Funeral services company Service International (NYSE:SCI) announced better-than-expected revenue in Q1 CY2025, with sales up 2.8% year on year to $1.07 billion. Its non-GAAP profit of $0.96 per share was 5.8% above analysts’ consensus estimates.
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Service International (SCI) Q1 CY2025 Highlights:
- Revenue: $1.07 billion vs analyst estimates of $1.06 billion (2.8% year-on-year growth, 1.3% beat)
- Adjusted EPS: $0.96 vs analyst estimates of $0.91 (5.8% beat)
- Adjusted EBITDA: $326.5 million vs analyst estimates of $321.9 million (30.4% margin, 1.4% beat)
- Management reiterated its full-year Adjusted EPS guidance of $3.85 at the midpoint
- Operating Margin: 23.4%, up from 22.2% in the same quarter last year
- Free Cash Flow Margin: 21.7%, up from 13.5% in the same quarter last year
- Funeral Services Performed: 97,854, up 3,488 year on year
- Market Capitalization: $10.79 billion
StockStory’s Take
Service International’s first quarter results were shaped by the ongoing transition to an insurance-funded pre-need sales model and healthy funeral segment demand. Management highlighted strong core funeral revenue and gross profit, partially offset by lower cemetery revenue. CEO Thomas Ryan cited robust average revenue per service and a modest increase in funeral services performed as contributors to revenue growth. The company also discussed the normalization of pre-need sales production as the insurance transition progresses, noting that most of the operational shift is now complete in major markets.
Looking ahead, management reiterated its full-year adjusted EPS guidance, attributing confidence to expectations of stable funeral volumes and inflationary growth in average revenue per service. The leadership team acknowledged some lingering effects from the SCI Direct transition but expects these to diminish by late 2025, with higher general agency revenue supporting margins. Management described cost discipline, the ramp-up of new insurance products, and ongoing M&A activity as central themes for the year, while flagging potential headwinds from taxes and macroeconomic uncertainty.
Key Insights from Management’s Remarks
Service International’s leadership attributed quarterly performance to strong execution in the funeral segment while navigating a complex transition in pre-need funding and managing macroeconomic pressures.
• Funeral segment momentum: Strong demand for funeral services and higher average revenue per service supported growth, even as the cremation rate increased modestly. Management highlighted effective cost controls and a growing market share as key factors.
• Preneed sales model transition: The shift from trust-funded to insurance-funded pre-need sales temporarily reduced sales production. Management emphasized that extensive training and licensing for sales counselors, as well as changes in payment terms, contributed to the near-term slowdown but should position the company for higher future average revenues per contract.
• Cemetery segment softness: Cemetery revenue declined due to lower recognized pre-need property sales and the timing of large transactions. Management described this as a timing issue, with expectations for recovery as the year progresses, particularly given strong April pipeline activity.
• Cost discipline and efficiency: Funeral gross profit improved as revenue growth outpaced fixed cost increases. Leadership credited disciplined expense management and noted that fixed costs grew less than inflation.
• M&A pipeline and capital allocation: The company continued to pursue acquisitions, investing $15 million during the quarter, with expectations to reach $75 million to $125 million in deals for the year. Management also accelerated share repurchases, reflecting prioritization of capital deployment based on perceived returns.
Drivers of Future Performance
Management’s outlook for the remainder of the year is shaped by expectations of stable funeral service demand, further normalization of pre-need sales, and disciplined cost management amid external uncertainties.
• Insurance-funded pre-need scaling: As more markets complete the transition, management believes the insurance-funded model will drive higher long-term average contract values and commission revenue, though near-term sales production may remain muted.
• Cemetery property sales timing: The company expects volatility in large cemetery property sales to persist, with recovery anticipated in the second half as project pipelines mature and seasonal factors improve.
• Macroeconomic and regulatory headwinds: Management noted risks from discretionary consumer spending trends and potential cost impacts from tariffs, but currently expects limited effect in 2025 due to sourcing flexibility and long-term supplier contracts.
Top Analyst Questions
• Joanna Gajuk (Bank of America): Asked about the timing and recovery of large cemetery property sales and the impact of wildfires at Rose Hills. Management clarified the volatility is typical and expects a strong sales pipeline for the rest of the year.
• Joanna Gajuk (Bank of America): Inquired about potential cost impacts from new tariffs on imported merchandise. CFO Eric Tanzberger stated that most sourcing is domestic or protected by contracts, and no material impact is expected in 2025 guidance.
• Scott Schneeberger (Oppenheimer): Sought insight into funeral volume trends after a sharp rebound. CEO Thomas Ryan attributed improvement to market share gains and diminishing effects of the COVID-19 “pull forward” in mortality, with continued focus on annual trends.
• A.J. Rice (UBS): Asked about growth rates and targets for insurance-funded pre-need sales. Management indicated that contract values are expected to increase as the transition matures, though the timing will depend on salesforce adaptation and market mix.
• Parker Snure (Raymond James): Queried about possible trade-down behavior in funeral services. Management replied that, historically, consumers have not significantly reduced spending on at-need funerals even during challenging macro cycles.
Catalysts in Upcoming Quarters
In the coming quarters, the StockStory team will monitor (1) the pace at which insurance-funded pre-need sales normalize and drive higher average contract values, (2) the recovery of large cemetery property sales as project pipelines mature, and (3) the impact of cost management and sourcing strategies on margins amid evolving tariff and macroeconomic conditions. These areas will be critical for assessing whether Service International can sustain margin expansion and long-term growth.
Service International currently trades at a forward P/E ratio of 19.3×. Should you double down or take your chips? See for yourself in our free research report.
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