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Text: This is Debbie Young, director of investor relations for SCI.
With that out of the way, I'll now pass it on to our chairman and CEO, Tom Ryan.
We hope you and your families are staying safe and healthy these days.
It is your courage and commitment that positioned us for the results we posted this quarter.
You have continued to stay relentlessly focused on what we do best, helping our client families gain closure and healing through the process of breathing, remembrance, and celebration.
I want to assure you that your health, safety, and well-being continue to be a top priority for us.
Now on the quarter.
For the first quarter, we generated adjusted earnings per share of $1.32, compared to $0.43 in the prior year for an extraordinary increase of more than 200%.
This strong earnings-per-share growth was driven by two factors: significant funeral volume increases, which we anticipated based upon December volume increases of 31%, and a substantial increase in cemetery property sales, particularly preneed cemetery property sales, which exceeded our expectations and significantly enhanced our earnings per share results for the first quarter of 2021.
At a high level, both the funeral and cemetery segments in the quarter had margin improvement of over 1,000 basis points, driven by double-digit top-line percentage growth, coupled with a more efficient cost structure.
We also benefited from a lower share count and lower interest expense, which was more than offset by a higher adjusted tax rate.
Let's take a look at the funeral results for the quarter.
Total comparable funeral revenues grew $109 million or almost 22% over the same period last year.
These favorable results were driven by our core funeral businesses as well as SCI Direct.
Core funeral revenues grew $95 million due to a 22% increase in the number of core funeral services performed and a 0.5% improvement in the core funeral sales average.
In the first three months of the year, we continue to see a meaningful increase in the number of services performed due to COVID-19, with January and February showing very strong year-over-year growth and then tapering off somewhat in March as comparisons to the prior year became more challenging and as the effects of the vaccine rollout began to impact this year.
For over a year now, our frontline team has been serving record numbers of client families and continues to do so with compassion, commitment, professionalism, and agility.
We were very pleased with the core funeral sales average growth of 0.5% in the quarter.
This was achieved despite a modest 20 basis point increase in the core cremation rate which is well below our typical annual expectation of 100 to 150 basis points.
In March, the funeral average rose an impressive 8% when compared to the prior year and more than offset the more difficult pre-pandemic comps in January and February.
Additionally, when you look at the core average in absolute dollars in the month of March, it is pretty much in line with pre-COVID levels.
I believe this is a testament to the value our families continue to place on remembrance and celebration, which is very encouraging to us.
As restrictions are easing in both our client families and their guest comfort levels, about larger gatherings improved due in part to the vaccine rollout, we should expect that improvement to continue.
Preneed funeral sales production for the first quarter grew an impressive $35.3 million or 16%, which exceeded our expectations.
Both our core funeral homes and SCI direct businesses posted strong increases after a challenging 2020.
The growth predominantly came in the month of March.
And we did have an easier comp in the back half of March, but we also saw significant growth in leads from digital and direct mail, increased location traffic due to a higher at-need services performed and from the gradual return of in-person seminars.
From a profit perspective, funeral gross profit increased $85 million and the gross profit percentage increased more than 1,000 basis points to 31%, realizing a 78% incremental margin on our revenue growth.
We continue to benefit from growth in our higher incremental margin core business, coupled with the efficiencies that have favorably impacted our cost structure.
Now shifting to cemetery.
Like I referenced earlier in the quarterly overview, we experienced significant growth in cemetery revenues in the back half of 2020 in anticipated carrying momentum into the first quarter of 2021.
But our cemetery performance this quarter even exceeded our loyalty expectations.
Comparable cemetery revenue increased almost $161 million or 54% in the first quarter.
In terms of breakdown, at-need cemetery revenue accounted for $40 million or about 25% of the growth, driven by more interments performed due in part to the effects of COVID-19.
And recognized preneed revenues accounted for about $120 million or the remaining 75% of the revenue growth due to higher-than-expected preneed cemetery sales production during the quarter.
Preneed cemetery sales production grew an astounding $130 million or 67% in the first quarter.
The majority of this growth where about $85 million was driven by an increase in core velocity or the number of preneed contracts sold.
The remaining growth of about $45 million was about evenly split between increases in large sales activities, as well as a higher quality core average sale.
Consumer reception and demand for our products and services remained very strong.
We saw significant lead growth this quarter which was the combination of higher traffic from our at-need services and acceleration of leads from multiple lead channels, including digital and traditional lead sources as well as a record impact in certain markets from the Ching Ming holiday that drove elevated preneed cemetery sales from our Asian communities.
We also continue to see a more productive and efficient sales force, with better utilization of our customer relationship management system and improved conversion rates from our lead campaigns.
Cemetery gross profit in the quarter grew by approximately $111 million.
And the gross profit percentage increased more than 1,500 basis points to nearly 41%, realizing a 69% incremental margin.
Now I'll speak to our revised outlook and provide a little color.
Back in February, recall that we issued adjusted earnings per share guidance of $2.50 to $2.90 per share.
We had qualified this guidance and provided a wider range than we have historically as we felt it was difficult to predict the timing and the efficacy of the vaccine rollout [Audio gap] funeral volume comparisons the rest of the year, resulting in down mid-single-digit percentages for the entire 2021 and a favorable remaining nine months of funeral sales average, resulting in the return to 2019 pricing levels, showing low to mid-single-digit percentage growth over 2020 averages.
However, based upon our preneed cemetery sales production for the first four months of the year, we are increasing our guidance for the year from a decline in the mid-single digits, to finish the year in a range of flat to potentially low single-digit percentage growth.
Primarily, from this preneed cemetery sales production guidance increase, we are adjusting our annual earnings per share guidance to $2.70 to $3, thereby raising our midpoint by $0.15.
As we noted in our guidance from last quarter, we still expect future periods of earnings per share and cash flow results to be negatively impacted temporarily by the pull forward of funeral case volumes and at-need cemetery sales into 2020 and early 2021.
Still, the efficiencies we have gained by improving processes and leveraging technology have allowed us to produce a more competitive and profitable operating platform.
This, combined with the capital structure improvements we have made over the last 15 months, are expected to allow us to produce earnings per share, compounded annual growth returns in the low or even potentially mid-teen percentage range for 2022 and 2023, off of a pre-COVID 2019 earnings per share base of $1.90, even while absorbing these temporary pull forward effects.
From there, we anticipate that we will begin to see the impact of baby boomers entering their late 70s and realize the benefits of our investments in technology to stay relevant with the next generation of consumers.
These investments will enhance our ability to drive market share, to improve both the physical and digital customer experience, and in a more effective and efficient manner.
In closing, I just want to say what an honor it is to work with such a great team and that I am proud to call my SCI family.
Your selfless dedication to our families and communities is so appreciated, especially in times like these.
We are so proud of all 24,000 of our colleagues that have managed through the challenges of the past year and a half.
Looking forward, I remain hopeful as it appears, we finally might be emerging from the worst of this pandemic and soon be able to return to a more normal future.
So we generated operating cash flow of nearly $300 million during the quarter, representing an impressive increase of $118 million or 65% over the prior year.
Strong preneed cemetery sales, increased number of funeral services performed, as well as increased at-need cemetery interment volume led to the robust growth in operating earnings, which translated to strong operating cash flow results.
Cash flow was also affected by cash interests that increased $10 million, predominantly as a result of timing of payments related to the recent debt refinancing transactions, somewhat offset by lower rates on our floating rate debt.
Cash taxes also increased $12 million in correlation with the higher earnings.
Finally, we experienced a net use of working capital in the quarter, resulting from the tremendous growth in cemetery preneed property sales.
While this drove our earnings, these sales are mostly paid for on an installment basis which means that cash will be collected over time, including positively impacting cash for the remainder of this year.
We also experienced a timing difference of cash related to an additional payroll that was funded this quarter when compared to the first quarter of last year.
So now let us discuss our capital deployment of approximately $270 million during the quarter, covering reinvestment into our businesses, followed by growth capital, opportunistically reducing debt balances, and finally, returning capital to our shareholders.
So again, we invested $34 million into our businesses through $24 million of maintenance capital and almost $10 million of cemetery development capital spend.
Our cemetery development capital was almost $15 million lower than the prior-year quarter.
And it was lower than our expectations, primarily due to extended cold weather in certain areas of the country that delayed several of our cemetery development projects.
From a growth capital perspective, we invested about $9 million on growth capital toward the new build and expansion of several funeral homes.
These new builds should provide us with great low double-digit percentage returns going forward and expand our footprint into desirable markets.
We also deployed almost $6 million toward real estate purchases.
We only spent a small amount of acquisition capital during the quarter, which we believe is just timing as we continue to be confident in our targeted deployment range for acquisitions for the full year of $50 million to $100 million.
We also paid down our credit facility by a net amount of $80 million during the quarter as cash flow generation during the quarter, as I've said, was very robust.
Finally, we deployed over $140 million of capital to shareholders through dividends and share repurchases.
Dividend payments in the first quarter totaled about $36 million or $0.21 per share.
So let's shift into a few comments on our outlook and our financial position.
Earlier, Tom, as you heard, highlighted the earnings strength of our business with a strong start to this year, driving the need for us to adjust our guidance after the first quarter.
Our cash flow outlook has similarly changed.
So we're adjusting our cash flow guidance up from $600 million to $700 million to a revised guidance range of $650 million to $725 million.
This represents an increase of about $40 million at the midpoint of our guidance.
Higher cash earnings, as well as some positive working capital expectations that I just mentioned, are expected to be somewhat offset by higher cash taxes.
And on that note, we're now expecting $180 million of cash taxes in 2021 or an additional $20 million over the $160 million we guided to in February, driven by the increase in earnings.
We also continue to expect the full-year normalized effective tax rate between 24% and 25%.
So, therefore, our expectations and guidance do not contain any federal statutory tax rate changes at this time.
Our expectations for maintenance and cemetery development capital spending in 2021 remain unchanged at $235 million to $255 million.
Additionally, we continue planning for the deployment of $50 million to $100 million toward acquisitions and around $50 million in new funeral home construction projects.
Supporting these capital deployment expectations is our strong balance sheet.
We continue to be very well positioned with a significant amount of liquidity of roughly $765 million at the end of the quarter, consisting of approximately $245 million of cash on hand, plus just over $520 million available on our long-term bank credit facility.
On the continued growth in EBITDA, our leverage at the end of the quarter fell below three times to 2.61 times.
This leverage level was somewhat less than our expectations as EBITDA came in stronger than expected during the first quarter.
This calculation now reflects a full four quarters of strong pandemic impacts to our EBITDA.
So as we look beyond the impacts of this pandemic, we expect to settle into our targeted leverage range of three and a half to four times.
So in closing, we're off to a great start to 2021.
Our teams across the company continue to deliver great care to our client families and communities we serve in this challenging environment.
We began 2021 on very firm footing, reporting even stronger earnings and cash flow results than initially expected.
I am pleased that we're able to increase our 2021 guidance.
And looking forward, I'm also impressed with how much we have learned and adapted during these trying times as an organization.
We have evolved to become a much stronger organization.
And while there are some expected headwinds in the near future, as we look forward to '22 and '23, I expect our improved foundation will continue to add even more value going forward than we initially expected.
Finally, we're most honored to be able to help our client families and our communities during their most difficult days in these very unusual times and deliver peace of mind to those who wish to develop plans for their future.

user
q1 adjusted earnings per share $1.32.
sees 2021 diluted earnings per share excluding special items $2.70-$3.00.

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