Service Corporation International (SCI) Q1 2025 Earnings: Strong Fundamentals Amid Transition Challenges

Service Corporation International (SCI), the largest North American deathcare provider, delivered mixed yet encouraging results in its Q1 2025 earnings report. While the stock dipped 4.88% post-earnings due to near-term concerns, the company’s robust cash flow, strategic initiatives, and long-term outlook suggest resilience in an evolving market. Below is an analysis of the key takeaways and investment implications.

Key Financial Highlights

SCI reported an adjusted EPS of $0.96, a 7.8% year-over-year increase, surpassing analysts’ expectations of $0.93. Revenue rose to $1.07 billion, in line with forecasts. The adjusted operating cash flow surged 43% to $316 million, driven by margin improvements and cost discipline. Management reaffirmed its full-year EPS guidance of $3.70–$4.00, implying a 9% midpoint growth, while maintaining a $830–$890 million operating cash flow target.

Segment Performance: Funeral Strength, Cemetery Challenges

• Funeral Division:
• Revenue grew 4% to $534.9 million, fueled by a 2.3% rise in average revenue per service to $5,748 and a 1.8% increase in services performed.

• Preneed sales, however, fell 10% to $284.1 million due to the transition to insurance-funded contracts, which disrupted SCI Direct operations. Management expects this to stabilize by late 2025, with preneed sales rebounding to low-to-mid-single-digit growth in 2026.

• Cemetery Division:

• Revenue dipped 2% to $399.5 million, primarily from a 6% drop in preneed property sales. Gross profit declined 4%, but management emphasized a focus on long-term property development.

Cash Flow and Capital Allocation

SCI returned $176 million to shareholders in Q1, including $46 million in dividends (a 10% annual increase) and $130 million in share repurchases. With $1.6 billion in liquidity, the company plans $75–125 million in acquisitions for cemetery expansions and funeral home upgrades. The net debt/EBITDA ratio improved to 3.59x, within its 3.5–4.0x target.

Outlook and Risks

• Growth Drivers:
• Funeral margins are expected to expand 80–120 basis points as the insurance preneed model boosts high-margin commissions.

• Cemetery sales could grow 1–2%, supported by property development and strong April sales momentum.

• Challenges:

• Flat funeral volumes and a stabilizing cremation rate (up 40 basis points) may limit top-line growth.
• Economic uncertainty could delay preneed sales, though SCI’s 11-year dividend growth streak and defensive sector positioning offer resilience.
• Supply chain risks, including tariffs on imported goods, remain manageable with 60% of merchandise sourced domestically.

Investor Sentiment and Stock Reaction

SCI’s stock fell post-earnings due to concerns about preneed transition impacts and flat funeral volumes. However, analysts maintain a “strong buy” consensus, citing a 14% upside potential and SCI’s $1.26 billion trailing EBITDA. The beta of 0.82 underscores its low volatility compared to broader markets.

Conclusion: A Buy Amid Transition

SCI’s Q1 results highlight a company in transition but fundamentally strong. While short-term headwinds from preneed model shifts and flat funeral volumes are valid concerns, the company’s cash flow generation, disciplined capital allocation, and long-term strategies—such as cemetery property development and insurance-driven preneed sales—position it for sustained growth.

With $3.85 in 2025 EPS guidance, a 2.3% dividend yield, and a 10-year average return of 12%, SCI offers a compelling risk-reward profile. Investors should focus on the long-term trajectory: preneed sales are still 27% higher than 2019 levels, and the funeral segment’s margin expansion plans suggest profitability resilience.

While the stock’s dip reflects near-term execution risks, the company’s defensive sector role and solid balance sheet make it a hold-to-buy for investors with a multi-year horizon.

Final Takeaway: SCI’s fundamentals remain intact, and the current dip presents an entry point for those willing to ride out transitional challenges. The path to $4.00 EPS—and beyond—remains achievable with strategic execution.