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Stewart Enterprises (STEI)

Q2 2011 Earnings Call

June 09, 2011 11:00 am ET

Executives

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

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

Leslie Loyet - Vice President of Chicago Office

Analysts

Albert Rice - Susquehanna Financial Group, LLLP

Robert Willoughby

Presentation

Operator

Good day, everyone, and welcome to today's Stewart Enterprises Inc. Second Quarter 2011 Earnings Conference Call. As a reminder, today's call is being recorded. [Operator Instructions] I would now like to turn the conference over to Leslie Loyet of the Financial Relations Board. Please go ahead, Leslie.

Leslie Loyet

Thank you, Sarah. Good morning, everyone. 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 Stewart's website at www.stewartenterprises.com. 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 the 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 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 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, 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 supersede any information presented in accordance with GAAP. Reconciliation to the most directly comparable GAAP financials 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, 2011.

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

Thomas Kitchen

Good morning, and thank you for joining us on the call today. I want to start by saying we believe we made significant progress in the second quarter, as indicated by several of the key metrics of the company's performance. For example, during the quarter, we experienced increases in same-store calls, average revenue for our funeral service and cemetery property sales, which generated an improvement in overall revenue, gross profit and earnings compared to the same period of last year.

We achieved a 19% increase in earnings to $10 million and a 22% increase in earnings per share to $0.11. After adjusting for our current period tax valuation allowance and a charge for the early extinguishment of debt, we reported a slight increase in adjusted net earnings to $9.2 million, and adjusted earnings per share remained at $0.10.

To highlight our funeral performance for the quarter, we increased our average revenue per funeral service and same-store calls, which generated a 3% increase in general revenue and a 7% increase in funeral gross profit compared to the same period of last year. We believe this demonstrates the value of leverage in our business.

While we experienced nearly a 7% decrease in preneed funeral sales compared to the second quarter of last year, we did see a 26% increase in preneed sales compared to the first quarter of this year. We remain committed to preneed funeral sales and believe the strong emphasis we place on preneed is important to the company's long-term potential and helps maintain and expand market share.

We continue to be encouraged by our cemetery property sales, which increased 6% compared to the second quarter of last year and 14% from the first quarter of 2011. The improvement in cemetery property sales was offset by a decrease in the completion of various cemetery projects during the quarter, resulting in a slight decrease in cemetery revenue and gross profit.

We have positive trust performance for the quarter, with a 4.5% overall return, which helped generate a 12% total return for the trailing 12 months. We also improved our capital structure by significantly extending our debt maturity profile at favorable terms. Lew will provide more details related to the transactions later in the call.

We have continued to repurchase our common stock in the open market during the first 6 months of 2011. We have purchased 1.5 million shares for $9.4 million. It's interesting to note, for the last several years, we have repurchased nearly 22 million shares of our common stock for approximately $157 million, resulting in a 20% decrease in total shares outstanding.

In addition, and over the same timeframe, the company reduced its outstanding debt by 21% or $87 million. After this initial deployment of nearly $250 million of free cash flow, I'm pleased to report we had approximately $79 million of cash on hand as of April 30, which is nearly 20% higher than our cash balance at October 31.

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