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Stewart Enterprises, Inc. (STEI)

F2Q10 (Qtr End 04/30/10) Earnings Call

June 9, 2010 11:00 am ET

Executives

Leslie Loyet – IR, Financial Relations Board

Tom Crawford – President and CEO

Tom Kitchen – Senior EVP and CFO

Analysts

Clint Fendley – Davenport

A.J. Rice – SIG

Richard Innes – J.C. Clark Limited

Colin Stewart – J.C. Clark Limited

Jamie Clement – Sidoti & Company

Rajas Raji [ph] – HNC Capital [ph]

David Schmookler – Kingsland Capital

Presentation

Operator

Good day, everyone and welcome to today’s Stewart Enterprises Incorporated second quarter 2010 earnings conference call. As a reminder, today’s call is being recorded. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions to participate will be given at that time. I would like to turn the conference over to Ms. Leslie Loyet of the Financial Relations Board. Please go ahead, ma'am.

Leslie Loyet

Thank you. Good morning. On behalf of Stewart Enterprises, I'd like to welcome everyone. By now, you should have all received a copy of the press release. If not, please contact Liz Dolezal at 312-640-6771 and she will send you a copy immediately or visit Stewart's website at www.stewartenterprises.com for a copy. Management will provide an overview of the second quarter and then we'll open the call up to your questions.

Before I turn the call over to management, please be advised that the information contained in this call is current only as of the time of this call and the company assumes no obligation to update any statements including forward-looking statements made during this call. Statements made by the company that are not historical facts are forward-looking statements.

Examples of forward-looking statements include projections of revenues, earnings, growth rates, free cash flow, debt levels, tax benefits and other financial items, statements regarding plans and objectives of the company or its Management, statements regarding industry trends, competitive trends and their affect 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, 2009 and the company’s Form 10-Q for the quarter ended April 30, 2010 and their other filings with the SEC.

The company uses adjusted earnings EPS, EBITDA and free cash flow as financial measures. These financial measures are not in accordance with Accounting Principles generally accepted in USA or GAAP and are intended to supplement rather than replace or supercede any information presented in accordance with GAAP. Reconciliation to the most directly comparable GAAP financial measures can be found on the company’s website, again at stewartenterprises.com under investor information, reconciliation of non-GAAP financial measures and can also be found in the company’s press release dated June 8, 2010.

With that said I'd like to introduce management of Stewart Enterprises. On the line we have Tom Crawford, President and Chief Executive Officer and Tom Kitchen, Senior Executive President and Chief Financial Officer. At this time, I'd like to turn the call over to Tom Crawford. Please go ahead.

Tom Crawford

Leslie, thank you. Good morning and thank you all for joining us on the call today. I trust you've had a time to read the press release and our earnings report for the second quarter of 2010. As is our custom from past calls, I will give you my assessment of the quarter and Tom Kitchen will provide more financial details later in the call.

First, as you read in the press release, for the quarter, revenue increased but our earnings were down slightly as our earnings per share was less than the second quarter of 2009 by $0.01. I believe we provide enough detail in the press release to explain the events of the quarter and I'll try not to duplicate them. However I want to provide additional insight that is not obvious from the data. I will review both positive and mixed results for the quarter.

First and to the point, we are not happy that the earnings are down by $0.01 compared to the same period of 2009. After having stated that, there are reasons for a slight decline from that period.

On the funeral side, we reported essentially flat revenue for the quarter but costs increased by $1.9 million or 3.6%. For the last three quarters, I have highlighted that our direct funeral margins, the basic blocking and tackling of the business which includes our fuel labor costs have been expanding in a down market because we have been managing our costs well.

While we reported a cost increase of 3.6% for the quarter which reduced our total margin and margin percent, the reality is that at the rooftop level, again as I said our basic blocking and tackling, our field organization continues to manage costs well and at expectations.

Of the $1.9 million increase in costs, $1.4 million is attributable to two factors. The first is that last year, we received a windfall benefit in the form of a positive adjustment to insurance reserves due to an improved experience rate. The second relates to investments we've made in market research, cremation and R&D in our new invention initiative, with the intent to provide greater growth into the future.

In the cemetery segments, we reported revenue growth of 2.9%; however, similar to the funeral segment, costs increased by $1.1 million due to the same windfall effect from the insurance reserve adjustment and the investment expenditures to grow the business in the future that I've just described.

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