Service Corporation International (SCI) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reflects strong financial performance, with increased cash flow guidance, revenue and margin growth, and a solid acquisition pipeline. The Q&A highlights confidence in sustaining growth trends and EPS targets. Despite some uncertainties in cremation growth and SCI Direct, the overall sentiment is positive due to strong financial metrics and strategic initiatives. The absence of negative factors such as guidance cuts or margin declines further supports a positive outlook.
Key Financial Performance
Adjusted Earnings Per Share (EPS) $0.87, which is more than 10% increase compared to the $0.79 in the prior year period. The increase was driven by impressive increases in cemetery revenue and gross profit, lower corporate, general and administrative expenses, partially offset by slightly lower funeral revenues and gross profits.
Comparable Funeral Revenue Declined by almost $2 million or less than 1% compared to the prior year quarter. The decline was primarily due to a 3.5% decrease in core funeral services performed, partially offset by a 3% increase in the core average revenue per service.
Non-Funeral Home Revenue Increased by $3 million, primarily due to a 13.4% increase in the average revenue per service.
Non-Funeral Home Preneed Sales Revenue Decreased by $4.6 million, primarily due to the decision to stop delivering preneed merchandise at the time of sale.
Funeral Gross Profit Decreased by $9.5 million, while the gross profit percentage declined by 170 basis points to about 18%. The decrease was due to a slight decline in revenues, higher selling costs, and a moderate fixed cost increase.
Preneed Funeral Sales Production Increased by $6 million or about 2% over the third quarter of 2024. Core preneed funeral sales production increased by $20 million or 9%, driven by growth in both insurance and trust-funded sales production.
Comparable Cemetery Revenue Increased by $31 million or almost 7%. The increase was driven by a $27.5 million rise in core revenue and a $3.5 million increase in other revenue, primarily internal care fund trust income.
Cemetery Gross Profit Grew by $18 million, and the gross profit percentage increased by 160 basis points, generating an operating margin percentage of 34%. The growth was primarily due to strong growth in cemetery revenues.
Adjusted Operating Cash Flow $268 million in the quarter, neutralizing for an expected $11 million of higher cash taxes. Adjusted operating cash flow increased $10 million from the prior year, supported by higher operating income of about $14 million and lower cash interest by $13 million.
Capital Investment $140 million in the quarter, including $86 million in maintenance capital, $17 million in growth capital, and $37 million in business acquisitions.
Capital Distributions to Shareholders $123 million in the quarter, including $45 million in dividends and $78 million in share repurchases.
Corporate G&A Expense Decreased by $5.4 million quarter-over-quarter, primarily due to timing of incentive compensation accruals.
Liquidity Ended the quarter with liquidity of just under $1.5 billion, consisting of about $240 million of cash on hand and approximately $1.2 billion available on the long-term bank credit facility.
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Operating Highlights
Preneed Merchandise Delivery Decision: In 2024, SCI decided to no longer deliver preneed merchandise at the time of sale, which is expected to result in compounded growth in non-funeral home average revenue per service in the coming years.
Insurance-Funded Preneed Product Transition: SCI transitioned from selling trust-funded preneed products to insurance-funded preneed products, which has required extensive training and licensing for sales counselors.
Cemetery Revenue Growth: Comparable cemetery revenue increased by $31 million or almost 7%, driven by higher property revenue and merchandise and services revenue.
Preneed Cemetery Sales Production: Comparable cemetery preneed sales production grew by $30 million or almost 10%, with large sales increasing by 19% and core sales contributing $22 million.
Cost Management: Fixed costs were managed below inflationary trends, with a 1.4% increase for the quarter.
Cash Flow and Capital Investment: Adjusted operating cash flow was $268 million, with $140 million invested in maintenance and growth capital, including cemetery development and new funeral homes.
Share Repurchase Program: SCI repurchased 5.1 million shares year-to-date, returning $538 million to shareholders, with $410 million remaining in share repurchase authorization.
Debt Management: Leverage reduced to 3.6x net debt to EBITDA, with liquidity of $1.5 billion, supporting long-term investments and shareholder returns.
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Risk or Challenges
Funeral Revenue Decline: Total comparable funeral revenue declined by almost $2 million or less than 1% compared to the prior year quarter, primarily due to a 3.5% decrease in core funeral services performed.
Higher Tax Rate Impact: The higher tax rate due to the nondeductibility of certain excess tax benefits from the settlement of stock option awards negatively impacted earnings per share by $0.02.
Non-Funeral Home Preneed Sales Revenue Decline: Non-funeral home preneed sales revenue decreased by $4.6 million due to the decision to stop delivering preneed merchandise at the time of sale, which is expected to continue until late 2026.
Funeral Gross Profit Decline: Funeral gross profit decreased by $9.5 million, with the gross profit percentage declining by 170 basis points to about 18%, driven by higher selling costs and moderate fixed cost increases.
Transition to Insurance-Funded Preneed Contracts: The transition from trust-funded to insurance-funded preneed contracts caused a temporary reduction in the number of contracts written, leading to a $14 million or 20% decrease in non-funeral home preneed sales production.
Corporate G&A Variability: Corporate G&A expenses decreased by $5.4 million due to timing of incentive compensation accruals, but variability in long-term incentive compensation plans could push expenses above or below expected ranges in future quarters.
Cash Taxes Increase: Cash taxes increased significantly to $135 million for 2025, up from $20 million in 2024, creating a headwind for cash flow.
Lower General Agency Revenue: Core general agency revenues are expected to slightly decline due to lower average commission rates from noninsured flex products in certain markets.
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Guidance & Outlook
Earnings Per Share (EPS) Guidance: The company is confirming the midpoint of its normalized EPS guidance for 2025, narrowing the range to $3.80 to $3.90. For Q4 2025, the normalized EPS range is projected to be $1.09 to $1.19.
Funeral Segment Outlook: Volumes are expected to range from slightly down 1% to slightly up 1% for Q4 2025, with 12-month volume for 2025 slightly below flat. Sales averages are expected to continue solid growth. Modest funeral revenue and gross profit growth are anticipated compared to Q4 2024.
Cemetery Segment Outlook: Low to mid-single-digit cemetery preneed sales production growth is expected, with a slightly muted effect on recognized cemetery revenue growth. Overall, flat to low single-digit revenue growth is anticipated, resulting in flat to slightly down gross profits compared to Q4 2024.
2026 Projections: The company expects favorable trends in funeral volume, funeral average, SCI Direct, preneed cemetery sales, and lower interest rates. Earnings per share growth is projected within the long-term growth framework of 8% to 12%.
Cash Flow Guidance: Adjusted operating cash flow guidance for 2025 has been updated to $910 million to $950 million, with a midpoint of $930 million. Adjusted free cash flow is expected to be $615 million, approximating $4.40 per share.
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Shareholder Return Plan
Dividends paid in Q3 2025: $45 million
Year-to-date dividends paid: $135 million
Share repurchases in Q3 2025: $78 million (just under 1 million shares at an average price of $79)
Year-to-date share repurchases: 5.1 million shares at an average price of $78, totaling $400 million
Remaining share repurchase authorization: $410 million
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Key Q&A
Q:Could you discuss how velocity trended in this quarter on a year-on-year basis versus last quarter? What does this mean for the consumer, and can this trend be sustained into next year?
A:Velocity showed great growth in the quarter, with large sales up almost 18%. The primary growth came from the core, driven by good sales management, flexible financing plans, and lead generation. Management feels confident about sustaining this trend into the fourth quarter and 2026.
Q:Are you targeting your typical 8% to 12% EPS growth range for next year? What is your confidence level in achieving that, and is there anything unique on the cash flow side for next year?
A:Management is 85%-90% confident in achieving the 8%-12% EPS growth range, citing historical growth of 14% compounded over time. Cash flow from operations is expected to grow at a 4%-6% CAGR, with some variability due to cash taxes. Free cash flow is projected to be over $4.25 per share.
Q:How should we think about cemetery preneed sales growth next year? Is mid-single-digit growth reasonable?
A:Management expects low to mid-single-digit growth for cemetery preneed sales, with large sales being more volatile. Cremation consumers represent a high-growth opportunity, and efforts are being made to educate them about available options.
Q:Could cremation consumer growth add a point of growth per year?
A:Yes, cremation consumer growth could add a point of growth per year. Management is focusing on educating cremation consumers about available options, which could drive more sales and future leads.
Q:Can you talk about sales trends at your largest location, Rose Hills?
A:Rose Hills had a very successful quarter with double-digit growth. Management expects it to remain a significant growth driver into 2026 and beyond.
Q:Do you have confidence in extending low expense growth into 2026? Are there any areas of pressure?
A:Management is confident in managing low expense growth, with staffing metrics being a key lever. Cemetery maintenance costs, such as water and labor, have seen some pressure, but strategies are in place to manage these costs.
Q:How does customer awareness of cemetery options compare to cremation options, and how quickly can change be affected?
A:Cemetery options are more familiar to burial customers, while cremation options are less known. Management is working to increase awareness through web visibility, in-lobby displays, and training. Change is expected to happen quickly but will vary by location.
Q:Why was the noninsured flex product introduced on the West Coast?
A:The noninsured flex product was introduced to meet consumer affordability needs in markets like California. It acts like a trust product without insurance protection, making it more affordable for some consumers.
Q:Should funeral volumes trend slightly up next year, and what impact does this have on preneed cemetery sales?
A:Funeral volumes are expected to trend slightly up, positively impacting preneed cemetery sales. Approximately 55% of funeral volume leads to preneed cemetery sales, which should support growth.
Q:Will SCI Direct's insurance transition lead to a return to pre-transition production levels?
A:SCI Direct's production is expected to grow off the new base in 2026, but returning to pre-transition levels will take a couple of years. Management is addressing sales force turnover and licensing challenges.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the exact impact of cremation consumer growth on overall sales and the timeline for achieving pre-transition production levels for SCI Direct.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Assistant Vice
Atlantic insurance
Coast market
Declines margin
Global Atlantic
Non home
President Treasury
Relations AVP
Relations Treasury
SCI Assistant
Treasury Investor
Treasury Welcome
Welcome remark
ability product
agency conversion
agency portion
agency preneed
cemetery preneed
contract value
date
decision preneed
effect
home preneed
increase service
insurance preneed
merchandise sale
preneed cemetery
preneed contract
preneed funeral
preneed merchandise
preneed product
preneed sale
production sale
rate share
revenue
sale average
selling
share tax
trust preneed
value backlog
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Service Corporation International (SCI) Q3 2025 Earnings Call Transcript
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The earnings call reflects strong financial performance, with increased cash flow guidance, revenue and margin growth, and a solid acquisition pipeline. The Q&A highlights confidence in sustaining growth trends and EPS targets. Despite some uncertainties in cremation growth and SCI Direct, the overall sentiment is positive due to strong financial metrics and strategic initiatives. The absence of negative factors such as guidance cuts or margin declines further supports a positive outlook.
SCI Slides
SCI Report
Frequently Asked Questions
Where does this earnings call transcript come from?
All transcripts are sourced directly from the official live webcast or the company’s official investor relations website. We use the exact words spoken during the call with no paraphrasing of the core discussion.
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They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
