Service Corporation International (SCI)

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Service Corporation International (SCI)

Q4 2010 Earnings Call

February 10, 2011 10:00 am ET

Executives

Debbie Young - Director, Investor Relations

Thomas L. Ryan - President and Chief Executive Officer

Eric D. Tanzberger - Senior Vice President, Chief Financial Officer and Treasurer

Analysts

Clinton D. Fendley - Davenport & Company

John Ransom - Raymond James

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2010 Service Corporation International Earnings Conference Call. My name is Eva and I will be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer towards the end of the conference. (Operator Instructions)

I would now like to turn the call over to SCI management. Please proceed.

Debbie Young

Good morning and welcome. This is Debbie Young, Director of Investor Relations at SCI. We’re here today to talk about our fourth quarter and year-end results.

In our comments we’re going to make some statements that are not historical facts and are forward-looking. These are based on assumptions that we believe are reasonable. However, there are many important factors that could cause our actual results in the future to differ materially from these forward-looking statements. For more information related to these statements and other risk factors, please review our periodic filings with the SEC that are available on our website at sci-corp.com.

Also today on the call we may use terms such as normalized EPS or normalized cash flows. These of course are non-GAAP financial terms. Please see our press release and 8-K that were issued yesterday where we had provided a detailed reconciliation for each of these measures to the appropriate GAAP term.

With that, I’ll turn the call over to President and CEO, Tom Ryan.

Thomas L. Ryan

Thank you, Debbie. And thanks everybody for being on the call today. I want to apologize in advance if my voice sounds little funny. I’ve got a cold, so if I sound little strange, that's the reason why. Welcome to the call today. And we’re going to give an overview of the quarter, talk about funeral operations, cemetery and get into the guidance for 2011.

We finished the year strong as you can see for the fourth quarter with excellent performance. We exceeded both the external and our internal expectations. Both earnings and cash flows result exceeded the guidance that we gave you guys back in October. Normalized earnings per share were $0.18 versus $0.14 in the prior quarter. So growth was $0.04 or about 29%. The quarter-over-quarter improvement is primarily driven by three things.

First, the acquisition contributions from Keystone and Palm Mortuary, which we anticipated and delivered as we would have expected. In addition, I think this one was somewhat surprising, higher cemetery premium sales productions. We’re comparing against a very difficult Q4 2009, I think it had some concerns about repeat performance. Not only do we do that, but we exceeded that by a healthy margin and hats off to our sales organization for that.

And lastly, lower corporate overhead expenses. Again, we managed some of these expenses down that helped deliver the profits for the quarter. So we exceeded the high end of the guidance again by $0.04, as we experienced better than expected funeral volumes, this is really against out expectations versus prior year. We were only down 0.5% in volume, which somewhat surprised us. And a lot of that occurred in late November and into December.

Again, our cemetery sales production was high, lower corporate overhead costs and higher cemetery trust fund income in the quarter than we would have anticipated.

Now I’m going to shift to funeral operations. In the fourth quarter, comparable funeral revenues increased 1.4% or $355 million. Driving that increase, first of all, was our GA revenue, these are the General Agency gain that we get for selling preneed insurance. That grew by $1.1 million or 7.6% on increased insurance production this year's quarter over last year's quarter.

In addition, I touched on this earlier, our same-store volume was down 0.5% for the quarter. So not something that we are excited and want to stop at, we’d love to see that number be a comparable gain, but again better than we expected, better than the trends that we’ve seen, again a lot of it occurred with this cold weather snaps in late November through December. While still down, we are very encouraged best comparison we had in some time.

For the year, same-store volumes were down 1.9% and about where we expected them to be. The call for next year in the 2011 guidance, we are assuming that we are going to experience similar volume declines in the low to mid single digit range, as again, this is the trend we have experienced over the last five to seven years. We believe some day that this will reverse itself, we just, again, aren't going to be in the prediction business of trying to tell you when that’s going to occur.

In the fourth quarter also, shifting to funeral average, we grew our average of 1.7%. This takes into account flat trust fund income and a positive Canadian currency effect. When you exclude that Canadian currency effect in the trust fund income, we grew our atneed average 1.3%. This is slightly lower than our expectations, but right at around it.

Some of the drivers for why we are not achieving the average revenue per case as we would like is in the cremation mix and not in the shift itself, our overall cremation mix for the quarter moved 50 basis points to 41.7%. So again not surprising to us, but the thing that was surprising and this happened last quarter is the shift that we are seeing from cremation with service to direct cremation.

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