Service Corporation International SCI posted solid first-quarter 2021 results, with the top and the bottom line increasing year over year and beating the Zacks Consensus Estimate. The upside can be attributed to increased mortality due to the coronavirus pandemic, which led to higher funeral services performed as well as increased burials in the company’s cemeteries. Additionally, the Zacks Rank #3 (Hold) company gained from a solid cost structure, which drove margin enhancements in the funeral and cemetery segments. Moreover, management raised its bottom-line view for 2021.

Q1 in Detail

Service Corporation posted adjusted earnings of $1.32 per share, which surpassed the Zacks Consensus Estimate of 98 cents. Further, the bottom line reflected a sharp rise from earnings of 43 cents reported in the year-ago quarter. Year-over-year growth can be attributed to elevated gross profit resulting from increased funeral services and burials performed along with a robust increase in cemetery recognized preneed revenues. Further, the bottom line gained on reduced shares outstanding and a decline in interest expenses.

Total revenues of $1,078 million advanced nearly 34.2% (or $275 million) year over year, backed by increased funeral and cemetery revenues. Moreover, the figure came ahead of the Zacks Consensus Estimate of $953.6 million.

Gross profit amounted to $377.5 million, up $198.5 million year-on-year.

Corporate general and administrative costs escalated $4.9 million (or 15.4%) to $36.7 million. Operating income of $342 million increased $190.2 million year over year.

Service Corporation International Price, Consensus and EPS Surprise

Service Corporation International price-consensus-eps-surprise-chart | Service Corporation International Quote

Segment Discussion

Consolidated Funeral revenues rallied 22.7% to $ 619.4 million. Atneed revenues increased 27.7% to $338.1 million, while matured preneed revenues increased 16.3% to $190.2 million. Moreover, core revenues increased 23.3% to $528.3 million. The segment also gained from growth in non-funeral home revenue and recognized preneed revenue.

Comparable funeral revenues advanced 21.7% year over year, mainly owing to growth in core funeral revenues, which in turn, were backed by higher core funeral services performed and core average revenue per service. The core cremation rate moved up 20 basis points to 52%.

Comparable preneed funeral sales production increased 16.4% driven by higher digital and direct mail leads, rise in location traffic due to higher services performed as well as the gradual return of in-person seminars. Further, the company witnessed 9.2% growth in core funeral locations and a 43.4% rise in preneed production through non-funeral home channel.

Comparable funeral gross profit jumped 81.7% to $189.5 million. The gross profit margin expanded to 31% from 20.7% in the prior-year quarter, courtesy of increased higher-margin core business activities and a better cost structure.

Consolidated Cemetery revenues rose 53.8% to $458.5 million, thanks to increased core revenues. Core revenues gained from an increase in both atneed and total recognized preneed revenues.

Comparable Cemetery revenues improved 53.9% year over year on the back of higher core revenues. This, in turn, was fueled by elevated recognized preneed revenues owing to solid comparable preneed cemetery property sales production. Moreover, growth in atneed revenues, which stemmed from a rise in burials performed, was an upside.

Comparable preneed cemetery sales production rose 67.1% owing to growth in large sales, sales averages as well as sales velocity. The company continued to gain from an efficient sales force, prudent utilization of customer relationship management system as well as improved conversion rates from direct mail and digital lead campaigns. Further, the company continued to witness elevated conversion and close rates, thanks to customers’ greater awareness of the possible effects of coronavirus. It also saw an increase in location traffic as a result of greater funeral services and burials performed.

Comparable cemetery gross profit came in at $186.7 million, which grew by $111.2 million year on year, and the respective margin expanded to 40.7% from 25.3% in the prior-year quarter. The upside can be attributed to higher cemetery revenues together with an improved cost structure.

Other Financial Details

Service Corporation, which shares space with Hillenbrand, Inc. HI, ended the quarter with cash and cash equivalents of $243.7 million, long-term debt of $3,439.1 million and total equity of $1,850.7 million.

Net cash provided by operating activities amounted to $297.6 million in the first three months of 2021. During the same timeframe, the company incurred capital expenditures of $42.3 million. The company undertook several cemetery development and construction projects

It expects adjusted net cash from operating activities to be $650-$725 million for 2021. Expenditures associated with capital enhancements at current locations and cemetery development are anticipated in a band of $235-$255 million.

Outlook

Based on the sturdy performance witnessed during the first quarter, management raised its bottom line projection for 2021. It now envisions adjusted earnings per share in the range of $2.70-$3.00 compared with $2.50-$2.90 projected earlier. The company’s guidance for the year is wider than usual owing to the uncertainty surrounding the COVID-19 impact. We note that the company’s earnings came in at $2.91 per share in 2020.

Additionally, management informed that the company is on track with its long-term earnings growth framework. Accordingly it will maintain focus on its core strategies that include growing revenues by remaining relevant to client families, leveraging scale and maximizing capital deployment opportunities.

Shares of this renowned deathcare services and products company have gained 2.6% in the past three months compared with the industry’s growth of 6.6%.

Looking for More Funeral Services Stocks? Check These

Carriage Services, Inc. CSV, which carries a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 15%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Matthews International Corporation MATW has a Zacks Rank #2 and a trailing four-quarter earnings surprise of 32.2%, on average.

More Stock News: This Is Bigger than the iPhone!

It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 77 billion devices by 2025, creating a $1.3 trillion market.

Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 4 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2022.

Click here for the 4 trades >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Carriage Services, Inc. (CSV) : Free Stock Analysis Report

Service Corporation International (SCI) : Free Stock Analysis Report

Hillenbrand Inc (HI) : Free Stock Analysis Report

Matthews International Corporation (MATW) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research