Service Corporation International Q1 Earnings Call Highlights

Key Points

• Q1 adjusted EPS was $0.97 (vs. $0.96 a year ago), with management saying stronger cemetery results and below-the-line benefits offset weaker funeral volumes; the company estimates EPS would have been about $1.12 if funeral case volumes were flat.
• Funeral performance was pressured by volume declines—comparable core funeral revenue fell $18 million and core services declined 6.6%—driving a roughly $23 million drop in funeral gross profit and a 300 basis-point margin contraction, which management attributed to mortality trends rather than market-share loss.
• Pre-need and cemetery businesses drove upside: comparable pre-need cemetery sales production rose 10%, cemetery revenue increased ~7% and cemetery margin expanded ~120 basis points to ~33%; SCI returned $190 million to shareholders and reaffirmed 2026 EPS guidance of $4.05–$4.35, while noting funeral volume uncertainty could push results toward the lower half of the range.

Service Corporation International NYSE: SCI reported first-quarter 2026 adjusted earnings per share of $0.97, up slightly from $0.96 a year earlier, as stronger cemetery performance and below-the-line benefits offset weaker funeral volumes.

Chairman and CEO Tom Ryan said “cemetery revenue and gross profit increased meaningfully,” supported by double-digit growth in pre-need cemetery sales production. That performance, however, was “more than offset by lower funeral revenue and gross profit,” which Ryan attributed primarily to a mid-single-digit decline in funeral case volume that reduced earnings per share by about $0.02 from operating income.

Ryan added that a lower share count and slightly lower effective tax rate helped results, partially offset by higher interest expense. He also highlighted operating execution despite softer volumes, pointing to strong pre-need sales trends, higher average revenue per service, and expense control. “Had funeral case volumes been flat for the quarter,” Ryan said the company estimates EPS would have been approximately $1.12.

Funeral results pressured by year-over-year volume declines

SCI’s total comparable funeral revenues decreased by $17 million, or just under 3%, driven mainly by lower core funeral revenue. Comparable core funeral revenue fell $18 million, or just over 3%, as core funeral services performed declined 6.6%.

Ryan said the decline reflected tough comparisons to “a strong flu season in the prior year quarter” and aligned with broader first-quarter mortality trends referenced by CDC data and “reporting from other industry participants.” In response to a question about monthly trends, Ryan said January and February were “a little steeper,” with March “slightly better, but still down.” He said early April volumes were also down, but “not as bad as the Q1.”

On whether the decline could reflect market share loss, Ryan said SCI did not believe so. He cited discussions with private operators and suppliers, along with mortality data, and noted that SCI Direct—typically a volume leader—also posted low-single-digit declines. “Again, that just tells me that this is real. This is a death rate thing,” he said.

Partially offsetting the volume decline, core average revenue per service increased 3.5%, despite a 40-basis-point uptick in the core cremation rate. Non-funeral home revenue rose by $2 million, aided by a 10% increase in average revenue per service, which Ryan said was expected to continue as maturing pre-need contracts carry higher cumulative trust earnings and as newer contracts reflect the company’s decision to no longer deliver pre-need merchandise at the time of sale.

Funeral gross profit declined by about $23 million, and gross profit margin fell 300 basis points to just over 21%. Ryan said the decline was primarily driven by lower revenue, alongside a modest increase in selling compensation tied to higher pre-need funeral sales production and a greater mix of insurance-funded contracts that accelerates selling expense recognition. He added that fixed cost growth was held to “just over 1%,” helping moderate margin pressure.

Pre-need sales strength in both funeral and cemetery

Ryan said pre-need funeral sales production increased $18 million, or about 6%, versus the prior-year quarter. Core pre-need funeral sales production rose $13 million, or 6%, and non-funeral home pre-need sales production increased by more than $5 million, or 9%.

He credited momentum in both channels to sales efforts outside of location traffic, including seminars, and said the business had moved past disruptions from an insurance partner transition and SCI Direct’s prior product transition. Ryan also noted that by the end of 2025, SCI had rolled its insurance product into 100% of SCI Direct locations.

On the cemetery side, comparable cemetery revenue increased $31 million, or about 7%, driven primarily by higher core revenue and higher other revenue. Core revenues rose $25 million as recognized pre-need revenue increased $28 million (including a $20 million increase in property revenue and $8 million in merchandise and services), partially offset by a $3 million decline in at-need revenue. Other revenue increased $6 million, primarily from higher endowment care trust fund income.

Comparable pre-need cemetery sales production increased $32 million, or 10%. Ryan said large sales contributed $20 million of the improvement, with $12 million from the core business supported by sales velocity. In response to analyst questions, Ryan described large sales as transactions of $100,000 or more and said SCI’s large sales were “in the low $40 million for the quarter.” He cautioned that large sales can shift between periods, but said SCI has expanded the large-sales concept into more geographies beyond traditional strongholds.

Ryan also discussed initiatives aimed at boosting production, including sales force retention and hiring, higher seminar activity, improved lead quality and follow-up, and expanding outreach beyond funeral-home generated leads. He said SCI’s focus on these key performance indicators helped cemetery sales grow even as funeral volumes declined.

Cemetery margin expansion, maintenance cost headwinds

Cemetery gross profit increased $15 million, or 11%, and the segment’s margin expanded 120 basis points to approximately 33%. Ryan said the improvement was driven by higher-margin trust income, partially offset by above-inflation growth in fixed cemetery maintenance costs.

Asked about that maintenance cost pressure, Ryan described maintenance as a labor-intensive category impacted by items such as water, fertilizer, and equipment, with a mix of insourced and outsourced work. He also framed the spending as connected to maintaining the appearance of high-performing parks. While the company aims for maintenance costs to track more closely to broader inflation over time, he did not suggest the category would decline materially.

Cash flow, capital deployment, and trust returns

EVP and CFO Eric Tanzberger reported adjusted operating cash flow of $335 million, up nearly $20 million, or 6%, year over year and in line with expectations. He said cash flow benefited from working capital timing—including a $20 million source tied to an additional payroll tax payment in the prior year’s first quarter—as well as stronger pre-need cash receipts and other working capital that provided an additional $7 million source. Those benefits were partially offset by $4 million of lower adjusted operating income and $4 million of higher cash interest expense, primarily due to higher average balances on floating-rate debt.

SCI invested $108 million in capital during the quarter, including:

• $66 million in maintenance capital, including $41 million in new cemetery development projects, $20 million in improvements at existing funeral home and cemetery locations, and about $5 million in digital and other corporate investments.
• $17 million of growth capital for new funeral home construction and real estate for future expansion.
• $24 million in acquisitions, which Tanzberger said included locations in Texas, Massachusetts, Alabama, and North Carolina.

SCI returned $190 million to shareholders through $143 million in share repurchases and $47 million in dividends. Tanzberger said the company repurchased just under 2 million shares at an average price of about $80 per share, ending March with just over 130 million shares outstanding.

Corporate G&A was about $44 million, down $1 million year over year but above the company’s quarterly guidance range due to higher long-term incentive compensation accruals tied to total shareholder return performance. Tanzberger said corporate G&A should average around $40 million to $42 million per quarter going forward, though timing could cause quarterly variability.

On trust funds, Tanzberger said combined trust fund returns declined 0.7% in the quarter, but the company observed an estimated 4% to 5% increase in April. He said that recovery supported confidence in SCI’s full-year expectation of about a 7% combined trust fund return and noted trust income variability when discussing the quarterly market movements.

SCI ended the quarter with about $1.7 billion of liquidity, consisting of approximately $260 million of cash and about $1.45 billion available on its long-term bank credit facility. The company’s leverage ratio was 3.68x net debt to EBITDA, which Tanzberger said was near the low end of SCI’s long-term target range of 3.5x to 4x.

2026 outlook reaffirmed amid funeral volume uncertainty

Management reaffirmed 2026 normalized EPS guidance of $4.05 to $4.35. Ryan said the company expects funeral volumes to improve as the year progresses, with a full-year decline of 1% to 3%. He said momentum in pre-need cemetery sales, higher average revenue per funeral, and “continued disciplined expense management” underpin confidence in the guidance range.

In the Q&A, Ryan acknowledged the funeral volume trajectory would influence where results land within the range, saying that given current volume trends, results could skew toward the lower half unless volumes recover more meaningfully later in the year. Still, he said the company was “standing by” its full-year range.

Tanzberger also confirmed SCI’s 2026 adjusted operating cash flow guidance range of $1.0 billion to $1.06 billion. He said the company expects full-year cash taxes of about $120 million at a normalized cash tax rate of around 15% to 16% due to renewable energy investments, with cash tax rates expected to return to about 24% to 25% beyond 2026 absent further tax planning or regulatory changes. He added that SCI expects its 2026 effective tax rate to be in line with 2025 at 25% to 26%.

About Service Corporation International NYSE: SCI

Service Corporation International NYSE: SCI is a leading provider of funeral, cremation and cemetery services in North America. Through its network of funeral homes, cemeteries, memorial parks and crematoria, the company offers a broad array of end-of-life services, including traditional funeral ceremonies, memorialization, burial and cremation. In addition to core services, SCI provides grief counseling, pre-need planning and merchandise such as caskets, vaults, urns and memorialization products.

Headquartered in Houston, Texas, Service Corporation International operates more than 1,900 funeral homes, over 450 cemeteries and 40 combination facilities across the United States and Canada.

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