Service Corporation International SCI appears poised for growth due to strength in its Cemetery segment and its focus on expansion. Shares of this provider of deathcare products and services have risen 9.1% in the past six months compared with the industry’s growth of 5.7%.
Cemetery Unit Strength
Service Corporation has been seeing a rise in Cemetery segment revenues for a while now. In the first quarter of 2024, consolidated Cemetery revenues came in at $440.6 million, up from $419 million reported in the year-ago quarter. Comparable cemetery revenues rose 5%. The upside was mainly caused by increased core revenues to the tune of $18.9.
Further, core revenues jumped due to growth in total recognized preneed revenues, partially hurt by reduced atneed revenues. Comparable preneed cemetery sales production rose 7.8% due to continued strength in large sales activity, along with a higher core production sales average. The continuation of these trends bodes well.
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Expansion on Track
The company remains focused on making capital investments to strengthen its network, as part of which it is investing in its current funeral locations, and renovating and updating its venues to establish a more contemporary setup. During the first quarter of 2024, the company invested $103 million in enhancements to its existing funeral homes and cemeteries, new growth opportunities and future real estate expansions. Breaking this down further, we note that the company invested around $70 million for maintenance capital expenditure.
The company is also elevating its cemetery inventory options with casketed as well as cremation consumers to house a diverse customer base. On its first-quarterearnings call management stated that its acquisition pipeline is solid. The company continues to increase market share opportunities through the construction of new funeral home facilities and the creation of new cemeteries in its existing high-growth areas.
Management expects total maintenance capital expenditures of $325 million for 2024, which includes investments in funeral and cemetery facilities, cemetery development projects, digital strategies and other corporate investments. Service Corporation intends to be at the upper end of its $75-$125 million acquisition goal during 2024.
Is It All Rosy for SCI?
Service Corporation’s Funeral unit sales have been declining year over year for the past few quarters. In the first quarter of 2024, consolidated Funeral revenues came in at $604.7 million in the quarter, down from the $609.7 million reported in the year-ago period. Total comparable funeral revenues fell 1.4%, mainly due to lower non-funeral home preneed sales revenues, partly offset by higher funeral core revenues.
Non-funeral home preneed sales revenues tumbled 29.9%, mainly on account of operational changes in select markets due to the timing of merchandise deliveries. Comparable preneed funeral sales production fell 2.4%. Core preneed sales production declined by 3.1% due to lower contract velocity compared to solid prior-year results. Also, increased annual incentive compensation costs are a concern.
That said, on its lastearnings call this Zacks Rank #3 (Hold) company stated that it expects year-over-year EPS growth in each of the subsequent quarters in 2024, driven by increased profitability in both funeral and cemetery segments. Service Corporation expects adjusted earnings per share (EPS) in the $3.50-$3.80 range in 2024. We note that the company’s earnings came in at $3.47 per share in 2023.
What to Expect in Q2?
Service Corporation looks well-placed for the second-quarter earnings release, which is scheduled for Jul 31. The Zacks Consensus Estimate for EPS has remained unchanged over the past 30 days at 86 cents, which suggests growth of 3.6% from the year-ago period’s reported figure. The consensus mark for revenues stands at $1.01 billion, almost in line with the year-ago period.
3 Solid Staple Bets
Freshpet, Inc. FRPT, a pet food company, has a trailing four-quarter earnings surprise of 118.2%, on average. FRPT currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings indicates growth of 24.8% and 177.1%, respectively, from the prior-year reported level.
BRF BRFS, which engages in raising, producing and slaughtering poultry and pork for processing, production and sale of fresh meat, processed products, pasta, margarine, pet food and other products, currently sports a Zacks Rank #1.
The Zacks Consensus Estimate for BRF’s current financial-year sales and earnings suggests growth of 7.5% and 210%, respectively, from the year-ago reported figures.
Vital Farms VITL, which provides pasture-raised products, currently sports a Zacks Rank #1. The Zacks Consensus Estimate for Vital Farms’ current financial-year sales and earnings indicates growth of 22.6% and 64.4%, respectively, from the prior-year reported level.
VITL has a trailing four-quarter average earnings surprise of 102.1%.
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