Service Corp at Raymond James Conference: Strategic Growth Insights

On Tuesday, 04 March 2025, Service Corporation International (NYSE: SCI) presented at the Raymond James & Associates’ 46th Annual Institutional Investors Conference. The discussion, led by CFO Eric, provided a strategic overview of the company’s performance and future plans. Key themes included a return to pre-COVID growth levels, leveraging technology, and disciplined mergers and acquisitions (M&A). While challenges remain, particularly in funeral volumes, the company is optimistic about its growth prospects.

Key Takeaways

• Service Corp aims to return to an 8-12% EPS growth rate as COVID-19 impacts diminish.
• The company is focusing on organic growth, preneed sales, and strategic M&A to drive revenue.
• Technology investments are enhancing sales force productivity and reducing turnover.
• Service Corp anticipates a $30-40 million benefit from a new general agency agreement.
• The company sees opportunities in acquiring larger independent funeral homes and cemeteries.

Financial Results

The company aims for an 8-12% earnings per share (EPS) growth as it moves past the COVID-19 pull-forward effect. Preneed sales have surged from $1.8 billion pre-COVID to $2.8 billion. Last year, Service Corp invested nearly $200 million in M&A activities. Revenue is expected to grow by approximately 5%, fueled by organic business, M&A, and the general agency agreement.

Operational Updates

Service Corp expects 2025 to be the final year significantly affected by the COVID-19 pull-forward. Technology adoption has increased sales force productivity, allowing fewer full-time employees to generate higher sales. The sales force has been reduced from 4,300-4,400 to 3,700. This year, the company is investing $20-25 million in digital technology. Sales turnover has decreased to about half of what it was 10-15 years ago.

Future Outlook

Funeral volumes for 2025 are expected to be flat to slightly down. The M&A pipeline shows potential fatigue, with opportunities to acquire larger, independent businesses that could benefit Service Corp’s internal rate of return (IRR). The general agency agreement is projected to provide a $30-40 million benefit. The CFO anticipates that the SEI Direct price point could rise from $2,500 to $3,500 over time.

Q&A Highlights

Service Corp’s strategic acquisitions provide immediate EBITDA synergies through national supply chain contracts. The company manages trust funds with an average return of about 7% annually, extracting 1-1.25% as a management fee from a $16 billion backlog. State regulations on trust fund retainage vary, with California requiring 100% and Texas 90%.

In conclusion, Service Corp is strategically positioned to capitalize on growth opportunities as it navigates the post-COVID landscape. For a deeper dive into the conference insights, readers are encouraged to refer to the full transcript below.

Full transcript - Raymond James & Associates’ 46th Annual Institutional Investors Conference 2025:

John: We gotta make do with Eric, CFO.

So this is gonna be a % fireside, so I’ll run out of questions. So hopefully, you guys will have some snappy questions here at the end, or I’ll start asking about, you know, Alabama football or something. So let’s just start with, you know, you guys have reported and guided. I don’t think there were any big surprises, but just kind of a high level take a step back. What’s what’s state of the union for the industry for Service Corp?

You know, are we finally through all the COVID distortions? What what are some of the key things that you’re working on now that maybe you weren’t focused on during the emergency? And, just kind of, you know, where we are in the the state in the state this stage of the company and the industry.

Eric, CFO, Service Corp: Coming out of COVID, you know, is where is where we are. What I would say, John, first of all, thanks for having us. It’s been I don’t know how many I think we’re embarrassed to say how

John: many years you and I have been I think it was the

Eric, CFO, Service Corp: Reagan administration. Very well been.

John: Second term, though.

Eric, CFO, Service Corp: Yeah. Second term makes us feel a little bit better, a little younger. You know, as generally as Service Corp, you know, we’ve proven over a decade now at least, you know, that we can grow the company at eight to 12% earnings per share bottom line. I think if you take the trail in ten years, we’re, like, 12 to 13. That’s a combination of our organic growth through the funeral segment and through the preneed cemetery sales growing significantly, over the years as well as new field, green field type, buildings and such, both from the funeral home and cemetery side.

And also, m and a activity, which is which is pretty significant. So at the at the we were obviously interrupted, as we all know, during the COVID experience, where we normally perform about 350,000 funeral services per year, and we performed an extra 30,000 funeral services over about a two to two and a half year period. That obviously had an effect where it pulled forward funeral services from future years into that COVID period. And I think as John just said, I think we’re finally getting to kind of the last year in ’25 that we probably need to talk about that and that it’s, that it would have any significance to us as we as we move forward. Right now, we expect, you know, funeral volumes for 2025 to be flat to, you know, slightly down.

But ultimately, what we’re excited about is where we are in the industry in terms of the baby boomer generation affecting our industry and our company into the future. And specifically for us, as you look to future generations, whether it’s going from the silent generation to the baby boom generation to gen x, which you’re also seeing particularly in our cemetery, segment is an increase in the Asian consumer and the Hispanic consumer, which is something that, that we have marketed to and really changed our business to market to in the cemetery segment to the point where that’s been very profitable, and we’re very excited about those, demographics. So I think we can continue to expect growth in the company as we move forward in that eight to 12% algorithm. I do think that it slowed us down the past couple years because of that COVID pull forward effect that we talked to, but we’re already back in with the center of the guidance back into that eight to 12%. And we’re excited about moving forward.

And I think more to come as the baby boomer generation affects that algorithm, which with a 60 to 70% fixed cost structure should be nice incremental margin growth and nice incremental growth in profits as we put more volume, more throughput through that fixed cost structure over a period of time.

John: So I promise we’re not gonna we’re we’re gonna save the agency switch to the end. You’re already sure tired of talking about that. So we’re gonna keep it sort of high level here, so you don’t have to work that hard yet. You know, what strikes me having looked watched this industry for a bit is, you know, it never was, quote unquote ruined by private equity. And what I mean by that is you didn’t have, you know, 6,000 start up funeral homes and a mass marketing strategy of something.

But so why do you think, it it has some attractive aspects to it, in terms of predictability and cash flows. What why do you think, outsiders have kinda stayed on the sidelines and not tried to make a go of it here?

Eric, CFO, Service Corp: Well, I think they’re now finally getting into the business, though. I I really do. You know, we have a couple consolidators. One’s called Parklawn that is now owned by partially owned by, private equity. We have another one called Northstar, which is owned by private equity and has been for the last, for the last ten years.

But ultimately, for you to to invest in this space, it’s gonna be very difficult for a private equity firm to come in and just build Greenfield locations. So they’re gonna have to buy Greenfield loca they’re gonna have to buy existing m and a activity and and, locations. And, you know, the truth to it is is that when you go in and look at our scale, as a strategic, we should be able to buy those funeral homes and cemeteries because of our scale and because of our economics. And this you know, it’s the old saying that the strategic should be the financial. In that situation, it’s it’s somewhat true, especially in a normalized interest rate environment.

You know, with the type of scale that we have on the national level, we immediately have a turn of EBITDA of synergies day one just through our national supply chain contracts. And then furthermore, when you’re buying a a new business where we already have that scale, which generally is what we wanna do and what we do do, you’re gonna have other synergies related to automobiles and personnel and things along those lines that, you know, over a period of time in sales practices and such will give you maybe another turn. And so for the most part, the strategics can kinda have an advantage in these situations, and that may be an impediment for private equity coming to come in fast and roll it up. For them to really come in and make an impact, they’re gonna have to buy a larger consolidator that’s already there and is willing to do that. And that’s really how those two previous transactions that I just referred to, came about.

But, again, we’re very active in the m and a market. We’re spending a hundred million a year. Last year, we almost spent 200,000,000 a year. It ebbs and flows. But as a general statement, we and the industry has been very disciplined in terms of

John: the

Eric, CFO, Service Corp: multiples. And, I think private equity is somewhat attractive to attracted to the industry because of the cash flow dynamics of the industry, but it’s not gonna be something they’re gonna have to come in. They would be able to come in and have, like, a big bang effect and roll it up instantaneously unless they, you know, cut a deal with one of the other smaller consolidators.

John: Great. So as you think about, the boomer, you know, there’s the obvious potential uptick in, you know, volumes maybe. Yeah. We’ve been waiting on that, but, kind of the the boomer’s 80. Yeah.

The oldest boomer’s 80. But is there also a corollary of a slightly bigger wave of funeral homes for sale as that generation retires and the kids don’t wanna continue with the calling?

Eric, CFO, Service Corp: Yeah. I think we’ve seen that lately. And, you know, when we gave guidance of ’75 to a hundred and twenty five million of m and a spend last year and we ended up at a hundred and 80, million dollars, I think what we saw out of COVID is a larger independent that went through a very significant trying period of time over a couple years. You know? And there’s definitely spots where the COVID activity was, where it was very acute, where the independent, you know, for lack of better words, really just had to shut down.

They were overwhelmed by the situation where what we were able to do with our scale is move hundreds of our associates around and move them to those hot spots and maintain, you know, the businesses open for the benefit of the of those communities. But what came out of that, John, in all reality was probably you’re right, is some fatigue. And that’s why we have seen and you’ve heard me say it now for a couple years that I’ve been very excited about the m and a pipeline. When I say that, what do I mean by that? I mean that these are larger independent businesses.

I mean that they’re probably in major markets, and they’re probably in markets where we already exist. Now you’re talking about tuck in type major market activity with some scale where we already have scale, and now you’re starting to see, acquisitions that can approach, you know, almost mid teen type after tax IRRs, which is a tremendous use of our of our capital that we’re excited about. The patient part of that process is that these could be third, fourth, and even, believe it or not, sometimes fifth generation businesses. And so the equity holders are somewhat scattered within those families and, you know, you can do the math. That’s a headache, when you say that, and it’s more of a headache to try to get everyone on the same page and get a purchase agreement.

We choose to be have long term relationships with those families. We choose to be patient. We choose to be an advocate for those families in terms of the m and a transaction. But we’re not gonna come in and they and be undisciplined and force a family to sell because of price. That occurred in the industry thirty years ago.

It didn’t end well in this industry and as a general statement, not just Service Corp, but all of the larger consolidators, you know, have been somewhat disciplined over the last twenty years, and I expect that to continue. I don’t see any signs of that, changing in any direction. But, ultimately, we’re excited about the m and a activity. And as you said, we’re seeing some fatigue perhaps, and we’re seeing some the potential of some larger independents more chunkier, which would really benefit us and our IRRs in those situations.

John: You know, I don’t think this is lost, but could be maybe emphasized more. You guys, again, during COVID, took that opportunity, if you will, to look pretty hard at your sales team and productivity. So maybe just kind of wind back the clock a few years and talk about Beacon, talk about sales Sure. Salesforce, and talk about the productivity. And then just how you’ve tried to solve for the fact that, you know, the the turnover is usually pretty high, and and you’ve got the old eighty twenty rule.

So what are we what are we doing to make all that less of a drag or a friction point for you?

Eric, CFO, Service Corp: Yeah. It’s a great question. I mean, technology is the key to those efficiencies. And let me put some numbers to it just to give you a feel for it.

John: I was told there’d be no numbers.

Eric, CFO, Service Corp: I’m gonna break our own rule then. You know, back in pre COVID twenty eighteen, twenty nineteen, you know, we were generally selling between prearranged funeral and preneed cemetery. We were selling about $1,800,000,000 of preneed sales a year, utilizing a sales force in the, I’m gonna call it, 4,300 to 4,400 in terms of FTEs in that situation. When you roll forward to post COVID, the 1,800,000,000.0 is more like 2,800,000,000.0, and the 4,300 is more like 3,700. And so the only way that math works is utilizing technology.

Now prior to COVID, we had already invested in technology. We already invested in the Salesforce CRM system. We invested in a much more simplistic, point of sale system that was tablet based in front of the consumer, customer facing technology to make something more efficient, quicker, easier. We started investing in, virtual technology, whether it be Zoom, WebEx, etcetera, etcetera, etcetera, to do this more virtual with with families. But what did COVID do?

COVID forced the issue. There was no way to go about, continuing that print aid sales activity without that technology. That forced those sales counselors into the CRM system. That forced those sales counselors to use Beacon. Force those sales counselors instead of driving forty five minutes to somebody’s home and driving back and etcetera, etcetera, that forced them to use virtual technology to do those types of situate types of sales calls with the customer facing technology of Beacon.

And that’s what brought that about and brought those efficiencies about that I described to you. We want to obviously continue that evolution as we go forward. I think we could get probably a lot more out of our Salesforce CRM system and use better technology and continue to go down, that path. I also think we could take some of that preneed technology of Beacon and bring it into probably a more efficient at need arrangement process, as as we move forward. So all of these things that we are investing in, and we’ve even gone out in our guidance that, you know, from a digital perspective, you know, we’re gonna invest upwards of, you know, 20 to $25,000,000 this year alone in terms of continuing that technological path.

But that was the key to the efficiency, and we will continue to look for ways to make it more efficient as we move forward.

John: What about the the turnover? Is that, have you made a dent there?

Eric, CFO, Service Corp: We really have. I mean, the turnover of that Salesforce, you know, if we talked ten, fifteen years ago, was a %. It was significant. Now it’s probably half that. Okay.

Right now, you’re still gonna have some turnover. I think the, the turnover statistics are a little skewed right now, because we continue to change the way we are doing things in SEI Direct and with a new general agency agreement that we said we’d talk about at the end. So that’s a little bit of a of skewing some of the turnover right now. But as a general statement, we’ve made leaps and bounds in terms of settling that statistic down and investing in our sales force and our particularly our personnel.

John: I got a question that, kinda stumped me, so I’m hoping you can help me out. It’s kind of a fine point, but I thought it was interesting. So let’s say you buy the issue with funeral home is the pre needs all deferred or it was, and your deal is bringing more of that forward. But let’s say you buy a typical funeral home that’s not doing any pre need, how long does it take when you layer in your pre need for that to show itself in the financials? And and what kind of lift do you get, like, five, ten years down the road, though, like, a volume that you’re capturing that that otherwise wouldn’t have been captured without that kind of program in place?

Eric, CFO, Service Corp: Yeah. It it’s it’s rare for us to come across that M and A activity. And if we do come across that, it’s usually not in a larger metropolitan market. It’s more in type of a rural area. And as you know, we we would pass on that deal and Yep.

In a lot of those those situations. You know, generally, when you sell preneed, the average life of the contract is twelve years, but that’s an average. You’re gonna start seeing a little bit of lift, my guess, in years three and four in that in that situation where you start seeing some things come out of the backlog in that particular case. But as a general statement, we don’t come across that very often. The type of of, business that we’re gonna buy is a larger it’s independent, but it’s a little bit institutional to the extent where they’ll have, you know, upwards of five to 10 locations in a market in a lot of these situations, and they have an active pre need program.

Some of them are backed by trust funds. Some of them are backed by insurance. It just depends on how that particular family grew up and what they believed in and So it’s more

John: about building what they have versus

Eric, CFO, Service Corp: Exactly. It really is.

John: What are you able to do there, like, in terms of build?

Eric, CFO, Service Corp: We’re able to significantly change it. You know, we’re we’re very good at selling preening, as I’ve already mentioned, with the statistics even though we’re not allowed to use numbers today. But we’re very good at it, and we’re able to come in and affect change pretty dramatically pretty quickly. However, as I just described to you, you may not see that coming out of that business for to start to come out for three to four years. It’s not an instantaneous effect.

You’d have much more of an instantaneous ramp up early on in, let’s call it, year one, year two of a pro form a in the cemetery business. But that takes a little bit while as well because what we’re doing is we’re coming in and investing capital into the inventory and tearing a cemetery a lot of times or, you know, doing it a little differently or a little better than maybe what the independent was able to do just because of the size of our capital that we’re able to do it. And that takes a little bit of time as well. So a little quicker ramp up in a cemetery acquisition than the funeral segment as we talk about pre need, but still a little bit of delay. It’s not necessarily day one in cemetery because we wanna invest some capital, tier it into the high end, medium tier, etcetera, etcetera.

John: Alright. Now now time to eat our eat our spinach. So, you know, recently, the company did a agency switch, in the funeral side. We labored over a note, so if you wanna look at that, we estimated by the time it was fully baked, and this will be a few years, it was about a 50¢, good guide to EPS. And so our numbers would be it’s about a 15 to 20¢ lift this year, versus last year because you started middle of the year last year.

And so when we when we looked at that and we looked at the assumptions around the core business, it looked pretty conservative because you’re getting that that lift. So, yeah, if you wanna look at some work we did on that, I would point you to that. But, let’s just kinda take it from the top and describe this as somebody who’s never looked at this, before.

Eric, CFO, Service Corp: So so I used some numbers before on Preeni, the the, you know, 2,800,000,000.0 and such, but let’s talk about funeral because this is a funeral situation. Of that amount, about 1,200,000,000.0 of sales is the prearranged funeral. That’s the peace of mind. That’s someone a consumer that’s coming in and wants to prearrange their own funeral and make their their own arrangements. There’s two ways for that for that consumer to fund it, either buying a life insurance policy or giving us the money that’s placed into a state mandated trust fund.

So that 1,200,000,000.0, we’re gonna start by splitting it. 900,000,000 is related to our core 1,500 funeral homes that we have at SCI. Three hundred of that is related to a a different model that we call SCI Direct, which is a lower price point, cremation, lease model that’s not very capital intensive at all. So the first thing that you’re gonna know about the the 900 is that we’re gonna we sell about two thirds of that amount are insurance contract, and about one out of every three is a general statement or trust contracts. That mix is not gonna change much.

There’s some state laws. There’s some other situations that’s not gonna allow us to change that mix very much. What you are getting though on that two thirds of that 900,000,000 are better economics in the in the in the New Deal as we have, described it. We used to get something in the commission on an average in the mid to high twenties. It’s still being baked.

We’re still moving through the transition. These are new products for our sales force. We can get deeper into that if you want to. But ultimately, we hope that that gets into more like the mid thirties is probably what we’ve seen and what we’ve disclosed in our 10 q’s as public information. The other piece to the pie is the $300,000,000 related to SEI Direct.

That was a % trust that we’re trying to move to a % insurance to the extent that that we can. Now that model is changing overall. As we’ve said before, we used to deliver earned products right then and there, and we’ve ceased doing that. And so any incremental general agency revenue that’s coming in for SEI Direct is really washing a decrease of recognized revenue because we are no longer delivering some of these products and merchandise, and they’re going into the to the backlog of future revenues. We’ll recognize those revenues when we deliver those products and services into the future.

But what that does mean is that what’s coming out of the backlog at SCI Direct is gonna have an higher average sale price, and that’s gonna be lucrative into the future for the models. In fact, as Tom said on the call, what came out of the backlog for SEI Direct in this quarter alone was 10% higher in q four twenty four versus q four twenty three, and you can expect better economics as we move forward. So the real bump that John was was talking about is related to the $900,000,000 of core prearranged funeral sales that I described to you, and two thirds that’s actually insurance that has a better economic factor. You mentioned you thought that was about 40,000,000. I think Tom said that may be a little bit high, and I I agree with that for for ’25.

John: Do you agree with your boss?

Eric, CFO, Service Corp: Yes. I do. I I think that could be somewhere between 30 and and 35,000,000 or 30 and 40,000,000 perhaps. But that that’s kinda generally what it is. It’s a play on a on a new vendor.

We’re gonna continue to work through the first half of this year in terms of getting it all up and running. There’s some some complexity related to the new products, which I don’t know if you wanna get into or not, but we’ll get it up and running probably by midyear as we described and as Tom described in the last conference call.

John: May maybe a need a simplifying way to think about it. If if we looked at the SCI Direct price point today, once you fully capture the backlog of earned sales, where where is the where is the price point move, from times a year to say year seven or whatever

Eric, CFO, Service Corp: I think it could be significant. I think it could go from a $2,500 price point to maybe a $3,500 price point coming out.

John: With no

Eric, CFO, Service Corp: That’s over a long period of time.

John: Very little. No incremental cost. Right. That’s that’s just pure. So 2,500 goes to 30.

And and I think the number we use, we are also trying to back into acquisition. We were getting, I think, 40 Parker, correct me if I’m wrong. We were trying to get the total good guy of a full year of the agency deal plus a full year of what you bought because some of the acquisition stuff was in the back half of the year.

Eric, CFO, Service Corp: The the way I describe it, you know, again, if we wanna talk numbers, is, you know, we we have a little over 4,000,000,000 in revenues, and our revenues are gonna grow about 5%. Let’s just call that a couple hundred million dollars. I think from the same store comparable operations driven by average sale price in the funeral segment and printing cemetery sales in the in the cemetery, you know, segment, you’re gonna get you’re gonna get close to probably half of that growth just from the organic, you know, business. So where’s the other hundred million come from? Well, it comes from m and a, and it comes from that general agency agreement.

And, you know, if that general agency agreement is 30 to 40, then you expect that the non comp, which is the m and a in Greenfield location, you know, revenues coming up to up to par, you know, or 60 to 70,000,000 of that piece. But that’s kinda how I very simply break up the revenue growth this year.

John: Can’t make it too simple for me. You’re not making it. It’s impossible. Just lastly, and this is a little bit in the weeds, but this gets it’s funny. We’ve done Parker and I, and so we’ve probably done a million SEI calls over our career.

And, like, a third of them, people just can’t help themselves. They get into the accounting weeds and they never we never find them again. They get we have to send out a flare and they’re down here. And it, like, we had one I think we did 12 calls with one investor and they just could never but one of the things we try to steer people away from, but maybe you could help simplify this. So when you sell a pre need funeral into the trust, you know, there’s no revenue until the funeral happens.

So the revenue recognition, you you know, there’s you gotta pay the salesperson out. Yeah. You gotta pay the salesperson cash commission. You get the money over a period of time, four to five years, then twelve years, the funeral happens. But maybe talk a little bit, but, you know, that’s not the static thing.

So between year one and year 12, what sort of cash is the company able to extract from a trust, either through management fees or other that, you know, keeps the funding minimums there, but maybe not it’s in the cash flow, but it’s not in the revenue line. And so if we started, theoretically, year four with $5,000 in the trust, what does that look like in year 12, kinda, with your average returns, but then accounting for the fact that you pull you pull some cash out along the way?

Eric, CFO, Service Corp: Well, I mean, as a general statement, we invest those funds and, you know, it fluctuates, but we generally think we earn about 7% a year. So that 5,000 will grow 7% per year and come out of those trust funds accordingly. Now in the admin environment, you know, we’re raising prices, you know, call it two to 3% a year. So what you should see over a period of time, if that entire equation works, is you should see something that was sold ten years ago come out of the backlog at a higher average and therefore cash coming out at what your at need sale price is today. And as a general statement, if you go look at the at the releases and such, that’s a that has occurred.

You know, what’s coming out of the backlog is a few hundred

John: But it’s not quite as simple as 5,000 compounding at seven because you pull out 1% for for Yeah.

Eric, CFO, Service Corp: We pull out about one, one and a quarter percent as a as a management fee for all the back office of managing all of the, you know, $16,000,000,000 backlog. That’s a tremendous amount of contracts when you think the average price is about $56,000. So we have a huge administrative burden, much less reporting on each individual state that’s audited in each individual state. So, we’re not necessarily making money on that, that fee that we pull out, but it’s helping cover some of our overhead costs.

John: But that’s decent the return. And then also, if a trust, quote unquote, gets overfunded, what what are the rules about let’s say the minimum is 7,000, you got 13,000 in

Eric, CFO, Service Corp: the trust. What what are the rules about You’re not gonna pull that out as a general statement until the contract turns at

John: ease. So okay.

Eric, CFO, Service Corp: This is this is there to protect the consumer. The rules are pretty clear to protect the consumer. There at at least in our situation, we don’t we’re not very aggressive at all on this. We’re not gonna try to go in and pull out, you know, funds that are that are of any material that I should mention to you. I’m sure there are some here or there in certain states, but as a general statement, that’s not gonna be something that that’s gonna

John: But states all require a %. There’s some states that require a %.

Eric, CFO, Service Corp: There’s some there’s California requires a %. Yeah. There’s some Texas is 90%. I mean, it just it just depends. But that’s just retainage that we get to keep day one to help offset the selling costs Okay.

Of the sales counselors.

John: Alright. We got two minutes. Anybody out there have a burning question? Really? Come on.

You guys make me sad.

Eric, CFO, Service Corp: Breakout session.

John: Well, we’ll finish up two minutes early. Thanks, everybody.

Eric, CFO, Service Corp: Thank you.

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