SCI Leverages Cemetery Upswing to Offset Funeral Volume Dip, Reaffirms 2026 EPS Outlook

SCI’s management opened the call by framing the quarter as a test of the firm’s “business model resilience.” Chairman and CEO Thomas Ryan reminded investors that the company’s “underlying performance across several key operating metrics” remained strong even as funeral case volumes slipped.

“If funeral volume had been flat for the quarter, we estimate earnings per share would have been approximately $1.12, representing roughly 17% growth over the prior‑year quarter,” Ryan said, underscoring how much of the earnings shortfall stemmed from volume rather than pricing or cost discipline.

**Funeral segment under pressure** Comparable funeral revenue fell $17 million, or just under 3%, driven primarily by an $18 million decline in core funeral revenue. The 6.6% dip in services reflects a “strong flu season in the prior year quarter,” a pattern the company says repeats every 20‑year cycle.

Ryan noted, “Outside of the COVID‑impacted era, over the past 20 years we have experienced 5 instances where first‑quarter volumes declined from 4% to 9%… full‑year results improved by an average of 400 basis points relative to the first‑quarter decline.”

Gross profit on funeral operations shrank by $23 million, with the margin slipping 300 basis points to just above 21%. The decline was partly offset by a 3.5% rise in average revenue per service and a modest 40‑basis‑point increase in the cremation rate. Fixed funeral costs grew only 1%, well under inflation, reflecting the company’s “effective management of controllable expenses.”

**Cemetery business fuels the upside** In stark contrast, comparable cemetery revenue rose $31 million, a 7% year‑over‑year gain. Core cemetery revenue climbed $25 million, buoyed by a $28 million, 10% jump in recognized preneed revenue that outpaced a $3 million dip in at‑need sales. The increase stemmed from $20 million of property revenue and $8 million of higher‑margin merchandise and services.

Cemetery gross profit surged $15 million, expanding the margin by 120 basis points to roughly 33%. Ryan attributed the boost to “higher‑margin trust income” and said the profit expansion “was partially offset by above‑inflation growth in fixed cemetery maintenance costs,” a cost category he described as “labor‑intensive” and tied to the upkeep of high‑end inventory.

Preneed cemetery sales production jumped $32 million, a 10% rise, with large‑sale contracts (>$100,000) contributing $20 million of that growth. “We are seeing real success” in the 10‑market pilot of a new cremation‑cemetery outreach program, Ryan added, noting plans to roll the initiative to another 80 markets in July.

**Cash generation and capital allocation** Chief Financial Officer Eric Tanzberger highlighted a $335 million adjusted operating cash flow, up 6% YoY, despite “softer volumes.” The cash flow lift came from a $20 million working‑capital release tied to a prior payroll‑tax payment, stronger preneed cash receipts, and a $7 million net working‑capital benefit.

Capital spending totaled $108 million, split between $66 million of maintenance (including $41 million for new cemetery development) and $17 million of growth capital for new funeral‑home construction. Acquisitions added $24 million of assets in Texas, Massachusetts, Alabama and North Carolina, keeping the firm on track for its $75‑$125 million acquisition budget for 2026.

Shareholders received $190 million in capital returns, with $143 million in share repurchases at an average price of $80 and a $47 million dividend. The repurchase reduced the share count to just over 130 million, contributing $0.03 to EPS.

Liquidity stands at $1.7 billion, comprised of $260 million cash and $1.45 billion available under a long‑term bank credit facility. Net‑debt‑to‑EBITDA is 3.68×, comfortably inside the company’s 3.5‑4× target range.

**Guidance and outlook** SCI reaffirmed its 2026 normalized EPS guidance of $4.05‑$4.35. Management expects funeral volumes to decline only 1%‑3% for the full year, a modest contraction relative to the 6.6% first‑quarter dip. Ryan stressed that “the year‑over‑year rate of decline will moderate as the year progresses,” pointing to historical patterns where Q1 weakness is offset by stronger Q2‑Q4 performance.

The company also projects cemetery revenue to grow “mid‑single‑digit” for the year, with margin expansion of 60‑120 basis points driven by continued preneed velocity and the anticipated impact of the cremation‑cemetery outreach program.

**Analyst scrutiny** Analysts pressed on the sustainability of cemetery growth and the volatility of large‑sale contracts. Ryan responded that large sales “are harder to predict because they can slip from June to July,” but emphasized a “steady pipeline” and the expansion of high‑ticket inventory across more markets, including Asian‑community‑focused Qingming events.

Questions about funeral‑volume headwinds elicited a reiteration of the company’s “built‑in ability” to adjust labor staffing and part‑time mix, a flexibility Ryan said “doesn’t require us to say anything” because it’s embedded in the operating model.

On trust‑fund returns, Tanzberger noted a 0.7% dip in Q1 but a “4%‑5% rebound in April,” projecting full‑year trust‑fund income of $300‑$350 million, acknowledging the inherent market volatility.

**Market reaction** SCI’s stock edged up 0.05% to $86.39 in after‑hours trading, extending a 2.08% weekly gain and a 10.80% year‑to‑date rise, while still sitting 2.6% below its 52‑week high. The modest price move reflects investors’ cautious optimism that cemetery momentum will offset funeral softness and keep the EPS target within reach.

Overall, SCI’s first‑quarter story is less about headline growth and more about the firm’s ability to lean on its diversified revenue mix, disciplined cost management, and a robust cash‑generation engine to navigate a seasonally weak funeral market. The company’s reaffirmed guidance, combined with a clear acquisition pipeline and expanding preneed sales initiatives, suggests that the upside potential remains intact, provided the anticipated rebound in funeral volumes materializes in the second half.