Service Corp. International (
Q3 2010 Earnings Call
October 28, 2010 10:00 am ET
Debbie Young - Director of IR
Tom Ryan - President and Chief Executive Officer
Eric Tanzberger - SVP, CFO & Treasurer
Clint Fendley - Davenport
Robert Willoughby - Bank of America Merrill Lynch
A.J. Rice - Susquehanna
John Ransom - Raymond James
Previous Statements by SCI
» Service Corp. International Q2 2010 Earnings Call Transcript
» Service Corporation International Q4 2009 Earnings Call Transcript
» Service Corporation International Q2 2009 Earnings Transcript
» Service Corporation International Q1 2009 Earnings Call Transcript
Good day, ladies and gentlemen, and welcome to the Third Quarter 2010 Service Corporation International’s Earnings Conference Call. My name is Carol and I will be your coordinator for today.
At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.
I’m now going to turn the presentation over to Senior Management. You may begin.
Good morning, everyone. This is Debbie Young, Director of Investor Relations. We want to welcome you to our call today. As usual I get the honor doing the Safe Harbor language. So, go and get your coffee right now, go ahead.
In our comments today, we will make statements that are non-historical facts in our forward-looking. These statements are based on assumptions that we believe are reasonable. However, there are many important factors that could cause our actual results in the future to differ materially from these forward-looking statements. For more information related to these statements and other risk factors, please review our periodic filings with the SEC that are available on our website at sci-corp.com.
Also in the call today, we may use terms such as normalized EPS, or normalized or adjusted operating cash flows. These are non-GAAP financial terms. Please see our press release and 8-K that were issued yesterday where we have provided a detailed reconciliation for each of these measures to the appropriate GAAP terms.
Now, I’ll turn the call over to President and CEO, Tom Ryan.
Thank you, Debbie, and thanks everybody for being on the call today. What I’m going to do is what I traditionally do, talk a little bit about overview of the quarter and get into the some of the segment discussions. And then give you a little bit of background and insight into our guidance that we’re providing for 2011.
Before I do that, I want to thank everybody within SCI, the people that make it happen everyday, without them we wouldn’t be able to delivery these earnings. They importantly enough take care of the client families that are going through very difficult time, so appreciate all your contributions, those of you that are listening in.
So first with an overview for the quarter. Third quarter, again, we delivered consistent positive performance. We’re please with what we were able to do. The normalized earnings per share were $0.13 versus the prior year $0.13 a quarter.
Now, recalling the third quarter of last year, we had a benefit of a little over $7 million, or converted to earnings per share $0.02, as a result of being able to reduce our long-term insurance reserves following a multi-year period of focus and comprehensive training to decrease our liabilities as it relates to auto, workman’s comp and other general liability claim. So, because of that hard work we are able to reduce that liability on a one-time basis. It resulted in that $0.02.
So when you isolate that issue, we really grew our earnings this quarter by $0.02 when you compare to the last quarter. And the reason that we are able to do that year-over-year was primarily driven by three things. First of which was the contribution from Keystone and Palm Mortuaries, the acquisitions that occurred in late 2009, early 2010. And those contributions obviously are somewhat offset by higher interest costs, and they predominantly benefited the funeral business, because again if you recall Keystone was primarily a funeral company.
And second item that drove performance in the quarter was higher cemetery and merchandise deliveries and more completed cemetery construction projects. You’ll recall we have to have the cemetery property has to be in condition and handed over to the consumer with 10% down. So constructing these triggers that revenue recognition and a lot of what we constructed were things we sold earlier in the year
And lastly, we had a lower effective tax rate in the quarter, which helped us about a penny, which has offset some, by the same amount, because of higher general and administrative cost. So overall, a good quarter in line with our external expectations and a little bit ahead of our own internal expectations for the quarter, as good expense management helped to offset lower performance on the cemetery sales production side, and we’re working hard to get back on track that we’re pleased with.
And I’m going to look at an overview of the funeral operations. Funeral operations performed well during the quarter relative to our expectation. As we have expected and communicated all along, funeral revenue growth continues to be challenging, but we successfully continue to manage our costs. Comparable funeral revenues in the quarter increased 1.2% to $329 million.
Same-store volume was down about 1.6% for the quarter, so again, not exciting; we would rather see growth. But the decline continues to get smaller, so again a little better than we expected and that helped us achieve the results that we did.
For the nine-month period, same-store volumes were down 2.4%. We are tracking just about what we thought would happen for the year and a little bit better than what happens for the quarter. Our funeral average grew 1.8%, which takes into account higher trust fund income and the positive Canadian currency effect. If you exclude those two things, our average grew 0.9%, just under 1%, which in this day and age isn’t so bad and was within our expectations.