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Stewart Enterprises (STEI)

Q4 2012 Earnings Call

December 18, 2012 11:00 am ET

Executives

Martin R. de Laurèal - Senior Vice President of Corporate Development & Investor Relations

Thomas M. Kitchen - Chief Executive Officer, President, Director and Member of Investment Committee

Lewis J. Derbes - Chief Financial Officer, Senior Vice President and Treasurer

Analysts

Albert J. Rice - UBS Investment Bank, Research Division

Christian Rigg - Susquehanna Financial Group, LLLP, Research Division

Clint D. Fendley - Davenport & Company, LLC, Research Division

Robert M. Willoughby - BofA Merrill Lynch, Research Division

Dick Innes - JC Clark Ltd.

Duncan Brown - Wells Fargo Securities, LLC, Research Division

Gregory M. Macosko - Lord, Abbett & Co. LLC

Presentation

Operator

Good day, everyone, and welcome to the Stewart Enterprises' Fourth Quarter and Fiscal Year 2012 Conference Call. As a reminder, today's call is being recorded. [Operator Instructions] I would now like to turn the conference call over to Martin de Laurèal, Senior Vice President of Corporate Development and Investor Relations. Please go ahead.

Martin R. de Laurèal

Thank you, operator, and good morning. On behalf of Stewart Enterprises, I would like to welcome everyone. By now, you should have already received a copy of the press release. If not, please visit our website at www.stei.com.

On today's call, management will provide an overview of the fourth quarter and fiscal year 2012, and then we'll open the call up for your questions.

The information contained in the call is current only at the time of this call. Statements made by the company that are not historical facts are forward-looking statements. The company assumes no obligation to update any statements, including forward-looking statements made during this call. Examples of forward-looking statements include: projections of revenue or earnings, growth rates, free cash flow, debt levels, tax benefits and other financial items, statements regarding plans and objectives of the company and its management, statements regarding industry trends, competitive trends and their effect on future performance, and assumptions underlying the forward-looking statements regarding the company and its business.

The company's actual results could differ materially from any forward-looking statements due to several important factors, which are described in the company's Form 10-K for the year ended October 31, 2012. The company uses adjusted earnings, adjusted EPS, adjusted EBITDA, net debt, free cash flow and cash flow per share as financial measures. These financial measures are not in accordance with accounting principles generally accepted in the United States of America, or GAAP, and are intended to supplement rather than replace or supersede any information presented in accordance with GAAP.

A reconciliation to the most directly comparable GAAP financial measure can be found on the company's website at www.stei.com under Investor Information. The reconciliation of non-GAAP financial measures can also be found in the company's press release dated December 17, 2012.

With that said, I'd like to introduce management of Stewart Enterprises. On the call today, we have Tom Kitchen, our President and Chief Executive Officer, and Lew Derbes, our Chief Financial Officer.

At this time, I'd like to turn the call over to Tom. Please go ahead.

Thomas M. Kitchen

Thank you, Martin. Good morning, and thank you for joining us on the call today. As usual, I'll offer a few opening comments, and then I'll turn the call over to Lew. He'll cover the financial performance in more detail before we open up for some Q&A.

Overall, we're very proud of our performance in fiscal year 2012, including an exceptional fourth quarter, which continues the positive momentum we've generated throughout the year.

Some of our accomplishments in 2012 include: achieving the highest annual revenue and gross profit in 4 years; expanding Cemetery and Funeral gross profit margin by 250 and 100 basis points, respectively; increasing adjusted EPS by 18% to $0.46; producing total annual returns of 11% in our preneed trust and 13% in our perpetual care trust; and generating operating cash flow of more than $76 million and free cash flow in excess of $61 million.

Illustrating the quality of our earnings, our operating cash flow per share of $0.89 is nearly double our earnings per share, and our free cash flow per share is also very strong at $0.71.

Our most significant event and accomplishment in 2012 was the restructuring of our organization, which was announced in April.

This reorganization better aligns our geographic regions and integrates operations and sales, while focusing on providing a more efficient and effective sales strategy.

These changes have enabled us to assemble an outstanding team, which will increase productivity and further enhance our customer experience.

Throughout the fiscal year, our sales team produced strong results by expanding sales and profitability and delivering a better customer experience. Their hard work and dedication can be seen in our improvement in preneed funeral and cemetery property sales for the fiscal year. These results are the highest annual sales in 5 years and, we believe, demonstrate that customers continue to value the services we provide and the facilities we offer.

In addition, we're very pleased with our strong trust performance, with double-digit average annual total returns over the last 3 years. Since the end of the last fiscal year, our trust portfolio has improved by over $50 million. The significance of this improvement is that it will enhance revenue and profitability in future periods.

We also think it's important to note that we have $1.8 billion in future revenue in our backlog or 3.5x our annual revenues. So not only is our current performance strong, we're building a backlog of revenues for the future.

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