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Stewart Enterprises (STEI)

Q3 2011 Earnings Call

September 08, 2011 11:00 am ET


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

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


James Clement - Sidoti & Company, LLC

John Ransom - Raymond James & Associates, Inc.

Robert Willoughby

Albert Rice - Susquehanna Financial Group, LLLP



Good day, and welcome to the Stewart Enterprises Incorporated Third Quarter 2011 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Marilyn Meek. Ms. Meek, the floor is yours, ma'am.

Thank you, operator. 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 Management will provide an overview of the third quarter, and then we'll open up the call to your questions.

The information contained in this call is current only at 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 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 the 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, adjusted 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 measures can be found on the company's website, at under Investor Information, Reconciliation of Non-GAAP Financial Measures, and can also be found in the company's press release dated September 7, 2011.

With that said, I'd like to introduce the 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

Thank you, Marilyn. Good morning and thank you for joining us on the call today. I'll offer a few summary comments and then we'll turn the call over to Lew for him to cover the financial performance in more detail before opening up for some Q&A.

At the outset, I'm pleased to note that some of the more significant items reflected in the third quarter include: realizing increases in both same-store funeral calls and average revenue per call for the third consecutive quarter, producing the highest quarterly property sales in 3 years of nearly $26 million; generating significant positive operating cash flow of nearly $25 million, which is an increase of approximately 10%; and favorably settling our outstanding litigation related to Hurricane Katrina for some $12.4 million.

In the quarter, we reported net earnings of $12 million and $0.13 per share, compared to $6 million or $0.06 per share for the third quarter of last year. Excluding the impact of the litigation settlement and a tax valuation charge, we achieved a 9.5% increase in adjusted net earnings or adjusted $0.07 per share. This performance is a reflection of our underlying core operations, as shown by the more than $2 million increase in funeral revenue, which is due primarily to increases in both the average revenue per call and the overall increase in the number of funerals performed. Based upon the data we review, we believe our funeral call performance appears to be tracking slightly ahead in the markets that we serve, which is an indication of an overall increase in market share. We also saw a 3% increase in net preneed funeral sales compared to the same quarter of last year and a 7% increase compared to the second quarter of this year.

On the cemetery side, I mentioned, we've produced some $26 million in cemetery property sales, which is impressive in light of declining consumer confidence in the overall economy. We also recently announced some organizational changes, which we believe will better integrate our operations and sales activities and improve our ability to implement market-specific initiatives more effectively, particularly in the area of preneed sales. Preneed sales are important to the company's long-term potential and help maintain and build market share.

During the quarter, our board increased our annual cash dividend from $0.12 to $0.14 per share, which helped to return almost $9 million to our shareholders so far this year. It's the board's intention to periodically reevaluate the company's dividend policy for potential increases in the future.

I'm also pleased to report that during the third quarter, our board increased our share repurchase plan by an additional $25 million. So for this year, we have purchased over 3 million shares for approximately $20 million. In total, over the last 6 years, we have repurchased over 23 million shares of our common stock for $167 million, resulting in a 21% decrease in total shares outstanding. In addition, over that same timeframe, we have reduced the face value of our outstanding debt by 21% or some $87 million. We believe the board's decision to increase both the share repurchase program, as well as the cash dividend reflects our continued confidence in the company's financial condition and our ability to consistently generate strong, positive cash flow.

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