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Stewart Enterprises, Inc. (STEI)

F3Q2010 Earnings Call Transcript

September 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

Robert Willoughby – Banc of America Merrill Lynch

Jamie Clement – Sidoti

A.J. Rice – Susquehanna Financial Group

Clint Fendley – Davenport

Richard Innes – JC Clark Limited

Colin Stewart – JC Clark Limited

Katherine Spurlock – Rice Voelker

Michael Ting [ph] – Goffe Capital [ph]

Presentation

Operator

Good day, everyone and welcome to today’s Stewart Enterprises Incorporated third 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 now like to turn the call over to Leslie Loyet of the Financial Relations Board. Please go ahead ma’am.

Leslie Loyet

Thank you and good morning everyone. 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 visit Stewart’s Web site at www.stewartenterprises.com for a copy. Management will provide an overview of the third 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. The company assumes no obligation to update any statements included 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 revenue, earnings, growth rate, 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 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, 2009 and the company’s Form 10-Q for the quarter ended July 31, 2010, and 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 the United States of America or GAAP and are intended to supplement rather than replace or supersede any information presented in accordance with GAAP.

Reconciliations to the most directly comparable GAAP financial measures can be found on the company’s Web site again at stewartenterprises.com under Investor Relations reconciliation of non-GAAP financial measures and can also be found in the company’s press release dated September 8, 2010.

With all that said I’d like to introduce the management of Stewart Enterprises. On the line with us we have Tom Crawford, President and Chief Executive Officer; and Tom Kitchen, Senior Executive Vice 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 to everyone and we thank you for joining us on the call today. I trust you’ve had time to read the press release and earnings report for our third quarter of 2010. Before Tom and I give a review of the quarter, I would like to briefly mention our assessment of the market conditions in which we’re operating.

First, the number of deaths continues to show a downward trend for the quarter. Every measure we evaluate Center for Disease Control, we get supplier input, competitor assessment and internal surveys suggest that the market for the quarter was down anywhere from 2% to 3%.

Second, cremation continues to grow nationwide and for us. As our company’s cremation rate increased from 41.2% to 42% for the first nine months of fiscal 2010 compared to 2009.

Third, the economy continues to be difficult and as we are all aware consumer attitudes have not totally recovered from the gravitational pull of the current recession. However with that said, we continue to make yearly progress, and produce positive results for the third quarter.

From an income standpoint for the quarter, we grew revenue by about 4.4%. We managed our variable and field cost, plus we also received the benefit of scale from the cemetery segment and all that together helped produce an increase in gross profit dollars of 15%.

Quarter-over-quarter, we continued to reduce corporate overhead as well as interest expense from the repurchases of debt which generated on an adjusted pretax basis, earnings growth of 58% and adjusted earnings per share of 40% partially due to the higher effective tax rate when compared to the third quarter of 2009.

For the quarter, our cash generation continued to be strong. We continue to strengthen our balance sheet by repurchasing debt at favorable prices while maintaining strong cash balance from our cash generation for the quarter.

More specifically, our cemetery operations continued to generate growth with an 8% increase in revenue and 57% increase in gross profit dollars. We continued to manage our cost, as cemetery margins improved by 430 basis points for the third quarter.

In the past few years, we have worked hard to implicate a best in class mindset by strengthening our systems, our information flow and management in general to improve efficiencies and reduce cycle times.

We see continued evidence of our progress. For example in this quarter, in our merchandise delivered category, more timely information from improved systems allowed us to reduce installation cycle time and better meet customer expectations while generating 11% increase in revenue in that category.

We continued to see positive progress in our cemetery property sales, which grew by 9.5% for the quarter compared to 2009. That growth enabled the company to produce the highest cemetery property sales in the last eight quarters.

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