Funeral services company Service International (NYSE:SCI) reported Q2 CY2025 results beating Wall Street’s revenue expectations, with sales up 3% year on year to $1.07 billion. Its non-GAAP profit of $0.88 per share was 3.6% above analysts’ consensus estimates.
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Service International (SCI) Q2 CY2025 Highlights:
- Revenue: $1.07 billion vs analyst estimates of $1.05 billion (3% year-on-year growth, 1.3% beat)
- Adjusted EPS: $0.88 vs analyst estimates of $0.85 (3.6% beat)
- Adjusted EBITDA: $309.5 million vs analyst estimates of $309.3 million (29% margin, in line)
- Management reiterated its full-year Adjusted EPS guidance of $3.85 at the midpoint
- Operating Margin: 21.1%, in line with the same quarter last year
- Funeral Services Performed: 87,014, up 983 year on year
- Market Capitalization: $11.33 billion
StockStory’s Take
Service International’s second quarter saw performance in line with market expectations, as management highlighted growth in funeral revenue and gross profit as key contributors. CEO Thomas Ryan credited a healthy increase in average revenue per funeral service, up 3.3%, and improved cost control, noting that fixed costs grew below inflation. The company’s transition to a new preneed insurance provider temporarily reduced preneed funeral sales production but was largely anticipated. Ryan explained, “The favorable impact from the core average growth was partially offset by a 1.5% decrease in core funeral services performed.” Meanwhile, large cemetery sales also delivered strong results, although recognized preneed cemetery revenue was affected by lower recognition rates on new construction.
Looking forward, Service International’s outlook for the remainder of 2025 is shaped by expectations of revenue and margin improvements in both the funeral and cemetery segments. Management anticipates that preneed sales production will return to growth in the second half as transitions in the insurance channel are completed. Ryan stated, “We expect that in early 2026 we will experience year-over-year growth again for SCI Direct as a whole,” emphasizing momentum in large cemetery sales and continued focus on operational efficiency. Additionally, recently enacted federal tax legislation is expected to provide a lasting benefit to cash flow, giving the company more flexibility for capital deployment.
Key Insights from Management’s Remarks
Management attributed the quarter’s performance to funeral segment strength, effective cost control, and ongoing changes in preneed insurance arrangements, which influenced both current and deferred revenue.
- Funeral revenue growth: The funeral segment saw notable growth due to a 3.3% increase in average revenue per service, aided by modest changes in cremation rates and disciplined pricing. Management expects this trend to continue with ongoing cost controls.
- Preneed insurance transition impact: Transitioning to a new preneed insurance partner caused a temporary decline in funeral preneed sales production, as sales counselors required additional training and licensing. The company believes this disruption is temporary, with growth expected to resume in the back half of the year.
- Cemetery segment dynamics: While cemetery gross profit declined modestly due to higher selling compensation, large sales showed strong momentum, and deferred revenue from preneed sales is anticipated to benefit future periods once construction and payment milestones are met.
- Cost management focus: Fixed costs across funeral and cemetery operations grew below inflation, reflecting ongoing efforts to leverage scale and operational efficiency, particularly in staffing and overhead.
- Capital deployment and M&A: The company invested in acquisitions and new build projects, while also returning significant capital to shareholders through dividends and share buybacks. Management indicated a robust acquisition pipeline and continued focus on high-return capital investments.
Drivers of Future Performance
Service International’s forward outlook is driven by expectations of resumed preneed sales growth, margin improvements, and sustained cash flow benefits from tax changes.
- Preneed sales recovery: Management anticipates low- to mid-single-digit growth in both funeral and cemetery preneed sales production for the second half of the year, as insurance transition headwinds fade and sales teams adapt to new processes.
- Cash flow enhancements: Recently enacted federal tax legislation, particularly accelerated depreciation for capital improvements, is expected to deliver ongoing cash tax benefits, supporting higher free cash flow and greater flexibility in capital allocation.
- Margin and volume dynamics: The company expects margin improvements as cost controls persist and average revenue per funeral service remains solid. However, management noted that third quarter funeral volumes face a tougher comparison, while cemetery revenues are expected to show particular strength.
Catalysts in Upcoming Quarters
In the coming quarters, the StockStory team will be monitoring (1) the pace of recovery in preneed funeral sales production as the insurance transition concludes, (2) the sustainability of strong large cemetery sales and recognition rates as deferred revenue is realized, and (3) the ongoing impact of federal tax changes on cash flow and capital deployment. Execution in M&A and new build projects, as well as effective cost management, will also be key indicators of future performance.
Service International currently trades at $80.78, up from $75.59 just before the earnings. Is there an opportunity in the stock?Find out in our full research report (it’s free).
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