter of 2018 as we were impacted by higher interest rates on our floating rate debt as well as an increase in the overall balance of our total debt.
- The GAAP effective income tax rate for the second quarter of 2018 was 13.4%, down from the prior year second quarter expense of 32.5% for 2017. The decrease in the rate from the prior year is primarily due to tax reform. Our adjusted effective income tax rate was 26.7% in the second quarter of 2018 compared to 33.6% in the prior year second quarter, which was in line with our expectations after taking into account the effect of the 2017 tax reform.
Cash Flow and Capital Spending
(In millions) Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
---- ---- ---- ----
Net cash provided by operating activities, as reported $103.9 $34.4 $315.4 $222.5
Pension settlement payment - 6.3 - 6.3
IRS tax settlement - 34.2 (5.6) 34.2
--- ---- ---- ----
Net cash provided by operating activities excluding special items $103.9 $74.9 $309.8 $263.0
====== ===== ====== ======
Cash taxes included in net cash provided by operating activities excluding special items $27.8 $64.3 $30.9 $83.3
===== ===== ===== =====
Net cash provided by operating activities excluding special items increased $29.0 million to $103.9 million in the second quarter of 2018 from $74.9 million in the prior year quarter. This increase in operating cash flow was primarily due to a $36.5 million reduction in cash taxes paid. Approximately $10 million of the decrease in cash tax payments were a result of tax reform and the remaining reduction was due to effective tax planning strategies. Additionally, higher earnings in the quarter were essentially offset by negative working capital impacts due in part to the completion of cemetery construction projects. Revenue recognition of preneed cemetery property generally occurs upon construction completion, while cash is usually received from customers over a period of time.
A summary of our capital expenditures is set forth below:
(In millions) Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
---- ---- ---- ----
Capital improvements at existing field
locations and corporate $30.4 $24.9 $56.6 $42.4
Development of cemetery property 19.7 15.9 34.9 33.0
---- ---- ---- ----
Capital improvements at existing facilities
and cemetery development expenditures 50.1 40.8 91.5 75.4
---- ---- ---- ----
Growth capital expenditures/construction of
new funeral home facilities 6.5 4.4 11.4 10.0
--- --- ---- ----
Total capital expenditures $56.6 $45.2 $102.9 $85.4
===== ===== ====== =====
Total capital expenditures increased as expected in the current quarter by $11.4 million primarily due to increases in infrastructure improvements within our facilities as a part of our strategy of remaining relevant with our customers, as well as increases in the development of cemetery property and new funeral home construction.
TRUST FUND RETURNS
Total trust fund returns include realized and unrealized gains and losses and dividends and are shown without netting of certain fees. A summary of our consolidated trust fund returns for the three months ended June 30, 2018 is set forth below:
Three Months Six Months
------------ ----------
Preneed funeral 1.5% 1.4%
Preneed cemetery 1.5% 1.5%
Cemetery perpetual care 0.9% 0.9%
Combined trust funds 1.3% 1.3%
NON-GAAP FINANCIAL MEASURES
Earnings excluding special items and diluted earnings per share 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 excluding special items and our GAAP diluted earnings per share to diluted earnings per share 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.
(In millions, except
diluted EPS) Three Months Ended June 30,
2018 2017
Net Diluted Net Diluted
Income EPS Income EPS
Net income attributable
to common stockholders,
as reported $103.2 $0.55 $68.5 $0.36
Pre-tax reconciling items:
Gains on divestitures and
impairment charges, net (6.9) (0.04) (0.8) (0.01)
Pension termination
settlement - - 1.1 0.01
Tax reconciling items:
Tax expense from special
items 2.2 0.02 - -
Change in certain tax
reserves and other (1) (16.1) (0.09) (1.3) (0.01)
----- ----- ---- -----
Earnings excluding
special items and
diluted earnings per
share excluding special
items $82.4 $0.44 $67.5 $0.35
===== ===== ===== =====
Diluted weighted average shares
outstanding (in thousands) 187,188 192,138
(In millions, except
diluted EPS) Six Months Ended June 30,
2018 2017
Net Diluted Net Diluted
Income EPS Income EPS
------ --- ------ ---
Net income attributable
to common stockholders,
as reported $185.2 $0.98 $243.2 $1.26
Pre-tax reconciling items:
Gains on divestitures and
impairment charges, net (7.3) (0.04) (5.7) (0.03)
Losses on early
extinguishment of debt 10.1 0.05 - -
Pension termination
settlements - - 12.8 0.07
Tax reconciling items:
Tax expense (benefit)
from special items 0.6 - (2.6) (0.01)
Change in certain tax
reserves and other (1) (17.3) (0.08) (107.2) (0.56)
----- ----- ------ -----
Earnings excluding
special items and
diluted earnings per
share excluding special
items $171.3 $0.91 $140.5 $0.73
====== ===== ====== =====
Diluted weighted average shares
outstanding (in thousands) 188,547 192,511
(1) 2018 is impacted by the remeasurement
of deferred taxes resulting from a
change in estimate related to the
finalization of the 2017 tax return.
2017 is impacted by the settlement of
IRS tax audits related to tax years
1999-2005. Please see our second
quarter 2018 Form 10-Q filing for
further details, which will be filed
later today.
Conference Call and Webcast
We will host a conference call on Tuesday, July 31, 2018, at 8:00 a.m. Central Time. A question and answer session will follow a brief presentation made by management. The conference call dial-in number is (888) 771-4371 or (847) 585-4405 with the passcode of 47253773. 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 August 7, 2018 and can be accessed at (888) 843-7419 or (630) 652-3042 with the passcode of 47253773#. Additionally, a replay of the conference call will be available on our website for approximately one week.
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 securities, which are affected by market conditions that are beyond our control.
- We may be required to replenish our affiliated funeral and cemetery trust funds 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 and cemetery industry is competitive.
- Increasing death benefits related to preneed contracts funded through life insurance or annuity contracts may not cover future increases in the cost of providing a price-guaranteed service.
- The financial condition of third-party insurance companies that fund our preneed contracts may impact our future revenue.
- 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 decline, our cash flows and revenue may decrease.
- If we are not able to respond effectively to changing consumer preferences, our market share, revenue, cash flows and/or profitability could decrease.
- The continuing upward trend in the number of cremations performed in North America could result in lower revenue, operating profit, and cash flows.
- 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.
- We use a combination of insurance, self-insurance, and large deductibles in managing our exposure to certain inherent risks, therefore, we could be exposed to unexpected costs that could negatively affect our financial performance.
- A number of years may elapse before particular tax matters, for which we have established accruals, are audited and finally resolved.
- Changes in taxation as well as the inherent difficulty in quantifying potential tax effects of business decisions could have a material adverse effect on the results of our operations, financial condition, or cash flows.
- 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, financial condition, or cash flow.
- 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 may prevent us from fulfilling our obligations under our indebtedness.
- A failure of key information technology systems or processes could disrupt and adversely affect our business.
- Failure to maintain effective internal control over financial reporting could adversely affect our results of operations, investor confidence, and our stock price.
- The application of unclaimed property laws by certain states to our preneed funeral and cemetery backlog could have a material adverse impact on our liquidity, cash flows, and our financial results.
For further information on these and other risks and uncertainties, see our Securities and Exchange Commission filings, including our 2017 Annual Report on Form 10-K and as updated in our Form 10-Q filings. 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 June 30, 2018, we owned and operated 1,486 funeral homes and 480 cemeteries (of which 285 are combination locations) in 44 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.
For additional information contact:
Investors: Debbie Young - Director / Investor Relations (713) 525-9088
Media: Jay Andrew - Managing Director / Corporate Communications (713) 525-5235
SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
---- ---- ---- ----
(In thousands, except per share amounts)
Revenue $796,092 $773,242 $1,590,574 $1,550,952
Costs and expenses (607,965) (589,724) (1,206,685) (1,190,195)
-------- -------- ---------- ----------
Operating profit 188,127 183,518 383,889 360,757
General and
administrative
expenses (31,136) (40,369) (65,920) (82,652)
Gains on divestitures
and impairment
charges, net 6,865 753 7,347 5,688
Hurricane (expenses)
recoveries, net (1,902) - 330 -
------ --- --- ---
Operating income 161,954 143,902 325,646 283,793
Interest expense (44,519) (42,083) (88,095) (82,719)
Loss on early
extinguishment of
debt, net - - (10,131) -
Other income
(expense), net 1,880 (301) 2,264 (1,030)
----- ---- ----- ------
Income before income
taxes 119,315 101,518 229,684 200,044
(Provision for)
benefit from income
taxes (16,034) (32,956) (44,355) 43,267
------- ------- -------
Net income 103,281 68,562 185,329 243,311
Net income
attributable to
noncontrolling
interests (42) (81) (102) (128)
Net income
attributable to
common stockholders $103,239 $68,481 $185,227 $243,183
======== ======= ======== ========
Basic earnings per share:
Net income
attributable to
common stockholders $0.57 $0.37 $1.01 $1.29
Basic weighted average
number of shares 182,637 187,597 183,877 187,927
======= ======= ======= =======
Diluted earnings per share:
Net income
attributable to
common stockholders $0.55 $0.36 $0.98 $1.26
Diluted weighted
average number of
shares 187,188 192,138 188,547 192,511
======= ======= ======= =======
Dividends declared per
share $0.17 $0.15 $0.34 $0.28
===== ===== ===== =====
SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED BALANCE SHEET
June 30, 2018 December 31, 2017
------------- -----------------
(In thousands, except share amounts)
ASSETS
Current assets:
Cash and cash equivalents $164,460 $330,039
Receivables, net 92,494 90,304
Inventories 26,095 25,378
Other 25,894 35,575
Total current assets 308,943 481,296
------- -------
Preneed receivables, net and
trust investments 4,454,346 4,778,842
Cemetery property 1,826,448 1,791,989
Property and equipment, net 1,915,408 1,873,044
Goodwill 1,850,972 1,805,981
Deferred charges and other
assets 941,261 601,184
Cemetery perpetual care trust
investments 1,562,659 1,532,167
--------- ---------
Total assets $12,860,037 $12,864,503
=========== ===========
LIABILITIES & EQUITY
Current liabilities:
Accounts payable and accrued
liabilities $443,153 $489,172
Current maturities of long-term
debt 95,623 337,337
Income taxes payable 15,107 2,470
------ -----
Total current liabilities 553,883 828,979
------- -------
Long-term debt 3,493,669 3,135,316
Deferred revenue, net 1,426,757 1,789,776
Deferred tax liability 367,036 283,765
Other liabilities 390,574 410,982
Deferred receipts held in trust 3,594,222 3,475,430
Care trusts' corpus 1,557,499 1,530,818
Commitments and contingencies
Equity:
Common stock, $1 per share par
value, 500,000,000 shares
authorized, 192,625,361 and
191,935,647 shares issued,
respectively, and 181,237,989
and 186,614,747 shares
outstanding, respectively 181,238 186,615
Capital in excess of par value 954,128 970,468
Retained earnings 314,669 210,364
Accumulated other comprehensive
income 26,217 41,943
------ ------
Total common stockholders'
equity 1,476,252 1,409,390
Noncontrolling interests 145 47
--- ---
Total equity 1,476,397 1,409,437
---------
Total liabilities and equity $12,860,037 $12,864,503
=========== ===========
SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands, except share amounts)
Six Months Ended June 30,
2018 2017
---- ----
Cash flows from operating activities:
Net income $185,329 $243,311
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on early extinguishment of
debt 10,131 -
Depreciation and amortization 78,069 75,455
Amortization of intangibles 13,645 14,051
Amortization of cemetery property 29,813 30,596
Amortization of loan costs 3,017 2,881
Provision for doubtful accounts 4,494 4,544
Provision for (benefit from)
deferred income taxes 22,011 (153,112)
Gains on divestitures and
impairment charges, net (7,347) (5,688)
Gain on sale of investments (2,636) -
Share-based compensation 7,544 7,645
Change in assets and liabilities, net of effects
from acquisitions and divestitures:
Decrease in receivables 965 20,441
Increase in other assets (10,635) (7,815)
(Decrease) increase in payables
and other liabilities (37,817) 14,815
Effect of preneed sales production and maturities:
Increase in preneed receivables,
net and trust investments (23,494) (64,860)
Increase in deferred revenue, net 56,342 36,345
(Decrease) increase in deferred
receipts held in trust (14,055) 3,880
Net cash provided by operating
activities 315,376 222,489
Cash flows from investing activities:
Capital expenditures (102,890) (85,324)
Acquisitions, net of cash acquired (167,622) (46,373)
Proceeds from divestitures and
sales of property and equipment 18,305 25,329
Proceeds from sale of investments 2,900 -
Payments for Company-owned life
insurance policies (11,733) (3,180)
Proceeds from Company-owned life
insurance policies 2,810 2,591
Purchase of land and other (14,525) 175
------- ---
Net cash used in investing
activities (272,755) (106,782)
Cash flows from financing activities:
Proceeds from issuance of long-
term debt 370,000 110,000
Scheduled payments of debt (8,631) (17,570)
Early payments of debt (259,590) -
Principal payments on capital
leases (19,270) (30,419)
Proceeds from exercise of stock
options 7,302 20,601
Purchase of Company common stock (228,866) (120,064)
Payments of dividends (62,241) (52,529)
Purchase of noncontrolling
interest - (4,580)
Bank overdrafts and other (8,820) (2,065)
Net cash used in financing
activities (210,116) (96,626)
Effect of foreign currency on
cash, cash equivalents, and
restricted cash (2,133) 4,072
------ -----
Net (decrease) increase in cash,
cash equivalents, and restricted
cash (169,628) 23,153
Cash, cash equivalents, and
restricted cash at beginning of
period 340,601 211,506
------- -------
Cash, cash equivalents, and
restricted cash at end of period $170,973 $234,659
======== ========
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SOURCE Service Corporation International
Company Codes: NYSE:SCI
