Service Corporation International (SCI) - Q1 2026 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended March 31, 2026. Service Corporation International (SCI) is North America's largest provider of deathcare products and services, operating 1,487 funeral service locations and 503 cemeteries across the U.S. and Canada. The company operates through two primary segments: Funeral and Cemetery. A significant portion of its business model relies on preneed contracts, creating a substantial backlog of future revenue.
Key Financial Metrics
| Metric | Q1 2026 | Q1 2025 |
|---|---|---|
| Total Revenue | $1,096.5 million | $1,074.2 million |
| Gross Profit | $286.5 million | $291.4 million |
| Operating Income | $243.8 million | $251.7 million |
| Net Income (Attributable to Common Stockholders) | $135.8 million | $142.9 million |
| Diluted EPS | $0.97 | $0.98 |
| Operating Cash Flow | $333.8 million | $311.1 million |
| Total Debt | $5.16 billion | $5.14 billion |
| Cash and Cash Equivalents | $258.0 million | $243.6 million |
| Preneed Backlog (Total) | $17.07 billion | $17.01 billion |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 2.1% year-over-year, driven primarily by a 7.2% increase in Cemetery revenue. Funeral revenue declined 1.4%.
- Funeral Segment: Comparable funeral services performed decreased 6.0% (91,603 vs. 97,475), attributed to a strong prior-year flu season. However, average revenue per service increased 3.4% to $5,947. Comparable funeral gross profit declined 14.7% to $132.6 million due to the volume decline impacting the high fixed-cost structure.
- Cemetery Segment: Comparable cemetery revenue increased 7.1% to $465.5 million, driven by higher property and merchandise sales. Comparable gross profit increased 11.0% to $152.5 million, with gross margin expanding 120 basis points to 32.8%.
- Tax Rate: The effective tax rate decreased to 25.0% from 26.1%, primarily due to a discrete tax benefit from a renewable energy investment.
- Share Count: Diluted weighted average shares decreased to 139.9 million from 145.3 million due to aggressive share repurchases.
Guidance, Outlook, and Risks
- Capital Allocation: SCI repurchased 1.79 million shares for $144.4 million in Q1 2026. $215.1 million remains authorized for repurchases. The quarterly dividend was increased to $0.34 per share.
- Liquidity: The company maintains a leverage ratio of 3.68x, well within its 5.0x covenant limit. It has $1.45 billion in remaining borrowing capacity under its Bank Credit Facility.
- Investment Performance: Trust investments decreased 0.7% in Q1 2026, outperforming the S&P 500 (-4.3%) and Bloomberg US Aggregate Bond Index (-0.1%).
- Risks: Key risks include the impact of inflation on trust funding requirements, potential unclaimed property audits regarding preneed trust funds, and the continuing industry trend toward cremation which typically yields lower revenue per service than traditional burial.
Investor Verification Checklist
- Funeral Volume Trends: Verify if the 6.0% decline in funeral services is a temporary anomaly due to the prior year's flu season or the start of a longer-term demographic shift.
- Trust Investment Returns: Monitor the performance of the $7.86 billion in trust investments, as underperformance could necessitate additional funding from the company to meet preneed obligations.
- Unclaimed Property Audits: Review the status of ongoing audits in approximately 40 states regarding the escheatment of unused preneed trust funds, as this could impact liquidity.
- Cremation Mix: Assess the impact of the rising cremation rate (64.5% in Q1 2026) on long-term average revenue per service and cemetery property development strategies.
- Debt Maturity Profile: Confirm the company's ability to manage debt maturities and interest payments given the current interest rate environment, despite the favorable leverage ratio.