Carriage Services (NYSE:CSV) Reports Bullish Q4, Guidance Less Exciting

Full Report / February 21, 2024

Funeral services company Carriage Services (NYSE:CSV) reported Q4 FY2023 results topping analysts' expectations, with revenue up 5.2% year on year to $98.8 million. The company expects the full year's revenue to be around $385 million, in line with analysts' estimates. It made a GAAP profit of $0.75 per share, improving from its profit of $0.53 per share in the same quarter last year.

Carriage Services (CSV) Q4 FY2023 Highlights:

  • Revenue: $98.8 million vs analyst estimates of $93.65 million (5.5% beat)
  • EPS: $0.75 vs analyst estimates of $0.49 (52.3% beat)
  • Management's revenue guidance for the upcoming financial year 2024 is $385 million at the midpoint, in line with analyst expectations and implying 0.7% growth (vs 3.4% in FY2023)
  • Management's EPS (non-GAAP) guidance for the upcoming financial year 2024 is $2.25 million at the midpoint, below analyst expectations of $2.31
  • Free Cash Flow of $12.8 million, down 40.2% from the previous quarter
  • Gross Margin (GAAP): 35%, down from 37.2% in the same quarter last year
  • Market Capitalization: $375.7 million

Established in 1991, Carriage Services (NYSE:CSV) is a provider of funeral and cemetery services in the United States.

The company provides personalized services to families experiencing a loss. Carriage Services's offerings include traditional funeral arrangements, cremations, memorial services, and cemetery property sales and maintenance. The company prides itself on offering compassionate care and support, coupled with professional and dignified service.

Carriage Services utilizes a decentralized operating model where it is hands-off regarding the day-to-day management responsibilities of individual funeral homes and cemeteries in its network. Instead, it takes a back seat and supports partners with resources and knowledge of best practices across the larger organization. This strategy has enabled Carriage Services to grow its network effectively through tuck-in acquisitions of independent funeral homes and cemeteries.

To improve efficiency, the company invests in training its staff and adopting new technologies to enhance the customer experience. This includes digitalizing aspects of funeral planning and memorialization, offering online obituaries, and providing live streaming services for funeral services.

Specialized Consumer Services

Some 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.

Carriage Services' primary competitors include Service Corporation International (NYSE:SCI), StoneMor (NYSE:STON), Park Lawn Corporation (TSX:PLC), Matthews International (NASDAQ:MATW), and Dignity Plc (LSE:DTY).

Sales Growth

A company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one may grow for years. Carriage Services's annualized revenue growth rate of 7.7% over the last five years was weak for a consumer discretionary business. Carriage Services Total RevenueWithin consumer discretionary, a long-term historical view may miss a company riding a successful new product or emerging trend. That's why we also follow short-term performance. Carriage Services's recent history shines a dimmer light on the company as its revenue was flat over the last two years.

This quarter, Carriage Services reported solid year-on-year revenue growth of 5.2%, and its $98.8 million of revenue outperformed Wall Street's estimates by 5.5%. Looking ahead, Wall Street expects sales to grow 1.3% over the next 12 months, a deceleration from this quarter.

Operating Margin

Operating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Carriage Services has been a well-managed company over the last eight quarters. It's demonstrated it can be one of the more profitable businesses in the consumer discretionary sector, boasting an average operating margin of 21.7%. Carriage Services Operating Margin (GAAP)

This quarter, Carriage Services generated an operating profit margin of 24.2%, in line with the same quarter last year. This indicates the company's costs have been relatively stable.

Over the next 12 months, Wall Street expects Carriage Services to maintain its LTM operating margin of 21.4%.


Analyzing long-term revenue trends tells us about a company's historical growth, but the long-term change in its earnings per share (EPS) points to the profitability and efficiency of that growth–for example, a company could inflate its sales through excessive spending on advertising and promotions. Carriage Services EPS (GAAP)

Over the last five years, Carriage Services cut its earnings losses and improved its EPS by 103% on average each year. This performance is materially higher than its 7.7% annualized revenue growth over the same period. There are a few reasons for this, and understanding why can shed light on its fundamentals.

While we mentioned earlier that Carriage Services's operating margin was flat this quarter, a five-year view shows its margin has expanded 8.6 percentage points while its share count has shrunk 18%. Improving profitability and share buybacks are positive signs as they juice EPS growth relative to revenue growth.

In Q4, Carriage Services reported EPS at $0.75, up from $0.53 in the same quarter a year ago. This print beat analysts' estimates by 52.3%. Over the next 12 months, Wall Street expects Carriage Services to grow its earnings. Analysts are projecting its LTM EPS of $2.15 to climb by 5.1% to $2.26.

Cash Is King

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.

Over the last two years, Carriage Services has shown decent cash profitability, giving it some reinvestment opportunities. The company's free cash flow margin has averaged 13.6%, slightly better than the broader consumer discretionary sector.

Carriage Services Free Cash Flow Margin

Carriage Services's free cash flow came in at $12.8 million in Q4, equivalent to a 13% margin and up 144% year on year.

Return on Invested Capital (ROIC)

EPS and free cash flow tell us whether a company was profitable while growing revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit a company makes compared to how much money the business raised (debt and equity).

Carriage Services's five-year average return on invested capital was 14.9%, somewhat low compared to the best consumer discretionary companies that pump out 25%+. Its returns suggest it historically did a subpar job investing in profitable business initiatives.

The trend in its ROIC, however, is often what surprises the market and drives the stock price. Over the last two years, Carriage Services's ROIC averaged 15 percentage point increases each year. This is a good sign, and if the company's returns keep rising, there's a chance it could evolve into an investable business.

Key Takeaways from Carriage Services's Q4 Results

Revenue beat by a nice amount and EPS blew past analysts' expectations this quarter. We were also excited its operating margin outperformed Wall Street's estimates. On the other hand, full year guidance was less exciting , with revenue in line and EPS below. Overall, we think this was a really good quarter that should please shareholders. The stock is flat after reporting and currently trades at $25.08 per share.

Is Now The Time?

Carriage Services may have had a good quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity.

Carriage Services isn't a bad business, but it probably wouldn't be one of our picks. Its revenue growth has been a little slower over the last five years, and analysts expect growth to deteriorate from here. And while its EPS growth over the last five years has been fantastic, unfortunately, its projected EPS for the next year is lacking.

Carriage Services's price-to-earnings ratio based on the next 12 months is 11.3x. In the end, beauty is in the eye of the beholder. While Carriage Services wouldn't be our first pick, if you like the business, the shares are trading at a pretty interesting price right now.

Wall Street analysts covering the company had a one-year price target of $36 per share right before these results (compared to the current share price of $25.08).

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