HOUSTON, July 26, 2017 /PRNewswire/ -- Service Corporation
International (NYSE: SCI), the largest provider of deathcare
products and services in North
America, reported results for the second quarter of 2017.
Our unaudited consolidated financial statements can be found at the
end of this press release. The table below summarizes our key
financial results:
(In millions,
except for per share amounts)
|
Three Months
Ended
June 30,
|
|
Six Months Ended
June
30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Revenue
|
$
|
773.2
|
|
|
$
|
751.4
|
|
|
$
|
1,551.0
|
|
|
$
|
1,500.6
|
|
Operating
income
|
$
|
143.6
|
|
|
$
|
94.5
|
|
|
$
|
283.2
|
|
|
$
|
218.2
|
|
Net income
attributable to common stockholders
|
$
|
68.5
|
|
|
$
|
15.6
|
|
|
$
|
243.2
|
|
|
$
|
63.1
|
|
Diluted earnings per
share
|
$
|
0.36
|
|
|
$
|
0.08
|
|
|
$
|
1.26
|
|
|
$
|
0.32
|
|
Earnings excluding
special items(1)
|
$
|
67.5
|
|
|
$
|
55.8
|
|
|
$
|
140.5
|
|
|
$
|
111.1
|
|
Diluted earnings per
share excluding special items(1)
|
$
|
0.35
|
|
|
$
|
0.28
|
|
|
$
|
0.73
|
|
|
$
|
0.56
|
|
Diluted weighted
average shares outstanding
|
192.1
|
|
|
196.7
|
|
|
192.5
|
|
|
197.5
|
|
Net cash provided by
operating activities
|
$
|
35.8
|
|
|
$
|
40.8
|
|
|
$
|
224.2
|
|
|
$
|
225.5
|
|
Net cash provided by
operating activities excluding special
items(1)
|
$
|
76.3
|
|
|
$
|
68.7
|
|
|
$
|
264.7
|
|
|
$
|
258.6
|
|
|
|
(1)
|
Earnings excluding
special items, diluted earnings per share excluding special items,
and net cash provided by operating activities excluding special
items are non-GAAP financial measures. These items are also
referred to as "adjusted earnings per share" and "adjusted
operating cash flow". A reconciliation from net income attributable
to common stockholders, diluted earnings per share, and net cash
provided by operating activities computed in accordance with
generally accepted accounting principles in the United States
(GAAP) can be found later in this press release under the headings
"Cash Flow and Capital Spending" and "Non-GAAP Financial
Measures".
|
Quarterly Highlights:
- Diluted earnings per share were $0.36 in the second quarter of 2017 compared to
$0.08 in the second quarter of 2016.
The second quarter of 2016 was negatively impacted by losses on
business dispositions and losses on the early extinguishment of
debt. Diluted earnings per share excluding special items was
$0.35 in the second quarter of 2017
compared to $0.28 in the second
quarter of 2016. The increase in diluted earnings per share
excluding special items was primarily driven by higher operating
profits led by a double-digit increase in cemetery revenue. These
results were also bolstered by effective cost management, a lower
tax rate, and fewer shares outstanding resulting from our ongoing
share repurchase program.
- Net cash provided by operating activities was $35.8 million in the second quarter of 2017
compared to $40.8 million in the
second quarter of 2016. The second quarter of 2016 was impacted by
system transition costs and excess tax benefits from share-based
awards, and premiums paid on early extinguishment which reduced
cash provided by operating activities. The second quarter of 2017
was impacted by an IRS tax settlement payment and a pension
settlement payment. Net cash provided by operating activities
excluding special items in both periods as noted above was
$76.3 million in the second quarter
of 2017 compared to $68.7 million in
the prior year quarter. The cash flow generated from earnings
growth in the second quarter of 2017 was partially offset by higher
expected recurring cash tax payments.
- During the second quarter, we returned $64.7 million to shareholders through a
combination of share repurchases and dividends and deployed
$22.1 million of capital primarily to
accretive acquisitions and the construction of new funeral
homes.
Tom Ryan, the Company's
Chairman and Chief Executive Officer, commented on the second
quarter of 2017:
"We are pleased to deliver another solid quarter reporting a 25%
increase in adjusted earnings per share and an 11% increase in
adjusted operating cash flow. Growth in cemetery revenue, effective
funeral and cemetery cost management and a lower tax rate were the
primary drivers of our double-digit adjusted EPS growth in the
quarter. As a result of our strong performance in the first half of
2017, we are increasing our full year guidance for both adjusted
earnings per share and adjusted operating cash flow to $1.42 to $1.52 per share and $480 million to $520 million, respectively. I
would like to thank all 23,000 associates as these results could
not have been achieved without the hard work and dedication of our
entire team. In the second half of the year, we will continue to
focus on growing our revenues by remaining relevant with the
consumer, driving future market share by growing our preneed sales,
continuing to leverage our increasing scale and deploying capital
to enhance shareholder value."
OUTLOOK FOR 2017
Our revised outlook for Diluted earnings per share from
continuing operations excluding special items is anticipated to
exceed our expected long-term growth framework of 8%-12% after
special items in 2016 and also includes an additional two cent benefit in the back half of the year
from tax benefits recognized on the anticipated settlement of
employee share-based awards. Additionally, our updated
outlook for Net cash provided by operating activities excluding
special items reflects expected cash tax payments of $140
million to $145 million, which is
approximately $10 million lower than
our original expectations.
Our revised outlook for potential earnings and cash flow in 2017
is as follows:
(In millions,
except per share amounts)
|
Original 2017
Outlook
|
|
Revised 2017
Outlook
|
Diluted earnings per
share excluding special items (Adjusted
EPS)(1)
|
$1.29 to
$1.43
|
|
$1.42 to
$1.52
|
Net cash provided by
operating activities excluding special items (Adjusted Operating
Cash Flow)(1)
|
$465 to
$505
|
|
$480 to
$520
|
Capital improvements
at existing facilities and cemetery development
expenditures
|
Approximately
$180
|
|
Approximately
$180
|
|
|
(1)
|
Diluted earnings per
share excluding special items and Net cash provided by operating
activities excluding special items are non-GAAP financial measures.
We normally reconcile these non-GAAP financial measures from
diluted earnings per share and net cash provided by operating
activities; however, diluted earnings per share and net cash
provided by operating activities calculated in accordance with GAAP
are not currently accessible on a forward-looking basis. Our
outlook for 2017 excludes the following because this information is
not currently available for 2017: Gains or losses associated with
asset divestitures, gains or losses associated with the early
extinguishment of debt, potential tax reserve adjustments and IRS
settlement payments, acquisition and integration costs, system
implementation and transition costs, and potential costs associated
with settlements of litigation or the recognition of receivables
for insurance recoveries associated with litigation. The foregoing
items, especially gains or losses associated with asset
divestitures and potential tax reserve adjustments, could
materially impact our forward-looking diluted EPS and/or our net
cash provided by operating activities calculated in accordance with
GAAP, consistent with the historical disclosures found in this
press release under the headings "Cash Flow and Capital Spending"
and "Non-GAAP Financial Measures".
|
REVIEW OF RESULTS
FOR SECOND QUARTER 2017
|
|
Consolidated
Segment Results
(See
definitions of revenue line items later in this earnings
release.)
|
|
(In millions,
except funeral services performed and average revenue per
service)
|
Three Months
Ended
June 30,
|
|
Six Months
Ended
June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Funeral:
|
|
|
|
|
|
|
|
Atneed
revenue
|
$
|
249.1
|
|
|
$
|
260.4
|
|
|
$
|
520.9
|
|
|
$
|
537.9
|
|
Matured preneed
revenue
|
138.3
|
|
|
130.8
|
|
|
290.1
|
|
|
270.2
|
|
Core revenue
|
387.4
|
|
|
391.2
|
|
|
811.0
|
|
|
808.1
|
|
Non-funeral home
revenue
|
11.7
|
|
|
10.7
|
|
|
24.0
|
|
|
22.1
|
|
Recognized preneed
revenue
|
30.2
|
|
|
29.3
|
|
|
62.2
|
|
|
58.3
|
|
Other
revenue
|
29.6
|
|
|
35.9
|
|
|
60.4
|
|
|
70.8
|
|
Total
revenue
|
$
|
458.9
|
|
|
$
|
467.1
|
|
|
$
|
957.6
|
|
|
$
|
959.3
|
|
|
|
|
|
|
|
|
|
Operating
profit
|
$
|
92.1
|
|
|
$
|
89.4
|
|
|
$
|
204.7
|
|
|
$
|
196.6
|
|
Operating margin
percentage
|
20.1
|
%
|
|
19.1
|
%
|
|
21.4
|
%
|
|
20.5
|
%
|
|
|
|
|
|
|
|
|
Funeral services
performed
|
75,566
|
|
|
75,638
|
|
|
158,484
|
|
|
157,836
|
|
Average revenue per
service
|
5,281
|
|
|
$
|
5,313
|
|
|
5,269
|
|
|
5,260
|
|
|
|
|
|
|
|
|
|
Cemetery:
|
|
|
|
|
|
|
|
Atneed
revenue
|
$
|
80.5
|
|
|
$
|
79.1
|
|
|
$
|
162.1
|
|
|
$
|
156.7
|
|
Recognized preneed
revenue
|
208.2
|
|
|
179.8
|
|
|
386.1
|
|
|
333.2
|
|
Core revenue
|
288.7
|
|
|
258.9
|
|
|
548.2
|
|
|
489.9
|
|
Other
revenue
|
25.7
|
|
|
25.4
|
|
|
45.1
|
|
|
51.4
|
|
Total
revenue
|
$
|
314.4
|
|
|
$
|
284.3
|
|
|
$
|
593.3
|
|
|
$
|
541.3
|
|
|
|
|
|
|
|
|
|
Operating
profit
|
$
|
91.4
|
|
|
$
|
72.6
|
|
|
$
|
155.9
|
|
|
$
|
128.3
|
|
Operating margin
percentage
|
29.1
|
%
|
|
25.5
|
%
|
|
26.3
|
%
|
|
23.7
|
%
|
Comparable Funeral Results
The table below details comparable funeral results of operations
("same store") for the three months ended June 30, 2017 and 2016. We consider comparable
operations to be those owned for the entire period beginning
January 1, 2016 and ending June 30, 2017.
(Dollars in
millions, except average revenue per service and average revenue
per contract sold)
|
|
Three Months Ended
June 30,
|
|
|
2017
|
|
2016
|
|
$
|
|
%
|
Comparable
revenue:
|
|
|
|
|
|
|
|
|
Atneed
revenue(1)
|
|
$
|
244.1
|
|
|
$
|
253.9
|
|
|
$
|
(9.8)
|
|
|
(3.9)
|
%
|
Matured preneed
revenue(2)
|
|
136.2
|
|
|
128.2
|
|
|
8.0
|
|
|
6.2
|
%
|
Core
revenue(3)
|
|
380.3
|
|
|
382.1
|
|
|
(1.8)
|
|
|
(0.5)
|
%
|
Non-funeral home
revenue(4)
|
|
11.7
|
|
|
10.7
|
|
|
1.0
|
|
|
9.3
|
%
|
Recognized preneed
revenue(5)
|
|
30.2
|
|
|
29.1
|
|
|
1.1
|
|
|
3.8
|
%
|
Other
revenue(6)
|
|
29.5
|
|
|
34.5
|
|
|
(5.0)
|
|
|
(14.5)
|
%
|
Total comparable
revenue
|
|
$
|
451.7
|
|
|
$
|
456.4
|
|
|
$
|
(4.7)
|
|
|
(1.0)
|
%
|
|
|
|
|
|
|
|
|
|
Comparable operating
profit
|
|
$
|
91.9
|
|
|
$
|
88.5
|
|
|
$
|
3.4
|
|
|
3.8
|
%
|
Comparable operating
margin percentage
|
|
20.3
|
%
|
|
19.4
|
%
|
|
0.9
|
%
|
|
4.6
|
%
|
|
|
|
|
|
|
|
|
|
Comparable funeral
services performed:
|
|
|
|
|
|
|
|
|
Atneed
|
|
41,930
|
|
|
42,841
|
|
|
(911)
|
|
|
(2.1)
|
%
|
Matured
preneed
|
|
22,917
|
|
|
21,937
|
|
|
980
|
|
|
4.5
|
%
|
Total core
|
|
64,847
|
|
|
64,778
|
|
|
69
|
|
|
0.1
|
%
|
Non-funeral
home
|
|
9,669
|
|
|
9,440
|
|
|
229
|
|
|
2.4
|
%
|
Total comparable
funeral services performed
|
|
74,516
|
|
|
74,218
|
|
|
298
|
|
|
0.4
|
%
|
Core cremation
rate
|
|
46.7
|
%
|
|
45.6
|
%
|
|
1.1
|
%
|
|
2.4
|
%
|
Total comparable
cremation rate
|
|
53.5
|
%
|
|
52.3
|
%
|
|
1.2
|
%
|
|
2.3
|
%
|
|
|
|
|
|
|
|
|
|
Comparable average
revenue per service:
|
|
|
|
|
|
|
|
|
Atneed
|
|
$
|
5,822
|
|
|
$
|
5,927
|
|
|
$
|
(105)
|
|
|
(1.8)
|
%
|
Matured
preneed
|
|
5,943
|
|
|
5,844
|
|
|
99
|
|
|
1.7
|
%
|
Total core
|
|
5,865
|
|
|
5,899
|
|
|
(34)
|
|
|
(0.6)
|
%
|
Non-funeral
home
|
|
1,210
|
|
|
1,133
|
|
|
77
|
|
|
6.8
|
%
|
Total comparable
average revenue per service
|
|
$
|
5,261
|
|
|
$
|
5,293
|
|
|
$
|
(32)
|
|
|
(0.6)
|
%
|
|
|
|
|
|
|
|
|
|
Comparable preneed
sales production:
|
|
|
|
|
|
|
|
|
Total preneed
sales
|
|
$
|
212.1
|
|
|
$
|
218.2
|
|
|
$
|
(6.1)
|
|
|
(2.8)
|
%
|
Core contracts
sold
|
|
28,035
|
|
|
29,304
|
|
|
(1,269)
|
|
|
(4.3)
|
%
|
Non-funeral home
contracts sold
|
|
17,640
|
|
|
17,576
|
|
|
64
|
|
|
0.4
|
%
|
Core revenue per
contract sold
|
|
$
|
6,053
|
|
|
$
|
6,092
|
|
|
$
|
(39)
|
|
|
(0.6)
|
%
|
Non-funeral home
revenue per contract sold
|
|
$
|
2,402
|
|
|
$
|
2,256
|
|
|
$
|
146
|
|
|
6.5
|
%
|
|
|
(1)
|
Atneed revenue
represents merchandise and services sold and delivered or performed
once death has occurred.
|
(2)
|
Matured preneed
revenue represents merchandise and services sold on a preneed
contract through our core funeral homes and delivered or performed
once death has occurred.
|
(3)
|
Core revenue
represents the sum of merchandise and services sold on an atneed
contract or preneed contract and delivered or performed once death
has occurred through our core funeral homes.
|
(4)
|
Non-funeral home
revenue represents services sold on a preneed or atneed contract
through one of our non-funeral home sales channels (e.g. SCI
Direct) and performed once death has occurred.
|
(5)
|
Recognized preneed
revenue represents merchandise and travel protection sold on a
preneed contract and delivered before death has
occurred.
|
(6)
|
Other revenue
primarily comprises general agency revenue, which is commissions we
receive from third-party insurance companies for life insurance
policies sold to preneed customers for the purpose of funding
preneed arrangements.
|
- Total comparable funeral revenue decreased by $4.7 million, or 1.0%, in the second quarter of
2017 compared to the same period of 2016, primarily due to the
decrease in general agency revenue driven by lower preneed funeral
insurance production.
- The $1.8 million core revenue
decrease was primarily the result of a 0.1% increase in core
services performed being offset by a 0.6% decrease in core average
revenue per service. Organic sales average growth of 0.3% was
offset by a 110 basis point increase in the core cremation mix to
46.7%.
- Recognized preneed revenue increased $1.1 million, or 3.8%, primarily driven by an
increase in both the number of contracts sold through our
non-funeral home sales channel and the average price per
contract.
- Comparable funeral operating profit increased $3.4 million to $91.9
million and the operating margin percentage increased 90
basis points to 20.3%, which is primarily the result of lower
selling costs on lower preneed sales production coupled with
effective cost management.
- Comparable preneed funeral sales production decreased
$6.1 million, or 2.8%, in the second
quarter of 2017 compared to 2016. The decline in comparable preneed
funeral sales production was primarily due to a $15.7 million decrease in core preneed funeral
insurance production offset by a $7.8
million increase in core preneed funeral trust production.
This resulted primarily from sales counselor productivity metrics
being introduced into our sales personnel compensation plans, which
resulted in a more acute emphasis on preneed cemetery property
sales as well as terminally imminent preneed funeral trust
sales.
Comparable Cemetery Results
The table below details comparable cemetery results of
operations ("same store") for the three months ended June 30, 2017 and 2016. We consider comparable
operations to be those owned for the entire period beginning
January 1, 2016 and ending June 30, 2017.
(Dollars in
millions)
|
|
Three Months Ended
June 30,
|
|
|
2017
|
|
2016
|
|
$
|
|
%
|
Comparable
revenue:
|
|
|
|
|
|
|
|
|
Atneed
revenue(1)
|
|
$
|
80.0
|
|
|
$
|
79.1
|
|
|
$
|
0.9
|
|
|
1.1
|
%
|
Recognized preneed
revenue(2)
|
|
207.4
|
|
|
179.8
|
|
|
27.6
|
|
|
15.4
|
%
|
Core
revenue(3)
|
|
287.4
|
|
|
258.9
|
|
|
28.5
|
|
|
11.0
|
%
|
Other
revenue(4)
|
|
25.6
|
|
|
25.4
|
|
|
0.2
|
|
|
0.8
|
%
|
Total comparable
revenue
|
|
$
|
313.0
|
|
|
$
|
284.3
|
|
|
$
|
28.7
|
|
|
10.1
|
%
|
|
|
|
|
|
|
|
|
|
Comparable operating
profit
|
|
$
|
91.5
|
|
|
$
|
72.8
|
|
|
$
|
18.7
|
|
|
25.7
|
%
|
Comparable operating
margin percentage
|
|
29.2
|
%
|
|
25.6
|
%
|
|
3.6
|
%
|
|
14.1
|
%
|
|
|
|
|
|
|
|
|
|
Comparable preneed
and atneed sales production:
|
|
|
|
|
|
|
|
|
Property
|
|
$
|
173.1
|
|
|
$
|
166.0
|
|
|
$
|
7.1
|
|
|
4.3
|
%
|
Merchandise and
services
|
|
140.8
|
|
|
136.9
|
|
|
3.9
|
|
|
2.8
|
%
|
Other
|
|
(0.5)
|
|
|
(1.9)
|
|
|
1.4
|
|
|
73.7
|
%
|
Preneed and atneed
sales production
|
|
$
|
313.4
|
|
|
$
|
301.0
|
|
|
$
|
12.4
|
|
|
4.1
|
%
|
Preneed property
production
|
|
$
|
150.3
|
|
|
$
|
144.6
|
|
|
$
|
5.7
|
|
|
3.9
|
%
|
|
|
|
|
|
|
|
|
|
Recognition
rate(5)
|
|
91.7
|
%
|
|
86.0
|
%
|
|
|
|
|
|
|
(1)
|
Atneed revenue
represents property, merchandise, and services sold and delivered
or performed once death has occurred.
|
(2)
|
Recognized preneed
revenue represents property, merchandise, and services sold on a
preneed contract that have been delivered or performed and includes
the related merchandise and service trust fund income.
|
(3)
|
Core revenue
represents the sum of property, merchandise, and services that have
been delivered or performed as well as the related merchandise and
service trust fund income.
|
(4)
|
Other revenue is
primarily related to endowment care trust fund income, royalty
income, and interest and finance charges earned from customer
receivables on preneed installment contracts.
|
(5)
|
Represents the ratio
of current period core revenue recognition stated as a percentage
of current period preneed and atneed sales production.
|
- Comparable cemetery revenue grew $28.7
million, or 10.1%, in the second quarter of 2017 compared to
2016, led by an increase in recognized preneed revenue of
$27.6 million, or 15.4%. The growth
over the prior year quarter is primarily due to increases in both
the sales and recognition of cemetery property, as well as
increases in cemetery merchandise delivered during the
quarter.
- Comparable preneed cemetery sales production increased
$12.1 million, or 5.5%, quarter over
quarter. The growth over the prior year quarter is due primarily to
our continued momentum in large cemetery property sales.
- Comparable cemetery operating profit increased $18.7 million to $91.5
million and the operating margin percentage increased 360
basis points to 29.2%. The $18.7
million increase in comparable cemetery operating profit was
primarily the result of high margin core revenue growth when taking
into account our fixed cost structure.
Other Financial Results
- General and administrative expenses increased $3.8 million to $40.6
million in the second quarter of 2017. The current quarter
includes an increase of $1.1 million
due to certain pension termination settlements. The prior year
quarter included $4.9 million of
system transition costs primarily related to our 2016
implementation of a new general ledger system. Excluding these
costs in both periods, general and administrative expenses
increased $7.5 million compared to
the prior year quarter due to higher insurance claims and increased
costs related to the company's long-term incentive compensation
program primarily tied to improvements in total shareholder
return.
- The effective income tax rate for the second quarter of 2017
was 32.5%, down from the prior year second quarter rate of 51.3%
for 2016. The higher effective tax rate for the prior year quarter
was the result of non-deductible goodwill related to funeral home
divestitures. Our adjusted effective income tax rate was 33.6% in
the second quarter of 2017 compared to 37.7% in the prior year
quarter. The reduction in our adjusted effective income tax rate
was primarily the result of tax benefits recognized during the
quarter on the settlement of employee share-based awards in
accordance with a revised accounting standard for share-based
compensation (A).
Footnotes
|
(A) In the first
quarter of 2017, as required, the Company adopted ASU No. 2016-09,
"Compensation - Stock Compensation (Topic 718) - Improvements to
Employee Share-Based Payment Accounting," which recognizes the tax
effect related to the settlement of share-based awards in income
tax benefit or expense in the statements of earnings rather than in
additional paid-in-capital. This ASU guidance also eliminates the
requirement to reclassify excess tax benefits from operating
activities to financing activities within the statement of cash
flows. The impact of the restricted stock deliveries and option
exercises in the second quarter of 2017 was a reduction to our
adjusted provision for income taxes of $2.9 million, which had the
effect of increasing our diluted earnings per share excluding
special items by approximately $0.02 per share. The impact of the
restricted stock deliveries and option exercises in the first half
of 2017 was a reduction to our adjusted provision for income taxes
of $9.3 million, which had the effect of increasing our diluted
earnings per share excluding special items by approximately $0.05
per share.
|
Cash Flow and Capital Spending
Set forth below is a reconciliation of our reported net cash
provided by operating activities prepared in accordance with GAAP
to net cash provided by operating activities excluding special
items (or sometimes referred to as adjusted operating cash flow).
We do not intend for this information to be considered in isolation
or as a substitute for other measures of performance prepared in
accordance with GAAP.
(In
millions)
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net cash provided by
operating activities, as reported
|
$
|
35.8
|
|
|
$
|
40.8
|
|
|
$
|
224.2
|
|
|
$
|
225.5
|
|
Add: Pension
Settlement
|
6.3
|
|
|
—
|
|
|
6.3
|
|
|
—
|
|
Add: Premiums paid on
early extinguishment of debt
|
—
|
|
|
20.5
|
|
|
—
|
|
|
20.5
|
|
Add: System and
process transition costs
|
—
|
|
|
5.4
|
|
|
—
|
|
|
8.3
|
|
Add: Excess tax
benefits from share based awards
|
—
|
|
|
2.0
|
|
|
—
|
|
|
4.3
|
|
Add: IRS tax
settlement payments
|
34.2
|
|
|
—
|
|
|
34.2
|
|
|
—
|
|
Net cash provided by
operating activities excluding special items
|
$
|
76.3
|
|
|
$
|
68.7
|
|
|
$
|
264.7
|
|
|
$
|
258.6
|
|
Cash taxes included
in net cash provided by operating activities excluding special
items
|
$
|
64.3
|
|
|
$
|
54.1
|
|
|
$
|
83.3
|
|
|
$
|
61.2
|
|
Net cash provided by operating activities excluding special
items was $76.3 million in the second
quarter of 2017 compared to $68.7
million in the prior year quarter. We experienced growth in
our cash flows generated from increased earnings in the quarter,
which was partially offset by an expected increase in recurring
cash taxes of $10.2 million and other
working capital uses.
A summary of our capital expenditures is set forth below:
(In
millions)
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Capital improvements at
existing locations
|
$
|
24.9
|
|
|
$
|
22.3
|
|
|
$
|
42.4
|
|
|
$
|
41.4
|
|
Development of cemetery
property
|
15.9
|
|
|
15.3
|
|
|
33.0
|
|
|
34.9
|
|
Subtotal
|
40.8
|
|
|
37.6
|
|
|
75.4
|
|
|
76.3
|
|
Construction of new
funeral home facilities
|
4.4
|
|
|
3.9
|
|
|
10.0
|
|
|
6.9
|
|
Total capital
expenditures
|
$
|
45.2
|
|
|
$
|
41.5
|
|
|
$
|
85.4
|
|
|
$
|
83.2
|
|
Total capital expenditures increased in the current quarter by
$3.7 million as we spent more on
infrastructure improvements to remain relevant and on accretive new
funeral home construction opportunities.
TRUST FUND RETURNS
Total trust fund returns include realized and unrealized gains
and losses, interest, and dividends. A summary of our consolidated
trust fund returns for the three and six months ended June 30, 2017 is set forth below:
|
|
Three
Months
|
|
Six
Months
|
Preneed
funeral
|
|
3.5%
|
|
8.1%
|
Preneed
cemetery
|
|
3.4%
|
|
8.4%
|
Cemetery perpetual
care
|
|
1.8%
|
|
4.4%
|
Combined trust
funds
|
|
2.9%
|
|
6.9%
|
NON-GAAP FINANCIAL MEASURES
Earnings excluding special items and diluted earnings per share
excluding special items shown above are non-GAAP financial
measures. We believe these non-GAAP financial measures provide a
consistent basis for comparison between quarters and better reflect
the performance of our core operations, as they are not influenced
by certain income or expense items not affecting continuing
operations. We also believe these measures help facilitate
comparisons to our competitors' operating results.
Set forth below is a reconciliation of our reported net income
attributable to common stockholders to earnings excluding special
items and our GAAP diluted earnings per share to diluted earnings
per share excluding special items. We do not intend for this
information to be considered in isolation or as a substitute for
other measures of performance prepared in accordance with GAAP.
(In millions,
except diluted EPS)
|
Three Months Ended
June 30,
|
|
2017
|
|
2016
|
|
Net
Income
|
|
Diluted EPS
|
|
Net
Income
|
|
Diluted EPS
|
Net income
attributable to common stockholders, as reported
|
$
|
68.5
|
|
|
$
|
0.36
|
|
|
$
|
15.6
|
|
|
$
|
0.08
|
|
Pre-tax reconciling
items:
|
|
|
|
|
|
|
|
(Gains) losses on
divestitures and impairment charges, net
|
(0.8)
|
|
|
(0.01)
|
|
|
30.6
|
|
|
0.16
|
|
Losses on early
extinguishment of debt
|
—
|
|
|
—
|
|
|
21.9
|
|
|
0.11
|
|
System transition
costs
|
—
|
|
|
—
|
|
|
4.9
|
|
|
0.02
|
|
Pension termination
settlements
|
1.1
|
|
|
0.01
|
|
|
—
|
|
|
—
|
|
Tax reconciling
items:
|
|
|
|
|
|
|
|
Tax benefit
from special items noted above
|
—
|
|
|
—
|
|
|
(18.7)
|
|
|
(0.10)
|
|
Change in
certain tax reserves and other (1)
|
(1.3)
|
|
|
(0.01)
|
|
|
1.5
|
|
|
0.01
|
|
Earnings excluding
special items and diluted earnings per share excluding special
items
|
$
|
67.5
|
|
|
$
|
0.35
|
|
|
$
|
55.8
|
|
|
$
|
0.28
|
|
|
|
|
|
|
|
|
|
Diluted weighted
average shares outstanding (in thousands)
|
|
|
192,138
|
|
|
|
|
196,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions,
except diluted EPS)
|
Six Months Ended
June 30,
|
|
2017
|
|
2016
|
|
Net
Income
|
|
Diluted EPS
|
|
Net
Income
|
|
Diluted EPS
|
Net income
attributable to common stockholders, as reported
|
$
|
243.2
|
|
|
$
|
1.26
|
|
|
$
|
63.1
|
|
|
$
|
0.32
|
|
Pre-tax reconciling
items:
|
|
|
|
|
|
|
|
(Gains) losses on
divestitures and impairment charges, net
|
(5.7)
|
|
|
(0.03)
|
|
|
31.0
|
|
|
0.16
|
|
Losses on early
extinguishment of debt
|
—
|
|
|
—
|
|
|
22.5
|
|
|
0.11
|
|
Acquisition and
integration costs
|
—
|
|
|
—
|
|
|
5.5
|
|
|
0.03
|
|
System transition
costs
|
—
|
|
|
—
|
|
|
9.0
|
|
|
0.05
|
|
Pension termination
settlements
|
12.8
|
|
|
0.07
|
|
|
—
|
|
|
—
|
|
Tax reconciling
items:
|
|
|
|
|
|
|
—
|
|
Tax benefit
from special items noted above
|
(2.6)
|
|
|
(0.01)
|
|
|
(22.7)
|
|
|
(0.12)
|
|
Change in
certain tax reserves and other (1)
|
(107.2)
|
|
|
(0.56)
|
|
|
2.7
|
|
|
0.01
|
|
Earnings excluding
special items and diluted earnings per share excluding special
items
|
$
|
140.5
|
|
|
$
|
0.73
|
|
|
$
|
111.1
|
|
|
$
|
0.56
|
|
|
|
|
|
|
|
|
|
Diluted weighted
average shares outstanding (in thousands)
|
|
|
192,511
|
|
|
|
|
197,463
|
|
|
|
(1)
|
2017 is primarily
impacted by the settlement of IRS tax audits related to tax years
1999-2005. Please see our Form 8-K filed on March 6, 2017 for more
information.
|
Conference Call and Webcast
We will host a conference call on Thursday, July 27, 2017, at 8:00 a.m. Central Time. A question and answer
session will follow a brief presentation made by
management. The conference call dial-in number is (847)
619-6396 with the passcode of 45285085. The conference call will
also be broadcast live via the Internet and can be accessed through
our website at www.sci-corp.com. A replay of the conference call
will be available through August 3,
2017 and can be accessed at (630) 652-3042 with the passcode
of 45285085#. Additionally, a replay of the conference call
will be available on our website for approximately two weeks.
Cautionary Statement on Forward-Looking Statements
The statements in this press release that may be deemed
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, are made in reliance
on the "safe harbor" protections provided under the Private
Securities Litigation Reform Act of 1995. These statements may be
accompanied by words such as "believe," "estimate," "project,"
"expect," "anticipate," or "predict" that convey the uncertainty of
future events or outcomes. These statements are based on
assumptions that we believe are reasonable; however, many important
factors could cause our actual results in the future to differ
materially from the forward-looking statements made herein and in
any other documents or oral presentations made by us, or on our
behalf. Important factors, which could cause actual results to
differ materially from those in forward-looking statements include,
among others, the following:
- Our affiliated funeral and cemetery trust funds own investments
in equity securities, fixed income securities, and mutual funds,
which are affected by market conditions that are beyond our
control.
- We may be required to replenish our affiliated funeral and
cemetery trust funds to meet minimum funding requirements, which
would have a negative effect on our earnings and cash flow.
- Our ability to execute our strategic plan depends on many
factors, some of which are beyond our control.
- Our credit agreements contain covenants that may prevent us
from engaging in certain transactions.
- If we lost the ability to use surety bonding to support our
preneed funeral and preneed cemetery activities, we may be required
to make material cash payments to fund certain trust funds.
- The funeral and cemetery industry is competitive.
- Increasing death benefits related to preneed contracts funded
through life insurance contracts may not cover future increases in
the cost of providing a price-guaranteed service.
- The financial condition of third-party insurance companies that
fund our preneed funeral contracts may impact our future
revenue.
- Unfavorable results of litigation could have a material adverse
impact on our financial statements.
- Unfavorable publicity could affect our reputation and
business.
- If the number of deaths in our markets declines, our cash flows
and revenue may decrease.
- If we are not able to respond effectively to changing consumer
preferences, our market share, revenue, and profitability could
decrease.
- The continuing upward trend in the number of cremations
performed in North America could
result in lower revenue, gross profit, and cash flows.
- Our funeral home and cemetery businesses are high fixed-cost
businesses.
- Regulation and compliance could have a material adverse impact
on our financial results.
- Cemetery burial practice legal claims could have a material
adverse impact on our financial results.
- We use a combination of insurance, self-insurance, and large
deductibles in managing our exposure to certain inherent risks; as
such, we could be exposed to unexpected costs that could negatively
affect our financial performance.
- A number of years elapse before particular tax matters, for
which we have established accruals, are audited and finally
resolved.
- Declines in overall economic conditions beyond our control
could reduce future potential earnings and cash flows and could
result in future impairments to goodwill and/or other intangible
assets.
- Any failure to maintain the security of the information
relating to our customers, their loved ones, our associates, and
our vendors could damage our reputation, could cause us to incur
substantial additional costs and to become subject to litigation,
and could adversely affect our operating results.
- Our Canadian business exposes us to operational, economic, and
currency risks.
- Our level of indebtedness could adversely affect our ability to
raise additional capital to fund our operations, limit our ability
to react to changes in the economy or our industry, and may prevent
us from fulfilling our obligations under our indebtedness.
- We rely extensively on information technology systems, some of
which are managed or provided by third-party service providers, to
analyze, process, store, manage, and protect transactions and
data.
- Failure to maintain effective internal control over financial
reporting could adversely affect our results of operations,
investor confidence, and our stock price.
- The application of unclaimed property laws by certain states to
our preneed funeral and cemetery backlog could have a material
adverse impact on our liquidity, cash flows, and our financial
results.
For further information on these and other risks and
uncertainties, see our Securities and Exchange Commission filings,
including our 2016 Annual Report on Form 10-K. Copies of this
document as well as other SEC filings can be obtained from our
website at www.sci-corp.com. We assume no obligation to publicly
update or revise any forward-looking statements made herein or any
other forward-looking statements made by us, whether as a result of
new information, future events or otherwise.
For further information on these and other risks and
uncertainties, see our Securities and Exchange Commission filings,
including our 2016 Annual Report on Form 10-K/A and as updated in
our Form 10-Q filings. Copies of this document as well as other SEC
filings can be obtained from our website at www.sci-corp.com. We
assume no obligation to publicly update or revise any
forward-looking statements made herein or any other forward-looking
statements made by us, whether as a result of new information,
future events or otherwise.
About Service Corporation International
Service Corporation International (NYSE: SCI), headquartered in
Houston, Texas, is North America's leading provider of deathcare
products and services. At June 30, 2017, we owned and operated
1,502 funeral homes and 475 cemeteries (of which 286 are
combination locations) in 45 states, eight Canadian provinces, the
District of Columbia, and
Puerto Rico. Through our
businesses, we market the Dignity Memorial® brand, which offers
assurance of quality, value, caring service, and exceptional
customer satisfaction. For more information about Service
Corporation International, please visit our website at
www.sci-corp.com. For more information about Dignity Memorial®,
please visit www.dignitymemorial.com.
For additional
information contact:
|
|
|
Investors:
|
|
Debbie Young -
Director / Investor Relations
|
|
(713)
525-9088
|
Media:
|
|
Jay Andrew - Managing
Director / Corporate Communications
|
|
(713)
525-5235
|
SERVICE
CORPORATION INTERNATIONAL
CONSOLIDATED
STATEMENT OF OPERATIONS
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
June
30,
|
|
June
30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
(In thousands,
except per share amounts)
|
Revenue
|
$
|
773,242
|
|
|
$
|
751,396
|
|
|
$
|
1,550,952
|
|
|
$
|
1,500,615
|
|
Costs and
expenses
|
(589,797)
|
|
|
(589,407)
|
|
|
(1,190,342)
|
|
|
(1,175,703)
|
|
Operating
profit
|
183,445
|
|
|
161,989
|
|
|
360,610
|
|
|
324,912
|
|
General and
administrative expenses
|
(40,590)
|
|
|
(36,849)
|
|
|
(83,094)
|
|
|
(75,753)
|
|
Gains (losses) on
divestitures and impairment charges, net
|
753
|
|
|
(30,641)
|
|
|
5,688
|
|
|
(30,988)
|
|
Operating
income
|
143,608
|
|
|
94,499
|
|
|
283,204
|
|
|
218,171
|
|
Interest
expense
|
(42,083)
|
|
|
(39,398)
|
|
|
(82,719)
|
|
|
(82,480)
|
|
Loss on early
extinguishment of debt
|
—
|
|
|
(21,898)
|
|
|
—
|
|
|
(22,479)
|
|
Other expense,
net
|
(7)
|
|
|
(564)
|
|
|
(441)
|
|
|
(806)
|
|
Income before income
taxes
|
101,518
|
|
|
32,639
|
|
|
200,044
|
|
|
112,406
|
|
(Provision for)
benefit from income taxes
|
(32,956)
|
|
|
(16,746)
|
|
|
43,267
|
|
|
(49,059)
|
|
Net income
|
68,562
|
|
|
15,893
|
|
|
243,311
|
|
|
63,347
|
|
Net income
attributable to noncontrolling interests
|
(81)
|
|
|
(273)
|
|
|
(128)
|
|
|
(282)
|
|
Net income
attributable to common stockholders
|
$
|
68,481
|
|
|
$
|
15,620
|
|
|
$
|
243,183
|
|
|
$
|
63,065
|
|
Basic earnings per
share:
|
|
|
|
|
|
|
|
Net income
attributable to common stockholders
|
$
|
0.37
|
|
|
$
|
0.08
|
|
|
$
|
1.29
|
|
|
$
|
0.32
|
|
Basic weighted
average number of shares
|
187,597
|
|
|
193,806
|
|
|
187,927
|
|
|
194,366
|
|
Diluted earnings per
share:
|
|
|
|
|
|
|
|
Net income
attributable to common stockholders
|
$
|
0.36
|
|
|
$
|
0.08
|
|
|
$
|
1.26
|
|
|
$
|
0.32
|
|
Diluted weighted
average number of shares
|
192,138
|
|
|
196,718
|
|
|
192,511
|
|
|
197,463
|
|
Dividends declared
per share
|
$
|
0.15
|
|
|
$
|
0.13
|
|
|
$
|
0.28
|
|
|
$
|
0.25
|
|
SERVICE
CORPORATION INTERNATIONAL
CONSOLIDATED
BALANCE SHEET
|
|
|
June 30,
2017
|
|
December 31,
2016
|
|
(In thousands,
except share amounts)
|
ASSETS
|
|
|
|
Current
assets:
|
|
|
|
Cash and cash
equivalents
|
$
|
224,889
|
|
|
$
|
194,986
|
|
Receivables,
net
|
72,251
|
|
|
98,455
|
|
Inventories
|
27,333
|
|
|
26,431
|
|
Other
|
30,396
|
|
|
34,524
|
|
Total current
assets
|
354,869
|
|
|
354,396
|
|
|
|
|
|
Preneed receivables,
net and trust investments
|
4,572,522
|
|
|
4,305,165
|
|
Cemetery
property
|
1,784,585
|
|
|
1,776,935
|
|
Property and
equipment, net
|
1,828,532
|
|
|
1,827,587
|
|
Goodwill
|
1,804,493
|
|
|
1,799,081
|
|
Deferred charges and
other assets
|
577,720
|
|
|
567,520
|
|
Cemetery perpetual
care trust investments
|
1,465,563
|
|
|
1,407,465
|
|
Total
assets
|
$
|
12,388,284
|
|
|
$
|
12,038,149
|
|
|
|
|
|
LIABILITIES &
EQUITY
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts payable and
accrued liabilities
|
$
|
441,396
|
|
|
$
|
439,936
|
|
Current maturities of
long-term debt
|
70,725
|
|
|
89,974
|
|
Income taxes
payable
|
12,228
|
|
|
7,960
|
|
Total current
liabilities
|
524,349
|
|
|
537,870
|
|
Long-term
debt
|
3,290,944
|
|
|
3,196,616
|
|
Deferred
revenue
|
1,777,828
|
|
|
1,731,417
|
|
Deferred tax
liability
|
442,528
|
|
|
454,638
|
|
Other
liabilities
|
372,790
|
|
|
510,322
|
|
Deferred preneed
receipts held in trust
|
3,308,548
|
|
|
3,103,796
|
|
Care trusts'
corpus
|
1,466,313
|
|
|
1,408,243
|
|
Commitments and
contingencies (Note 9)
|
|
|
|
Equity:
|
|
|
|
Common stock, $1 per
share par value, 500,000,000 shares authorized, 197,283,056 and
195,403,644 shares issued, respectively, and 187,315,112 and
189,405,244 shares outstanding, respectively
|
187,315
|
|
|
189,405
|
|
Capital in excess of
par value
|
958,434
|
|
|
990,203
|
|
Retained earnings
(accumulated deficit)
|
28,858
|
|
|
(103,387)
|
|
Accumulated other
comprehensive income
|
30,090
|
|
|
16,492
|
|
Total common
stockholders' equity
|
1,204,697
|
|
|
1,092,713
|
|
Noncontrolling
interests
|
287
|
|
|
2,534
|
|
Total
equity
|
1,204,984
|
|
|
1,095,247
|
|
Total liabilities and
equity
|
$
|
12,388,284
|
|
|
$
|
12,038,149
|
|
SERVICE
CORPORATION INTERNATIONAL
CONSOLIDATED
STATEMENT OF CASH FLOWS
(In thousands,
except share amounts)
|
|
|
Six Months Ended
June 30,
|
|
2017
|
|
2016
|
Cash flows from
operating activities:
|
|
|
|
Net income
|
$
|
243,311
|
|
|
$
|
63,347
|
|
Adjustments to
reconcile net income to net cash provided by operating
activities:
|
|
|
|
Loss on early
extinguishment of debt
|
—
|
|
|
22,479
|
|
Premiums paid on early
extinguishment of debt
|
—
|
|
|
(20,500)
|
|
Depreciation and
amortization
|
75,455
|
|
|
72,522
|
|
Amortization of
intangibles
|
14,051
|
|
|
15,392
|
|
Amortization of
cemetery property
|
30,596
|
|
|
27,837
|
|
Amortization of loan
costs
|
2,881
|
|
|
3,004
|
|
Provision for doubtful
accounts
|
4,544
|
|
|
1,854
|
|
Benefit from deferred
income taxes
|
(153,112)
|
|
|
(2,856)
|
|
(Gains) losses on
divestitures and impairment charges, net
|
(5,688)
|
|
|
30,988
|
|
Share-based
compensation
|
7,645
|
|
|
6,574
|
|
Excess tax benefits
from share-based awards
|
—
|
|
|
(4,269)
|
|
Change in assets and
liabilities, net of effects from acquisitions and
divestitures:
|
|
|
|
Decrease in
receivables
|
20,441
|
|
|
10,201
|
|
Increase in other
assets
|
(6,081)
|
|
|
(1,572)
|
|
Increase (decrease) in
payables and other liabilities
|
14,815
|
|
|
(1,169)
|
|
Effect of preneed
sales production and maturities:
|
|
|
|
Increase in preneed
receivables, net and trust investments
|
(64,860)
|
|
|
(45,511)
|
|
Increase in deferred
revenue
|
36,345
|
|
|
50,916
|
|
Increase (decrease) in
deferred receipts held in trust
|
3,880
|
|
|
(3,709)
|
|
Net cash provided by
operating activities
|
224,223
|
|
|
225,528
|
|
Cash flows from
investing activities:
|
|
|
|
Capital
expenditures
|
(85,324)
|
|
|
(83,189)
|
|
Acquisitions
|
(24,044)
|
|
|
(52,844)
|
|
Proceeds from
divestitures and sales of property and equipment
|
7,431
|
|
|
11,422
|
|
Net withdrawals of
restricted funds and other
|
175
|
|
|
5,120
|
|
Net cash used in
investing activities
|
(101,762)
|
|
|
(119,491)
|
|
Cash flows from
financing activities:
|
|
|
|
Proceeds from issuance
of long-term debt
|
110,000
|
|
|
960,000
|
|
Debt issuance
costs
|
—
|
|
|
(5,232)
|
|
Payments of
debt
|
(17,570)
|
|
|
(18,835)
|
|
Early extinguishment of
debt
|
—
|
|
|
(875,001)
|
|
Principal payments on
capital leases
|
(30,419)
|
|
|
(16,907)
|
|
Proceeds from exercise
of stock options
|
20,601
|
|
|
8,872
|
|
Excess tax benefits
from share-based awards
|
—
|
|
|
4,269
|
|
Purchase of Company
common stock
|
(120,064)
|
|
|
(81,477)
|
|
Payments of
dividends
|
(52,529)
|
|
|
(48,506)
|
|
Purchase of
noncontrolling interest
|
(4,580)
|
|
|
(42)
|
|
Bank overdrafts and
other
|
(2,065)
|
|
|
(1,424)
|
|
Net cash used in
financing activities
|
(96,626)
|
|
|
(74,283)
|
|
Effect of foreign
currency on cash and cash equivalents
|
4,068
|
|
|
5,435
|
|
Net increase in cash
and cash equivalents
|
29,903
|
|
|
37,189
|
|
Cash and cash
equivalents at beginning of period
|
194,986
|
|
|
134,599
|
|
Cash and cash
equivalents at end of period
|
$
|
224,889
|
|
|
$
|
171,788
|
|
View original
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SOURCE Service Corporation International