Business context and reporting period
Service Corporation International (SCI) filed this Form 10-K for the fiscal year ended December 31, 2020; the filing also provides unaudited fourth-quarter results. SCI is North America’s largest deathcare provider, operating 1,470 funeral locations and 483 cemeteries across the U.S. and Canada. Revenue comes from funeral and cemetery merchandise and services sold at need and through preneed contracts. Its preneed backlog was $12.7 billion at year-end, versus $12.0 billion in 2019.
Financial performance and position
Amounts below are in millions, except per-share data and percentages.
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $3,511.5 | $3,230.8 |
| Gross profit / margin | $976.8 / 27.8% | $760.6 / 23.5% |
| Operating income / margin | $842.8 / 24.0% | $666.6 / 20.6% |
| Net income attributable to common stockholders | $515.9 | $369.6 |
| Diluted EPS | $2.88 | $1.99 |
| Cash from operating activities | $804.4 | $628.8 |
| Capital expenditures | $222.2 | $240.0 |
Q4 2020 revenue was $970.3 million and net income attributable to common stockholders was $201.0 million, compared with $850.8 million and $147.2 million, respectively, in Q4 2019. Q4 diluted EPS was $1.15 versus $0.79.
At December 31, 2020, cash and cash equivalents were $230.9 million; total debt was $3.743 billion, including $228.4 million of current maturities. SCI reported $441.0 million of available borrowing capacity and compliance with its debt covenants. The leverage ratio was 3.19 against a 4.75 maximum; interest coverage was 7.06 against a 3.00 minimum. The annual dividend declared was $0.78 per share.
Material changes versus 2019
- Revenue grew 8.7% and common-stockholder net income rose 39.6%. Operating cash flow increased $175.6 million; excluding $6.4 million of prior-year legal settlements, management reported a $169.2 million increase.
- Comparable funeral services performed increased 12.7%, mainly reflecting pandemic-related deaths, while comparable average revenue per service fell 3.8% as social distancing reduced the size and frequency of memorial services. The comparable cremation rate rose to 58.6% from 57.2%.
- Cemetery revenue increased 11.7%, with higher preneed property sales and more atneed burials. Comparable funeral and cemetery gross margins improved, which SCI attributed to business mix and a more efficient cost structure.
- SCI repurchased 12.0 million shares for $516.9 million, versus 2.9 million shares for $129.6 million in 2019. Dividends paid were $137.4 million, up from $131.4 million.
- Interest expense declined to $163.1 million from $185.8 million, while losses on early debt extinguishment were $18.4 million versus $16.6 million. Net gains on divestitures and impairment charges fell to $7.0 million from $32.9 million.
Outlook, risks and unusual items
SCI provided no specific numerical earnings or revenue guidance. Management described long-term priorities as growing revenue, leveraging scale, and deploying capital through acquisitions and new locations, dividends, share repurchases, and debt management. It expects demographic aging, preneed growth, and continued technology adoption to support future opportunities; these are expectations, not assured outcomes.
COVID-19 had mixed effects: higher service volumes supported revenue, while gathering restrictions reduced funeral sales averages and affected preneed activity, particularly early in the year. SCI said cemetery preneed sales later grew strongly and reported no widespread layoffs or pay reductions. The pandemic’s duration and its effects on demand, workforce availability, supply chains, operating costs, and trust investments remained uncertain.
Key exposures include market losses or required replenishment of preneed and perpetual-care trusts; the potential $145.3 million funding requirement if surety bonds were canceled and replacement coverage unavailable; substantial indebtedness and covenant restrictions; cremation’s lower average revenue; competition, regulation, cybersecurity, Canadian-dollar movements, and self-insured claims. SCI disclosed litigation involving wage-and-hour claims, cremation-contract practices, unclaimed property, and cemetery trust withdrawals; possible losses in several matters could not be reasonably estimated. The filing says no goodwill impairment review was required during 2020; it recorded approximately $3.1 million of tradename impairment.
Important facts for investors to verify
- Review whether elevated service volumes and improved margins persist as pandemic-related conditions and gathering restrictions change.
- Assess preneed backlog quality, cancellation and collection trends, trust returns, and the relationship between trust assets and future fulfillment costs.
- Monitor debt maturities, refinancing needs, covenant headroom, and the balance between repurchases, dividends, acquisitions, and debt reduction.
- Track the outcomes and potential financial exposure from the disclosed litigation, unclaimed-property audit, and Illinois perpetual-care trust matter.
- Consider the sensitivity of results to cremation mix, funeral sales averages, interest rates, investment markets, and Canadian currency movements.