Service Corporation International's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Service Corporation International ( SCI)

Q4 2011 Earnings Call

February 9, 2012 10:00 am ET


Debbie Young – Director, Investor Relations

Thomas L. Ryan – President, Chief Executive Officer

Eric D. Tanzberger – Chief Financial Officer, Senior Vice President and Treasurer


John W. Ransom – Raymond James & Associates, Inc.

Clint D. Fendley – Davenport & Company Llc

A. J. Rice – Susquehanna Financial Group LLP

Robert M. Willoughby – Bank of America Merrill Lynch

Duncan Brown – Wells Fargo Securities



Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2011 Service Corporation International Earnings Conference Call. My name is Diana and I’ll be the Operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instruction) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, the SCI Management. Please proceed.

Debbie Young

Good morning. This is Debbie Young, Director of Investor Relations for SCI. Thanks for joining us today. As usual, we’ll start with some prepared remarks from management and then we’ll take some of your questions. But first, let me go through the Safe Harbor language.

In our comments today, we will make statements that are not historical facts and are 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 filings with the SEC that are available on our website.

Also on the call today, we will use the terms normalized EPS and free cash flow. These are non-GAAP financial terms. For reconciliation of normalized EPS to EPS calculated in accordance with GAAP, please see our press release and 8-K that were issued yesterday.

For free cash flow and free cash flow per share, we would refer you to a presentation that we posted on our website yesterday under Webcasts & Presentations that will give you the supporting calculations and reconciliations to GAAP cash flow.

With that, we’ll start with comments from Tom Ryan, SCI’s President and CEO.

Thomas L. Ryan

Thank you, Debbie, and thanks everybody for being on the call today. Before I go into a more detailed review of the quarter, I’d like to step back a moment and look at our results and accomplishments that we achieved during the year 2011.

All in all we look back at 2011; we’re very pleased with our operating performance. I’d like to first thank my 21,000 teammates at SCI for making this happen, because without their contributions, we wouldn’t be able to print results like this.

Earnings per share grew a little more than 10% year-over-year, reported $0.65 in 2011 and $0.59 earnings per share in 2010. This was on the high-end of our previous guidance of $0.62 to $0.65.

As we’ve discussed previously and setting expectations for financial performance in the near-to-mid term as you think about our segments, we’ve pointed out that it’s our opinion that funeral is going to be challenging to grow. This is predominantly, because our GAAP revenues are tied to the event of death, and it’s our expectation that we’ll continue to see a challenging number of deaths in the near-term.

In addition to this, we’re going to put further pressure in the fact that we believe we should grow the preneed backlog, because the day is coming and we continue to do that. And in doing so we generate selling expenses and those selling expenses again put pressure on our margins.

Having said that, we think it’s – we’re going to generate a lot of cash in our Funeral business and that is the case for 2011. If you look at our reported results for 2011, we’ve managed our expenses very well. We generated a significant amount of cash flow in the incremental preneed selling costs; put a little pressure on our comparable margins. But again, this was part of the plan.

We finished the year with a growth in comparable revenues of $21.7 million in the Funeral segment or 1.5%, and an increase in gross profit of $7.7 million or 2.6%. And therefore, we were able to actually raise the gross margin percentage by about 20 basis points in the Funeral segment.

Having said that when we set expectations for cemetery, we’ve always pointed out to you guys that this is the place that we can actually drive some growth. We’re able to recognize our GAAP purchases property sales and to the extent, we can grow those sales, we can grow the related margins.

So again, as we look at 2011, cemetery is our growth engine. Comparable cemetery revenues in 2011, up more than $47 million or about 7% for the year in gross profits up close to $16 million or about 12% and that is a 90 basis point improvement in the margin.

Perhaps most notable as it relates to generating cemetery growth, we achieved a 12.3% increase in preneed cemetery sales production, and therefore a 7% increase in preneed funeral sales, against a backdrop of very negative consumer environment. We’re very pleased with those results and that’s really what drove the earnings per share on the cemetery side.

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