Service Corporation International Announces First Quarter 2011 Financial Results

HOUSTON, April 27, 2011 /PRNewswire/ -- Service Corporation International (NYSE: SCI), the largest provider of deathcare products and services in North America, today reported results for the first quarter 2011.  Our unaudited condensed consolidated financial statements can be found at the end of this press release.  The table below summarizes our key financial results:

(1) Earnings from continuing operations excluding special items and diluted earnings per share from continuing operations excluding special items are non-GAAP financial measures. A reconciliation to net income and diluted earnings per share computed in accordance with GAAP can be found later in this press release under the heading "Non-GAAP Financial Measures".

Highlights:

• Diluted earnings per share from continuing operations, excluding special items was $0.17 in the first quarter 2011 compared to $0.13 in the prior year first quarter. The current quarter improvements were a result of strong comparable funeral segment performance and the accretive contribution from the Keystone acquisition.
• Funeral gross profit increased by $14.7 million, or 17.4%, in the first quarter of 2011 and gross margin percentage increased to 24.3% in the first quarter of 2011 from 22.9%. The current quarter improvements were driven by higher atneed case volume, higher average revenues per case, and higher General Agency Revenues (insurance commissions) related to preneed funeral arrangements.  
• Cemetery gross profit decreased $0.7 million, or 2.5%, and cemetery gross margin percentage decreased to 15.8% from 17.2%. Although first quarter cemetery revenues increased by 5.8%, this increase was more than offset by unusually higher property and merchandise expenses as well as higher selling costs primarily driven by higher sales production.  
• Net cash provided by operating activities was $108.0 million in the current quarter compared to $108.9 million in the prior year quarter.  

Tom Ryan, the Company's President and Chief Executive Officer, commented on the first quarter of 2011:

"We are pleased to report another period of solid revenue and earnings growth and are especially encouraged by the continuation of positive preneed sales trends.  We are optimistic that our businesses will show continued progress over the balance of the year. Our management team remains committed to managing the business with operating discipline, generating solid cash flows, and maintaining a strong balance sheet.  Our healthy cash flow and current financial position will allow us to actively pursue our growth strategies in 2011 while also returning value to our shareholders through share repurchases and dividends.

REVIEW OF RESULTS FOR FIRST QUARTER 2011

Consolidated Segment Results

(1) Other funeral revenue consists primarily of General Agency (GA) 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.

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

Comparable Funeral Results

The table below details comparable funeral results of operations ("same store") for the three months ended March 31, 2011 and 2010. We consider comparable operations to be those owned for the entire period beginning January 1, 2010 and ending March 31, 2011.  

(1) Other funeral revenue consists primarily of General Agency (GA) 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 $15.6 million in the current quarter, reflecting an increase in the number of funeral services performed, higher average revenue per funeral service, and higher General Agency revenues.  
• Comparable funeral gross profit was $9.1 million above the prior year quarter and gross margin percentage increased from 23.1% to 24.5% as a result of the strong revenue performance.  
• Comparable funeral services performed increased 1.0% over the prior year quarter. We believe this increase was somewhat impacted by extreme weather throughout North America, and we believe is consistent with trends experienced by other funeral service providers and industry vendors.
• The comparable average revenue per funeral service grew 1.9% over the prior year quarter. Excluding a favorable Canadian currency impact and higher funeral trust fund income, the average revenue per funeral service grew approximately 0.9% despite an increase in cremation rates.  
• For the quarter, comparable preneed funeral sales production decreased $1.4 million, or 1.2%, and comparable total funeral contracts sold decreased 2.7% while average revenue per contract sold increased 1.5%.  Preneed funeral sales are deferred and recognized as revenues in the future when the funeral service is performed.  
• The cremation rate increased to 43.9% in the first quarter of 2011 compared to 41.6% for the same period of 2010.

Comparable Cemetery Results

The table below details comparable cemetery results of operations ("same store") for the three months ended March 31, 2011 and 2010. We consider comparable operations to be those owned for the entire period beginning January 1, 2010 and ending March 31, 2011.  

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

(2) Represents the ratio of current period revenue recognition stated as a percentage of current period sales production.

• Comparable cemetery revenues increased $10.0 million, or 6.3%, primarily as a result of strong cemetery preneed property sales production and higher merchandise and service trust fund income during the current quarter, partially offset by a lower recognition rate and lower atneed revenues.  
• Cemetery gross profit decreased $1.0 million, or 3.5%, and gross margin percentage decreased to 16.1% compared to 17.7% in 2010.  The current quarter decreases were primarily due to unusually higher property and merchandise expenses and by higher selling costs primarily driven by higher sales production.
• Preneed and atneed cemetery sales production increased $13.5 million, or 8.6%. 

Other Financial Results

• General and administrative expenses were $28.8 million in the first quarter of 2011, an increase of $2.5 million compared to the first quarter of 2010.  The increase is primarily due to higher compensation costs tied to total shareholder return which were partially offset by lower acquisition and transitions costs in the current period.  

Cash Flow and Capital Spending  

• Net cash provided by operating activities decreased by $0.9 million to $108.0 million in the first quarter of the current year.  The current quarter reflects higher cash earnings offset by working capital timing differences.    
• We continued to manage our capital expenditures consistent with our financial objectives during the three months ended March 31, 2011.  The increase in capital spending in 2011 primarily reflects the continuation of capital projects which began in the fourth quarter of 2010 and is in line with our expectations. 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 months ended March 31, 2011 is set forth below:

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 all 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 earnings from continuing operations excluding special items to our reported net income attributable to common stockholders and diluted earnings per share from continuing operations excluding special items to our GAAP diluted earnings per share.  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 Thursday, April 28, 2011, at 9:00 a.m. Central Daylight Time. A question and answer session will follow a brief presentation made by management. The conference call dial-in number is (617) 614-3518 with the passcode of 61124219. 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 12, 2011 and can be accessed at (617) 801-6888 with the passcode of 86802121. 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:

• Changes in general economic conditions, both domestically and internationally, impacting financial markets (e.g., marketable security values, access to capital markets, as well as currency and interest rate fluctuations) that could negatively affect us, particularly, but not limited to, levels of trust fund income, interest expense, and negative currency translation effects.
• Changes in operating conditions such as supply disruptions and labor disputes.
• Our inability to achieve the level of cost savings, productivity improvements or earnings growth anticipated by management, whether due to significant increases in energy costs (e.g., electricity, natural gas and fuel oil), costs of other materials, employee-related costs or other factors.
• Our inability to complete acquisitions, divestitures or strategic alliances as planned or to realize expected synergies and strategic benefits.
• The outcomes of pending lawsuits, proceedings, and claims against us and the possibility that insurance coverage is deemed not to apply to these matters or that an insurance carrier is unable to pay any covered amounts to us.
• Allegations regarding compliance with laws, regulations, industry standards, and customs regarding burial procedures and practices.
• The amounts payable by us with respect to our outstanding legal matters exceed our established reserves.
• Amounts that we may be required to replenish into our affiliated funeral and cemetery trust funds in order to meet minimum funding requirements.
• The outcome of pending Internal Revenue Service audits. We maintain accruals for tax liabilities which relate to uncertain tax matters. If these tax matters are unfavorably resolved, we will make any required payments to tax authorities. While such payments would affect our cash flow, we do not believe it would impair our ability to service debt or our overall liquidity. If these tax matters are favorably resolved, the accruals maintained by us will no longer be required, and these amounts will be reversed through the tax provision at the time of resolution.
• Our ability to manage changes in consumer demand and/or pricing for our products and services due to several factors, such as changes in numbers of deaths, cremation rates, competitive pressures, and local economic conditions.
• Changes in domestic and international political and/or regulatory environments in which we operate, including potential changes in tax, accounting, and trusting policies.
• Changes in credit relationships impacting the availability of credit and the general availability of credit in the marketplace.
• Our ability to successfully access surety and insurance markets at a reasonable cost.
• Our ability to successfully leverage our substantial purchasing power with certain of our vendors.
• The effectiveness of our internal control over financial reporting, and our ability to certify the effectiveness of the internal controls and to obtain an unqualified attestation report of our auditors regarding the effectiveness of our internal control over financial reporting.
• The possibility that restrictive covenants in our credit agreement and debt securities may prevent us from engaging in certain transactions.
• Our ability to buy our common stock under our share repurchase programs, which could be impacted by, among others, restrictive covenants in our bank agreements, unfavorable market conditions, the market price of our common stock, the nature of other investment opportunities presented to us from time to time, and the availability of funds necessary to continue purchasing common stock.
• The financial condition of third-party insurance companies that fund our preneed funeral contracts may impact our future revenues.
• Declines in overall economic conditions beyond our control could reduce future potential earnings and cash flows and could result in future goodwill impairments.
• Our funeral and cemetery trust funds' investments in equity securities, fixed income securities, and mutual funds and will be impacted by market conditions that are beyond our control.

For further information on these and other risks and uncertainties, see our Securities and Exchange Commission filings included in our 2010 Annual Report on Form 10-K, which was filed February 14, 2011.  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, 2011, we owned and operated 1,398 funeral homes and 381 cemeteries (of which 218 are combination locations) in 43 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