Business context and reporting period
Carriage Services, Inc. (NYSE: CSV) filed an unaudited Form 10-Q for the three months ended March 31, 2024, compared with the same quarter of 2023. The company operates funeral homes and cemeteries; at quarter-end it had 165 funeral homes in 26 states and 31 cemeteries in 11 states. Funeral Home Operations accounted for about 70% of revenue and Cemetery Operations about 30%.
Financial performance
Amounts below are in millions of dollars except per-share data, percentages and operating statistics.
| Metric | Q1 2023 | Q1 2024 | Change |
|---|---|---|---|
| Revenue | $95.5 | $103.5 | +8.4% |
| Gross profit | $31.1 | $37.3 | +20.0% |
| Operating income | $20.6 | $19.5 | -5.6% |
| Net income | $8.8 | $7.0 | -21.2% |
| Diluted EPS | $0.57 | $0.45 | -21.1% |
| Cash from operating activities | $25.9 | $19.7 | -$6.2 |
Gross margin improved to 36.0% from 32.5%; operating income margin declined to 18.8% from 21.6%. The company’s non-GAAP operating profit was $46.3 million versus $41.1 million, with operating profit margin of 44.8% versus 43.0%.
Revenue growth was led by cemetery operations: cemetery segment revenue rose to $31.7 million from $25.4 million, while funeral segment revenue increased to $71.8 million from $70.1 million. Preneed interment rights sold increased 37.3% to 3,437, and average price rose 7.9% to $4,849. Funeral contract volume fell 2.6% to 12,091, while average revenue per contract, including preneed trust earnings, rose 4.1% to $5,756.
At March 31, cash was $1.7 million and total current assets were $40.4 million, compared with current liabilities of $56.1 million. Credit Facility borrowings were $154.1 million, down from $179.1 million at year-end, with $93.3 million of availability. Senior Notes had $400.0 million principal outstanding and mature in 2029; acquisition debt was about $6.0 million. Operating and finance lease liabilities totaled $24.6 million. The company paid $1.7 million in dividends; declared dividends were $0.1125 per share, unchanged from the prior-year quarter.
Material changes versus prior period
- Revenue and gross profit increased, supported by higher cemetery preneed sales and improved segment margins. Funeral contract volume was lower.
- Net income declined despite gross profit growth. General, administrative and other expenses increased $6.1 million to $16.2 million, including costs associated with the former Executive Chairman’s transition and strategic-alternatives review. Divestiture losses rose to $1.5 million from $0.1 million.
- Operating cash flow decreased $6.2 million. Management attributed much of the comparison to a $7.0 million withdrawal of realized gains and earnings from preneed trusts in Q1 2023; no such withdrawals occurred in Q1 2024.
- Investing activities shifted from a $47.3 million cash outflow in Q1 2023, including a $44.0 million acquisition, to a $7.4 million inflow in Q1 2024, including $10.9 million of divestiture and asset-sale proceeds.
- The company sold six funeral homes and one cemetery for $10.9 million in aggregate, recording a $1.5 million net loss. It made no business acquisitions in the quarter.
Outlook, management commentary and risks
Management said it expects existing cash resources and anticipated cash flows, with access to the Credit Facility as needed, to cover working capital, capital expenditures, scheduled debt payments, commitments and dividends for the next 12 months and long-term obligations. Priorities include debt repayment, dividends, internal growth spending and integrating the recently acquired business. No specific revenue or earnings guidance figures are provided in the supplied filing text.
Management reported stabilization in vendor and merchandise inflation during Q1 but cautioned that future inflation is uncertain and could affect costs and consumer spending. It cited lower funeral volumes related to death-rate fluctuations and the COVID-19 pull-forward effect, and said the duration of those trends cannot be predicted. The company also noted higher variable borrowing costs; the Credit Facility’s weighted-average interest rate was 8.9% in Q1 2024 versus 7.9% in Q1 2023. A 100-basis-point borrowing-rate change, assuming the balance stayed constant, would change pretax income by approximately $1.5 million.
The Board ended its strategic-alternatives review and determined that continuing as an independent public company was in the company’s and stockholders’ best interests at this time. Founder Melvin C. Payne ceased serving as Executive Chairman and entered a 12-month consulting arrangement. His disclosed transition benefits include salary continuation, bonuses, a cash settlement of performance awards, consulting payments and health-benefit payments; related transition costs contributed to higher corporate expenses.
The company reported compliance with Credit Facility covenants at quarter-end. Its leverage covenant caps the Total Leverage Ratio at 5.50 to 1.00 and requires a Fixed Charge Coverage Ratio of at least 1.20 to 1.00. Legal proceedings arise in the ordinary course; management does not expect them to materially adversely affect the financial statements, while noting that insurance and self-insurance reserves may not cover all losses. The filing reports no material change to previously disclosed risk factors. Other key risks include interest rates, trust investment performance, death-rate changes, inflation, staffing, competition, preneed sales, execution of strategy and access to financing.
Important facts for investors to verify
- Whether cemetery preneed sales growth and improved segment margins persist, particularly given the quarter’s higher cemetery property sales and associated amortization.
- Whether the decline in funeral contract volume continues and how pricing affects volumes, revenue and margins.
- The drivers, recurrence and cash impact of the former Executive Chairman’s transition benefits and other elevated corporate costs.
- Debt repayment progress, Credit Facility availability and covenant headroom, including exposure to variable interest rates and the May 2026 facility maturity.
- How much operating cash flow is affected by preneed trust activity, and whether the reported cash generation supports planned debt reduction, dividends and capital spending.
- The proceeds, operating effects and realized losses from divestitures, and whether management’s stated liquidity expectations remain achievable.
- The filing says no shares were repurchased under the program; the 16,315 shares reported as purchased during the quarter were employee share surrenders for withholding taxes. Verify this distinction when reviewing buyback activity.