Funeral services company Service International (NYSE:SCI) reported Q4 CY2024 results beating Wall Street’s revenue expectations, with sales up 3.5% year on year to $1.09 billion. Its non-GAAP profit of $1.04 per share was in line with analysts’ consensus estimates.
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Service International (SCI) Q4 CY2024 Highlights:
- Revenue: $1.09 billion vs analyst estimates of $1.08 billion (3.5% year-on-year growth, 0.8% beat)
- Adjusted EPS: $1.04 vs analyst estimates of $1.05 (in line)
- Adjusted EBITDA: $316.5 million vs analyst estimates of $351.7 million (29% margin, 10% miss)
- Adjusted EPS guidance for the upcoming financial year 2025 is $3.85 at the midpoint, missing analyst estimates by 2%
- Operating Margin: 24%, up from 22.9% in the same quarter last year
- Free Cash Flow Margin: 13.9%, down from 17.4% in the same quarter last year
- Funeral Services Performed: 88,934, down 1,525 year on year
- Market Capitalization: $11.19 billion
Company Overview
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
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Service International grew its sales at a sluggish 5.3% compounded annual growth rate. This was below our standard for the consumer discretionary sector and is a poor baseline 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 trend. Service International’s recent history shows its demand slowed as its revenue was flat over the last two years. 
We can dig further into the company’s revenue dynamics by analyzing its number of funeral services performed, which reached 88,934 in the latest quarter. Over the last two years, Service International’s funeral services performed averaged 2.3% 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 reported modest year-on-year revenue growth of 3.5% but beat Wall Street’s estimates by 0.8%.
Looking ahead, sell-side analysts expect revenue to grow 3.3% over the next 12 months. While this projection indicates its newer products and services will spur better top-line performance, it is still below the sector average.
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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.
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 12.8% over the last two years, slightly better than the broader consumer discretionary sector.
Service International’s free cash flow clocked in at $151.8 million in Q4, equivalent to a 13.9% margin. The company’s cash profitability regressed as it was 3.5 percentage points lower than in the same quarter last year, but it’s still above its two-year average. We wouldn’t read too much into this quarter’s decline because investment needs can be seasonal, causing short-term swings. Long-term trends are more important.
Key Takeaways from Service International’s Q4 Results
It was good to see Service International narrowly top analysts’ revenue expectations this quarter. On the other hand, its number of funeral services performed missed and its EBITDA fell short of Wall Street’s estimates. Its full-year EBITDA guidance was also below expectations. Overall, this quarter could have been better, but the stock traded up 2.7% to $78 immediately following the results.
Should you buy the stock or not? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.
