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Stewart Enterprises Inc. (STEI)

Q4 2010 Earnings Call

December 16, 2010 11:00 AM ET

Executives

Leslie Loyet – Financial Relations Board

Tom Crawford – President and CEO

Tom Kitchen – Senior Executive Vice President and CFO

Analysts

Clint Fendley – Davenport

A.J. Rice – Susquehanna Financial

Jamie Clement – Sidoti & Company

Richard Innes – JC Clark Limited

Katherine Spurlock – Rice Voelker

Nicholas Jansen – Raymond James & Associates

Presentation

Operator

Please standby. Good day, everyone. And welcome to today’s Stewart Enterprises Incorporated Fourth Quarter and Year End 2010 Earnings Conference Call. As a reminder, today’s call is being recorded. At this time, participants are in a listen-only mode. Later, we will conduct a question-and-answer session and 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. Good morning, everyone. On behalf of Stewart Enterprises, I’d like to welcome everyone. By now you should have received a copy of the press release. If not, please visit Stewart’s website at www.stewartenterprises.com for a copy. Management will provide an overview of the fourth quarter and fiscal 2010 year, and then we’ll open the call to your questions.

Before I turn the call over to management, please be advised 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, 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 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, 2010.

The company uses adjusted earnings, EPS, EBITDA, net debt 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 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 December 15, 2010.

With that said, I’d like to introduce management of Stewart Enterprises. On the line today, 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. And welcome to all who are joining us on the call today, we do thank you for spending time with us. Now, I’m going to lateral this over to Tom Kitchen pretty quickly for more detailed analysis of the quarter, but before I do that, just in general observations or comments that I’d like to make in relation to the progress on the quarter and the year.

As you read in the press release, we generated a strong and positive result for the quarter, despite continued sluggish debt in the markets and the uncertain economy that we are in. Regardless of those two caveats, it continues to be our intent to produce increasingly greater gains in the bottom line from small improvements in the topline. This intent was first -- further evidenced by the results of the fourth quarter.

Revenues for the quarter increased by 1.3% over the previous year, by stronger management of our field cost, through better systems and controls, overall segment cost declined by almost 3%, which in turn allowed the company to generate a 22% growth in gross margin.

And as we’ve done throughout the year, corporate overhead was reduced by 6%, compared to the same period of the previous year, which then contributed to a growth an operating income of 38%. Through the key one of the impact of the repurchase of our debt, interest expense was less by 9%, which further contribute to our growth in pre-tax income, which grew by 65%.

Of course, the magnitude of the expansion of our margin is also driven by the fact that 2009 was a difficult year. With that said, it’s also important to remember that while 2009 was a difficult year, we were seeing positive improvement in the fourth quarter which gave us encouragement going into 2010.

Looking forward, while the future progression and margins will not be as large as they are in the fourth quarter of 2010, we expect to see from the directional standpoint the same kind of results and trends, that is small changes in the topline performance will yield progressively greater growth towards the bottom line.

As you read in the release, revenues for our funeral segment were flat compared to 2009. Revenues were impacted by a decline in our total case volume of 3.3% compared to last year. However, from the data we have our performance to be in line with conditions in our markets. Additionally, as we look at our case volume compared to market data, we see that it tends to have been flow on the quarter-to-quarter basis.

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