Service Corporation International Q3 Earnings Call Highlights

Key Points

• Third-quarter adjusted EPS rose 11% to $0.97, supported by growth in Funeral and Cemetery revenue and lower general and administrative costs, but results missed SCI’s internal expectations due to weaker Funeral volumes and higher costs.
• SCI lowered its full-year normalized EPS midpoint to approximately $3.99 from $4.20, citing Funeral volumes about 200 basis points below forecast, elevated healthcare and promotional expenses, and higher selling compensation.
• Despite the reduced earnings outlook, operating cash flow increased 11% to $297 million, while the company reaffirmed 2026 operating cash flow guidance and returned more than $100 million to shareholders through dividends and repurchases.

Service Corporation International NYSE: SCI reported third-quarter adjusted earnings per share of $0.97, up more than 11% from $0.87 a year earlier, as revenue and profit growth in its Funeral and Cemetery segments and lower general and administrative expense supported results. However, the company said earnings and revenue fell short of its internal expectations, prompting a reduction in its full-year earnings outlook.

Chairman and CEO Tom Ryan said lower-than-expected Funeral volumes, reduced general agency commission rates, higher fixed costs, higher selling compensation and larger Cemetery sales deferrals weighed on the quarter.

“While year-over-year comparisons delivered impressive quarterly earnings per share growth, revenues and earnings were below our internal expectations,” Ryan said.

Funeral results affected by softer volumes

Comparable Funeral revenue increased $19 million, or just over 3%, from the prior-year quarter. Comparable core Funeral revenue rose $11 million, or about 2.3%, led by 2.8% growth in core average revenue per service. Comparable core Funeral volume declined 0.5%, below the company’s expectations.

Year to date, comparable core Funeral volumes were down 3.1%, which Ryan attributed predominantly to a difficult first-quarter comparison. SCI said its internal nationwide analysis indicated it maintained market share during 2026.

Non-funeral home revenue increased nearly $3 million, aided by an 8% increase in average revenue per service. Ryan said the company expects that average-revenue growth to continue as older pre-need contracts mature out of its backlog and more recent contracts convert at higher average revenue per service.

Comparable Funeral gross profit rose about $4 million on the $19 million revenue increase, while the gross-profit percentage remained near 18%. Fixed costs increased 3%, or $10 million, and higher sales compensation and promotion spending also affected profit.

SCI said its shift to a sales compensation plan with higher guaranteed hourly wages added 40 basis points to the selling compensation rate and reduced expected gross profit by about $1 million. Pre-need Funeral sales production increased $19 million, or 6%, driven by growth in both its core business and SCI Direct channel.

Cemetery sales production outpaced revenue recognition

Comparable Cemetery revenue rose $19 million, or about 4%, primarily due to higher core revenue and other revenue. Core revenue increased $12 million, including a $14 million increase in recognized pre-need revenue. Other revenue rose $7 million, primarily from higher endowment care trust fund income tied to market performance and increased total-return distributions.

Comparable pre-need Cemetery sales production increased $17 million, or 5%, during the quarter. Core sales contributed $13 million of the increase, supported by approximately 3% underlying sales-velocity growth, while large sales accounted for the remaining $4 million. For the first nine months of 2026, Cemetery pre-need sales production increased 7.5%.

Cemetery gross profit increased $1 million, but the gross margin declined 110 basis points to about 33%. Fixed costs rose 4%, or roughly $7 million, slightly above management’s 3% expectation, driven by healthcare costs, media spending and training tied to the company’s cemetery cremation memorialization initiative.

The new Cemetery sales compensation plan, which includes more fixed guaranteed hourly wages intended to support counselor retention, added 100 basis points to the selling compensation rate and reduced expected gross profit by nearly $5 million, Ryan said.

Pre-need property sales production grew 4%, compared with 1% revenue recognition. SCI said this difference deferred an additional $6 million of revenue into backlog, with little or no additional selling costs. Management characterized the effect as a timing issue that should benefit future periods as revenue and profit are recognized.

Lower outlook reflects volumes and cost pressures

SCI issued fourth-quarter earnings-per-share guidance of $1.10 to $1.20 and said it now expects normalized full-year earnings per share at the midpoint of its range to be about $3.99, compared with its original midpoint of $4.20 provided in February.

The company now expects full-year Funeral volumes to be approximately 200 basis points below its initial forecast, representing an estimated $0.18 to $0.20 per-share headwind. Higher-than-expected Cemetery trust fund income contributed $0.12 per share and offset part of that effect.

Management expects pre-need Cemetery sales production to grow 6% to 7% for the year, above its original 4% to 5% expectation, contributing roughly $0.08 to $0.10 per share of earnings growth. That benefit has been largely offset by an approximately 100-basis-point decline in the Cemetery revenue-recognition rate, as a larger share of sales involved merchandise, services and undeveloped property that are recognized later.

Higher healthcare, sales-promotion and fuel costs added approximately 100 basis points to fixed-cost growth and reduced full-year earnings by about $0.10 per share, Ryan said. Higher selling compensation rates from the new plans represented an additional $0.05-per-share drag relative to February expectations.

Looking toward 2027, Ryan said SCI expects continued pre-need sales production strength and comparable Funeral volumes that are flat to slightly higher. He said management plans to improve general agency commission rates, increase the mix of Cemetery products recognized at the time of sale, manage selling costs and use pricing to address inflationary pressures.

Cash flow, investments and shareholder returns

Executive Vice President and CFO Eric Tanzberger said adjusted operating cash flow rose 11% to $297 million in the third quarter. The improvement reflected higher operating income and a $30 million working-capital source, partly offset by more than $15 million in higher cash taxes.

SCI invested $137 million during the quarter, including $80 million in maintenance capital, $24 million in real estate growth capital and $34 million in acquisitions. The acquisitions added Funeral and Cemetery locations in Michigan, Illinois, Florida and Indiana.

The company returned just over $100 million to shareholders through $53 million in repurchases and $49 million in dividends. SCI repurchased nearly 700,000 shares at an average price just under $80 and ended the quarter with 136 million shares outstanding. Year to date, it returned more than $460 million to shareholders.

SCI reaffirmed adjusted operating cash flow guidance of $1.055 billion to $1.115 billion for 2026. Based on the $1.085 billion midpoint and expected maintenance capital expenditures of about $335 million, the company expects adjusted free cash flow of approximately $750 million, up 18% from $637 million in 2025.

At quarter-end, SCI reported approximately $1.7 billion in total liquidity, including $173 million of cash and about $1.5 billion available under its long-term bank credit facility. Its net-debt-to-EBITDA leverage ratio was about 3.7 times, within its stated long-term target range of 3.5 to 4 times.

About Service Corporation International (NYSE:SCI)

Service Corporation International NYSE: SCI is a Houston-based provider of funeral, cremation and cemetery services. The company operates funeral homes, cemeteries and cremation facilities, offering arrangements for traditional funerals, memorial services and cremations, as well as cemetery property, burial services and related merchandise.

SCI serves families primarily in the United States and Canada through a network of locations and a portfolio of brands that includes Dignity Memorial, Funeraria del Angel and Neptune Society.

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