Service Corporation International Announces Strong First Quarter 2015 Financial Results

HOUSTON, April 29, 2015 /PRNewswire/ -- Service Corporation International (NYSE: SCI), the largest provider of deathcare products and services in North America, today reported results for the first quarter 2015. Our unaudited 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 rose 14.3% to $0.32 in the first quarter of 2015 driven by an increase in both funeral and cemetery gross profits.
• Consolidated funeral gross profit grew $5.3 million in the first quarter of 2015 while the gross margin percentage increased to 24.5% from 23.4%. Higher gross profits driven by an increase in comparable funeral services performed more than offset the loss of $7.7 million in gross profits contributed by properties that have been subsequently divested.
• Consolidated cemetery gross profit increased $6.5 million in the first quarter of 2015 while the gross margin percentage increased to 22.2% from 19.8%. Higher gross profits driven by an increase in comparable preneed cemetery property sales more than offset the loss of $2.0 million in gross profits contributed by properties that have been subsequently divested.
• Net cash provided by operating activities excluding special items increased 20.8% to $197.8 million in the first quarter of 2015 compared to $163.7 million in the prior year quarter as a result of the increases in funeral and cemetery gross profits coupled with a decrease in cash taxes.
• During the first quarter, we returned $93.6 million to our shareholders through a combination of share repurchases and dividends.

Tom Ryan, the Company's President and Chief Executive Officer, commented on the first quarter of 2015:
"We are very proud of the operating performance during the first quarter evidenced by a 14% improvement in normalized earnings per share and a 21% improvement in adjusted operating cash flow. Robust preneed cemetery sales production and a meaningful increase in funeral services performed drove earnings ahead of our expectations. We have great momentum coming off of this outstanding performance and remain confident in our annual earnings and cash flow guidance previously provided. Further, we are confident that our solid operating platform and healthy financial position will allow us to actively pursue our growth strategies and continue our focus on increasing shareholder value."

REVIEW OF RESULTS FOR FIRST QUARTER 2015

Consolidated Segment Results
(See definitions of revenue line items later in this earnings release.)

Comparable Funeral Results

The table below details comparable funeral results of operations ("same store") for the three months ended March 31, 2015 and 2014 and now includes the results of Stewart Enterprises. We consider comparable operations to be those owned for the entire period beginning January 1, 2014 and ending March 31, 2015.

• Comparable funeral revenues increased $21.2 million mainly driven by a 4.1% increase in funeral services performed, which was partially a result of a strong flu season. Additionally we experienced a $1.3 million increase in recognized preneed revenues.
• Comparable average revenue per funeral service grew 0.2%. Excluding an unfavorable Canadian currency impact, the average revenue per funeral service grew 1.1%. Our comparable cremation rate was essentially flat.
• Comparable funeral gross profit increased $14.0 million, or 12.5% and the gross margin percentage increased 180 basis points to 24.8%. The improvements were led by the strong revenue increase described above as incremental revenue drove gross margin percentage improvement due to the high fixed cost nature of our business.
• Preneed funeral sales production, excluding terminally imminent contracts in both periods, increased $7.4 million for the quarter or 4.4%. 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 March 31, 2015 and 2014 and now include the results of Stewart Enterprises. We consider comparable operations to be those owned for the entire period beginning January 1, 2014 and ending March 31, 2015.

• Comparable cemetery revenues grew $17.6 million or 7.9%. The increase was primarily driven by strong preneed cemetery property sales which increased $11.4 million or 11.7%.
• Total preneed cemetery sales production increased $25.2 million or 17.5% in the current quarter compared to the same period last year.
• Comparable cemetery gross profit increased $8.7 million and the adjusted gross margin percentage increased 210 basis points to 22.3% in the current quarter. The gross profit improvement was driven by the strong revenue increases, which were partially offset by higher selling costs associated with the higher preneed sales production.

Other Financial Results

General and administrative expenses decreased $20.8 million to $35.1 million. The current year quarter included $2.9 million of acquisition and integration costs and $0.8 million of system integration costs. The prior year quarter included $16.0 million of costs related to the acquisition of Stewart, $11.1 million in legal settlement and defense fees, and $2.9 million of system integration costs. Excluding these costs in both periods, general and administrative expenses increased $5.6 million over the prior period which was primarily due to the permanent costs associated with the increased scale of the combined SCI and Stewart entity and increased incentive compensation costs tied to total shareholder return.

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 adjusted 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 $34.1 million to $197.8 million for the first quarter due primarily to the increase in gross profits and higher cash receipts on strong preneed sales activity. Additionally, we incurred $10.7 million less in cash tax payments.
• 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 ended March 31, 2015 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 (or sometimes referred to as normalized earnings per share) 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 Thursday, April 30, 2015, at 9:00 a.m. Central Time. A question and answer session will follow a brief presentation made by management. The conference call dial-in number is (847) 619-6548 with the passcode of 39466929. 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 14, 2015 and can be accessed at (630) 652-3042 with the passcode of 39466929#. 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.

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. 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, 2015, we owned and operated 1,558 funeral homes and 465 cemeteries (of which 261 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