Service Corporation International Delivers Strong Earnings Beat Amid Analysts' Revised Outlook
16min read Service Corporation International (SCI), the funeral and cemetery services giant, has delivered a robust first-quarter performance that exceeded Wall Street’s expectations, even as analysts temper optimism with caution over near-term execution risks. The company’s Q1 results, highlighted by a 10% jump in EPS and record operating cash flow, underscore its dominance in the deathcare sector. Yet mixed analyst revisions and lingering concerns about preneed sales transitions have left investors grappling with a stock that dipped post-earnings despite the strong numbers.
Financial Fortitude Amid Sector Challenges
SCI’s Q1 2025 revenue rose to $1.07 billion, a 2.8% year-over-year increase, driven by strong performance in its funeral segment. The company reported a $17.2 million jump in gross profit to $291.4 million, fueled by higher pricing and cost discipline. Funeral services grew by 1.8% to 97,854, while average revenue per service increased 2.3% to $5,748. This reflects both organic growth and the benefits of new insurance partnerships, which boosted general agency commissions by 18%.
However, the cemetery division faced headwinds. Revenue dipped 1% to $434.7 million, as preneed property sales fell 6%. Management emphasized that this is a temporary setback, pointing to a “production focus” on developing undeveloped land—a strategy that could yield future revenue as projects near completion.
Analysts: Caution Meets Optimism
SCI’s adjusted EPS of $0.96 beat estimates by 6.7%, marking its second consecutive EPS beat. Yet the Zacks Rank assigned the stock a #3 (Hold) due to mixed revisions ahead of the report. While analysts acknowledge SCI’s operational strength, concerns linger over its transition to insurance-funded preneed contracts, which reduced preneed funeral sales by 10% to $284.1 million.
The stock dipped 4.88% post-earnings, reflecting these worries. However, analysts maintain a “strong buy” consensus, citing a 14% upside potential and a trailing EBITDA of $1.26 billion. The company’s $1.6 billion in liquidity and plans to invest $75–125 million in acquisitions this year further bolster confidence.
Strategic Priorities: Cash Flow and Shareholder Returns
SCI’s management has prioritized capital allocation with discipline. In Q1, it returned $176 million to shareholders—including a 10% dividend hike and $130 million in buybacks—while maintaining a net debt/EBITDA ratio of 3.59x, within its target range. CEO Tom Ryan emphasized the company’s focus on “operational scale, margin expansion, and strategic acquisitions” to drive long-term growth.
The company’s cemetery development pipeline is a key growth lever. With $160 million budgeted for cemetery property construction in 2025, SCI aims to capitalize on its 496 cemeteries and 1,489 funeral homes, which serve over 700,000 families annually.
Risks and the Road Ahead
SCI’s near-term risks include economic slowdowns, which could dampen discretionary spending on preneed services, and cremation rate stabilization. While cremations rose 0.4% to 57% of core services, competition for funeral and cemetery services remains fierce.
Longer term, SCI’s focus on digital initiatives (allocated $25 million in 2025 capital expenditures) and its Dignity Memorial brand—a trusted name in personalized service—position it to weather these challenges. Management reaffirmed its full-year EPS guidance of $3.70–$4.00, implying 8–12% growth at the midpoint.
Conclusion: A Hold for Now, a Buy for the Long Term
SCI’s Q1 results reflect its status as a defensive sector leader with strong cash flow and a resilient business model. While short-term headwinds like preneed sales volatility and cemetery underperformance justify the cautious Zacks Rank #3, the company’s fundamentals—$316 million in operating cash flow, a fortress balance sheet, and a 11-year dividend growth streak—are compelling.
Analysts project a 2.3% dividend yield and a multi-year growth path toward its $4.00 EPS target. For investors with a multi-year horizon, the recent dip presents an entry point into a sector that remains recession-resistant. SCI’s ability to execute on its cemetery development pipeline and stabilize preneed sales will be critical. Until then, the stock remains a hold-to-buy opportunity, blending steady dividends with the potential for upside as strategic bets pay off.
In a sector ranked in the top 36% of all industries, SCI’s combination of financial strength and industry leadership positions it to outperform peers over the long term. The question now is whether management can turn Q1’s strong start into sustained momentum—a challenge the stock’s 0.82 beta suggests it can weather.
