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Funeral services company Service International (NYSE:SCI) reported results in line with analysts' expectations in Q2 CY2024, with revenue up 2% year on year to $1.03 billion. It made a non-GAAP profit of $0.79 per share, down from its profit of $0.83 per share in the same quarter last year.
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Service International (SCI) Q2 CY2024 Highlights:
- Revenue: $1.03 billion vs analyst estimates of $1.03 billion (small beat)
- EPS (non-GAAP): $0.79 vs analyst expectations of $0.87 (8.8% miss)
- EPS (non-GAAP) Guidance for the full year is $3.65 at the midpoint, roughly in line with what analysts were expecting
- Gross Margin (GAAP): 24.9%, down from 25.8% in the same quarter last year
- Free Cash Flow of $100.8 million, down 28.2% from the previous quarter
- Funeral Services Performed: 86,031, down 1,039 year on year
- Market Capitalization: $11.65 billion
Specialized Consumer ServicesSome consumer discretionary companies don’t fall neatly into a category because their products or services are unique. Although their offerings may be niche, these companies have often found more efficient or technology-enabled ways of doing or selling something that has existed for a while. Technology can be a double-edged sword, though, as it may lower the barriers to entry for new competitors and allow them to do serve customers better.
Sales GrowthA company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones tend to grow for years. Over the last five years, Service International grew its sales at a weak 5.2% compounded annual growth rate. This shows it failed to expand in any major way and is a rough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or emerging trend. Service International's recent history shows its demand slowed as its revenue was flat over the last two years.
We can better understand the company's revenue dynamics by analyzing its number of funeral services performed, which reached 86,031 in the latest quarter. Over the last two years, Service International's funeral services performed averaged 3.4% year-on-year declines. Because this number is lower than its revenue growth during the same period, we can see the company's monetization has risen.
This quarter, Service International grew its revenue by 2% year on year, and its $1.03 billion of revenue was in line with Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 2.9% over the next 12 months.
Cash Is KingAlthough earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.
Service International has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company's free cash flow margin averaged 10.8% over the last two years, slightly better than the broader consumer discretionary sector.
Service International's free cash flow clocked in at $100.8 million in Q2, equivalent to a 9.7% margin. This quarter's result was good as its margin was 5.3 percentage points higher than in the same quarter last year, but we wouldn't put too much weight on the short term because investment needs can be seasonal, causing temporary swings. Long-term trends trump fluctuations.
Key Takeaways from Service International's Q2 Results We struggled to find many strong positives in these results. Its EPS missed and its number of funeral services performed fell short of Wall Street's estimates. Overall, this was a bad quarter for Service International. The stock traded down 2.6% to $78 immediately following the results.
