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Service Corp. (SCI) Up 14.2% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for Service Corp. (SCI - Free Report) . Shares have added about 14.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Service Corp. due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Service Corporation Raises '20 View on Q3 Earnings Beat
Service Corporation posted robust third-quarter 2020 results, as both top and bottom lines surged year over year and cruised ahead of the Zacks Consensus Estimate. Results were backed by increased funeral services performed as well as greater burials in the company’s cemeteries amid the pandemic. Markedly, with curbs being lifted, Service Corporation has seen unexpected increases in its preneed cemetery sales. Also, it has seen considerable growth in the number of families opting for memorial services.
Notably, management raised its bottom-line view for 2020, though it expects the impact of coronavirus to linger throughout the fourth quarter. For 2020, Service Corporation now envisions adjusted earnings per share of $2.50-$2.75, up from the previous guidance of $1.78-$2. The company’s earnings came in at $1.90 in 2019.
Service Corporation posted adjusted earnings of 79 cents per share, which came way ahead of the Zacks Consensus Estimate of 43 cents. Further, the bottom line more than doubled from the year-ago quarter’s reported figure of 37 cents. The upside can be attributed to increased gross profit stemming from greater funeral services and burials performed. Also, robust growth in recognized preneed revenues in the company’s cemetery business was a driver.
Total revenues of $918.2 million advanced 19.4% year over year, backed by increased funeral and cemetery revenues. Moreover, the figure beat the consensus mark of $801 million. Corporate general and administrative costs escalated $11.3 million to around $41 million owing to greater healthcare self-insurance reserves and costs related to community outreach efforts. The company’s interest costs fell $6 million to $40.7 million in the quarter.
Segment Discussion
Consolidated Funeral revenues grew 12.7% to $518.6 million on higher core revenues. Core revenues gained from a rise in atneed and matured preneed revenues. Further, non-funeral home revenues improved year over year, while recognized preneed revenues saw a decline of 2.7% to $32.7 million.
Comparable funeral revenues climbed 11.7% year over year, courtesy of an increase in core funeral revenues, backed by higher core funeral services performed. However, core funeral services performed were somewhat negated by a fall in core average revenue per service, stemming from social-distancing measures that led to smaller and lesser funeral memorial services. Moreover, the core cremation rate rose 110 basis points. Comparable preneed funeral sales production dropped 2.8% due to declines at core funeral locations and a fall in preneed production in the non-funeral home channel. This was accountable to the continued effect of social distancing on two of the company’s key lead sources — at-home follow-up visits and in-person seminars.
Comparable funeral gross profit jumped 62.7% to $122 million. Also, the gross profit margin increased 750 basis points to 24%, courtesy of core business growth and a lower cost structure somewhat due to the smaller and lesser memorial services performed.
Consolidated Cemetery revenues rose 29.3 to $399.6 million, thanks to increased core revenues. Core revenues gained from an increase in both atneed and total recognized preneed revenues. Comparable Cemetery revenues improved 29.4% year over year on the back of higher core revenues. This, in turn, was fueled by elevated atneed revenues, which stemmed from a rise in burials performed. Moreover, recognized preneed revenues grew, courtesy of solid comparable preneed cemetery property sales production. Comparable preneed cemetery sales production surged 46.9% owing to growth in sales velocity and sales averages, and higher sales. Sales velocity was driven by the continued expansion of virtual tools, increased customer sales incentives and greater leads from atneed services. Further, the company saw higher conversion and close rates, thanks to customers’ greater awareness of the possible effects of coronavirus, along with a rise in location traffic as a result of greater funeral services performed.
Comparable cemetery gross profit soared 64% to $139.9 million and the respective margin expanded 740 bps to 35%. The upside can be attributable to higher cemetery revenues together with an improved cost structure. This was partly countered by increased selling compensation-related expenses.
Other Financial Details
The company ended the quarter with cash and cash equivalents of $220.3 million, long-term debt of $3,584.5 million and total equity of $1,743.1 million. Net cash provided by operating activities amounted to $559.4 million in the first nine months of 2020. During the same time frame, the company incurred capital expenditures of $155.6 million. The company now expects adjusted net cash from operating activities to be $740-$790 million in 2020, up from the previous projection of $600-$660 million. The adjusted earnings guidance continues to include an estimated $40 million related to payroll tax payments, which are being deferred from 2020 to 2021 and 2022.
Expenditures associated with capital enhancements at current locations and cemetery development are still anticipated in a band of $165-$195 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 42.1% due to these changes.
VGM Scores
At this time, Service Corp. has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Service Corp. has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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Service Corp. (SCI) Up 14.2% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Service Corp. (SCI - Free Report) . Shares have added about 14.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Service Corp. due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Service Corporation Raises '20 View on Q3 Earnings Beat
Service Corporation posted robust third-quarter 2020 results, as both top and bottom lines surged year over year and cruised ahead of the Zacks Consensus Estimate. Results were backed by increased funeral services performed as well as greater burials in the company’s cemeteries amid the pandemic. Markedly, with curbs being lifted, Service Corporation has seen unexpected increases in its preneed cemetery sales. Also, it has seen considerable growth in the number of families opting for memorial services.
Notably, management raised its bottom-line view for 2020, though it expects the impact of coronavirus to linger throughout the fourth quarter. For 2020, Service Corporation now envisions adjusted earnings per share of $2.50-$2.75, up from the previous guidance of $1.78-$2. The company’s earnings came in at $1.90 in 2019.
Service Corporation posted adjusted earnings of 79 cents per share, which came way ahead of the Zacks Consensus Estimate of 43 cents. Further, the bottom line more than doubled from the year-ago quarter’s reported figure of 37 cents. The upside can be attributed to increased gross profit stemming from greater funeral services and burials performed. Also, robust growth in recognized preneed revenues in the company’s cemetery business was a driver.
Total revenues of $918.2 million advanced 19.4% year over year, backed by increased funeral and cemetery revenues. Moreover, the figure beat the consensus mark of $801 million. Corporate general and administrative costs escalated $11.3 million to around $41 million owing to greater healthcare self-insurance reserves and costs related to community outreach efforts. The company’s interest costs fell $6 million to $40.7 million in the quarter.
Segment Discussion
Consolidated Funeral revenues grew 12.7% to $518.6 million on higher core revenues. Core revenues gained from a rise in atneed and matured preneed revenues. Further, non-funeral home revenues improved year over year, while recognized preneed revenues saw a decline of 2.7% to $32.7 million.
Comparable funeral revenues climbed 11.7% year over year, courtesy of an increase in core funeral revenues, backed by higher core funeral services performed. However, core funeral services performed were somewhat negated by a fall in core average revenue per service, stemming from social-distancing measures that led to smaller and lesser funeral memorial services. Moreover, the core cremation rate rose 110 basis points. Comparable preneed funeral sales production dropped 2.8% due to declines at core funeral locations and a fall in preneed production in the non-funeral home channel. This was accountable to the continued effect of social distancing on two of the company’s key lead sources — at-home follow-up visits and in-person seminars.
Comparable funeral gross profit jumped 62.7% to $122 million. Also, the gross profit margin increased 750 basis points to 24%, courtesy of core business growth and a lower cost structure somewhat due to the smaller and lesser memorial services performed.
Consolidated Cemetery revenues rose 29.3 to $399.6 million, thanks to increased core revenues. Core revenues gained from an increase in both atneed and total recognized preneed revenues. Comparable Cemetery revenues improved 29.4% year over year on the back of higher core revenues. This, in turn, was fueled by elevated atneed revenues, which stemmed from a rise in burials performed. Moreover, recognized preneed revenues grew, courtesy of solid comparable preneed cemetery property sales production. Comparable preneed cemetery sales production surged 46.9% owing to growth in sales velocity and sales averages, and higher sales. Sales velocity was driven by the continued expansion of virtual tools, increased customer sales incentives and greater leads from atneed services. Further, the company saw higher conversion and close rates, thanks to customers’ greater awareness of the possible effects of coronavirus, along with a rise in location traffic as a result of greater funeral services performed.
Comparable cemetery gross profit soared 64% to $139.9 million and the respective margin expanded 740 bps to 35%. The upside can be attributable to higher cemetery revenues together with an improved cost structure. This was partly countered by increased selling compensation-related expenses.
Other Financial Details
The company ended the quarter with cash and cash equivalents of $220.3 million, long-term debt of $3,584.5 million and total equity of $1,743.1 million. Net cash provided by operating activities amounted to $559.4 million in the first nine months of 2020. During the same time frame, the company incurred capital expenditures of $155.6 million. The company now expects adjusted net cash from operating activities to be $740-$790 million in 2020, up from the previous projection of $600-$660 million. The adjusted earnings guidance continues to include an estimated $40 million related to payroll tax payments, which are being deferred from 2020 to 2021 and 2022.
Expenditures associated with capital enhancements at current locations and cemetery development are still anticipated in a band of $165-$195 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 42.1% due to these changes.
VGM Scores
At this time, Service Corp. has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Service Corp. has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.