Service Corporation International — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Results are unaudited. SCI operates funeral homes, cemeteries, crematoria and related businesses across the U.S. and Canada. Amounts below are in millions, except per-share data.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $987.5 | $820.0 | $2,065.5 | $1,623.0 |
| Gross profit / margin | $268.7 / 27.2% | $218.8 / 26.7% | $646.2 / 31.3% | $397.8 / 24.5% |
| Operating income / margin | $245.8 / 24.9% | $182.3 / 22.2% | $587.9 / 28.5% | $334.1 / 20.6% |
| Net income attributable to common stockholders | $157.7 | $105.5 | $386.6 | $187.4 |
| Diluted EPS | $0.92 | $0.59 | $2.25 | $1.03 |
| Operating cash flow | Not separately stated | Not separately stated | $489.8 | $364.3 |
Quarterly revenue grew 20.4%; first-half revenue grew 27.3%. Cemetery revenue was $455.8 million in Q2 (+34.4%) and $914.4 million for the half (+43.5%), with strong preneed property revenue. Funeral revenue increased 10.6% in Q2 and 16.8% for the half. Q2 comparable funeral services performed fell 5.8%, while average revenue per service rose 13.2%; first-half comparable services performed rose 7.9%.
Q2 funeral gross profit declined 6.6% to $108.4 million as staffing and service levels normalized and incentive compensation and repair costs increased. Cemetery gross profit rose 55.9% to $160.3 million. For the first half, funeral gross profit increased 36.3% and cemetery gross profit increased 94.6%.
Cash, debt and liquidity
- Cash and cash equivalents were $436.8 million at June 30, 2021, versus $230.9 million at year-end 2020. Six-month operating cash flow was $489.8 million; capital expenditures were $103.2 million. Investing activities used $108.6 million and financing activities used $176.5 million.
- Total debt was $3.84 billion, compared with $3.74 billion at December 31, 2020. The weighted-average interest rate was 3.79%; 82% of debt was fixed-rate. The company issued $800 million of 4.0% senior notes due 2031 and repaid or redeemed other debt, including its $150 million 8.0% notes due 2021.
- SCI reported $966 million of remaining bank-facility borrowing capacity and compliance with debt covenants. Its leverage ratio was 2.49 against a 4.75 maximum; interest coverage was 9.60 against a 3.00 minimum. Management expects leverage to return to its 3.5–4.0x target range as pandemic-related earnings effects subside.
- SCI paid $70.9 million in dividends and repurchased $187.3 million of shares during the first half. The quarterly dividend was $0.21 per share. The share-repurchase authorization was increased to $500 million; $460.2 million remained at June 30.
Material changes, outlook and risks
- Comparisons reflect unusual pandemic effects: Q2 2020 restrictions reduced service size and average funeral revenue, while pandemic-related deaths contributed to first-half 2021 funeral volume. Management also reported increased demand for memorial services as restrictions eased.
- Management cited strong preneed cemetery sales, a more productive sales force, digital customer engagement and service excellence. Preneed backlog was $13.21 billion at June 30, 2021, including $6.72 billion of insurance-funded future revenue not recorded on the balance sheet. No specific full-year revenue or earnings guidance is provided in the filing.
- Trust investments generated higher income than in the prior year: first-half recognized income was $88.8 million for preneed trusts and $47.8 million for cemetery perpetual-care trusts. Trust assets are exposed to market fluctuations; investment gains and losses on trust assets generally have corresponding effects on trust-related liabilities.
- Key stated risks include continued COVID-19 effects, trust investment performance or funding requirements, access to surety bonds, third-party insurer condition, debt and covenant constraints, cremation trends, regulation, cybersecurity, and litigation.
- Contingencies include California and Florida matters alleging improper cremation-contract pricing, preneed trust funding or sales practices; wage-and-hour claims; unclaimed-property audits; and an Illinois claim involving $13.6 million of cemetery perpetual-care trust withdrawals. SCI says it believes its practices and withdrawals were proper where applicable, but states that possible losses cannot currently be reasonably estimated for several matters. An appeal in the Stewart acquisition-related case was affirmed in SCI’s favor, subject to further review.
Investor facts to verify
- How sustainable are the unusually strong cemetery preneed sales and related recognized revenue, and what happens as pandemic-related service volumes normalize?
- What portion of reported earnings growth depends on trust investment returns, divestiture gains, or other nonrecurring items?
- How might the identified legal, unclaimed-property and regulatory matters affect cash flows or trust funding despite the lack of estimable loss ranges?
- Can SCI maintain its leverage target while continuing dividends, repurchases and investment in acquisitions and new locations?
- Confirm the composition and availability of trust assets, cash balances and bank-facility capacity; trust-held funds are subject to legal restrictions and are not equivalent to unrestricted corporate liquidity.