Service International's (NYSE:SCI) Q4 Sales Beat Estimates

Petr Huřťák /
2024/02/12 4:34 pm EST

Funeral services company Service International (NYSE:SCI) reported Q4 FY2023 results topping analysts' expectations, with revenue up 2.7% year on year to $1.06 billion. Its non-GAAP profit of $0.93 per share was flat year on year.

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Service International (SCI) Q4 FY2023 Highlights:

  • Revenue: $1.06 billion vs analyst estimates of $1.02 billion (3.2% beat)
  • EPS (non-GAAP): $0.93 vs analyst estimates of $0.91 (2% beat)
  • Free Cash Flow of $183.5 million, up 33.9% from the previous quarter
  • Gross Margin (GAAP): 27.2%, in line with the same quarter last year
  • Funeral Services Performed: 90,459
  • Market Capitalization: $9.93 billion

Founded in 1962, Service International (NYSE: SCI) is a leading provider of death care products and services in North America.

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.

Sales Growth

Exploring a company's long-term performance can offer valuable insights into its business quality. Any business can experience brief periods of success, but distinguished ones maintain steady growth over time. Service International's annualized revenue growth rate of 5.1% over the last five years was weak for a consumer discretionary business. Service International Total RevenueWithin consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends. That's why we also follow short-term performance. Service International's recent history shines a dimmer light on the company, as its revenue was flat over the last two years.

We can understand the company's revenue dynamics even better by analyzing its number of Funeral Services Performed, which reached 90,459 in the latest quarter. Over the last two years, Service International's Funeral Services Performed averaged 3% year-on-year declines. Because this number is lower than its revenue growth during the same period, we can see the company's average selling price has risen. Service International Funeral Services Performed

This quarter, Service International reported reasonable year-on-year revenue growth of 2.7%, and its $1.06 billion of revenue topped Wall Street's estimates by 3.2%. Looking ahead, Wall Street expects revenue to remain flat over the next 12 months, a deceleration from this quarter.

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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, Service International has shown decent cash profitability, giving it some reinvestment opportunities. The company's free cash flow margin has averaged 11.5%, slightly better than the broader consumer discretionary sector.

Service International Free Cash Flow Margin

Service International's free cash flow came in at $183.5 million in Q4, equivalent to a 17.4% margin and up 244% year on year.

Key Takeaways from Service International's Q4 Results

It was good to see Service International beat analysts' revenue and EPS estimates this quarter, driven by better-than-expected performance in its cemetery segment. Its Funeral Services Performed also topped Wall Street's projections. Overall, the results were fine. The stock is flat after reporting and currently trades at $68.25 per share.

Service International may have had a decent quarter, but does that create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

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