Service Corporation International Signals Steady Earnings Path

Service Corporation International ((SCI)) has held its Q4 earnings call. Read on for the main highlights of the call.

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Service Corporation International’s latest earnings call struck a generally upbeat tone, with management emphasizing solid EPS growth, robust cash generation, and strong preneed sales momentum. While pockets of pressure emerged in funeral margins, agency commissions, and volume, executives framed most headwinds as either timing-related or transitional and reiterated confidence in the long-term earnings and cash flow trajectory.

EPS Growth Anchors a Solid Quarter and Year

Service Corporation International reported adjusted EPS of $1.14 for the fourth quarter, an 8% increase from $1.06 a year earlier, underscoring steady profit growth despite operational noise. For the full year, adjusted EPS climbed 9% to $3.85 and would have risen about 11% to $3.92 if the effective tax rate had remained unchanged, highlighting underlying earnings strength.

Operating Cash Flow Surges Above Expectations

Adjusted operating cash flow reached $213 million in Q4, topping the high end of company guidance and confirming the business’s strong cash generation. For the fiscal year, adjusted operating cash flow was $966 million, up $108 million or 11% excluding cash taxes and special items, providing ample flexibility for investment, debt management, and shareholder returns.

Momentum Builds in Preneed Sales Production

Total preneed sales production increased by about $29 million in the fourth quarter, roughly 11% growth and a key indicator of future revenue visibility. Core preneed funeral sales jumped $25 million, or 12%, while non-funeral home preneed sales rose more than $4 million, up 8%, and cemetery preneed merchandise and service production added another $15 million to the backlog.

Cemetery Revenue and Margins Move Higher

Comparable cemetery revenue grew by about $5 million, or 1%, in the quarter, but profitability improved faster as mix and efficiency gains kicked in. Cemetery gross profit rose around $5 million, up 3%, with gross margin expanding by roughly 70 basis points to deliver an operating margin north of 36% for the segment.

Capital Returns and Disciplined Allocation Stand Out

The company returned $107 million to shareholders in the fourth quarter, including $59 million in share repurchases and $48 million in dividends, reinforcing its commitment to capital return. For the full year, SCI sent back $645 million through $461 million of buybacks and $184 million of dividends, completed $101 million of acquisitions, and has already repurchased about 500,000 additional shares for roughly $40 million.

Stronger Liquidity and Conservative Leverage Profile

SCI entered a new $2.5 billion bank credit facility, combining a $750 million term loan with a $1.7 billion revolving line, which lifted total liquidity by more than $350 million. The company now sits on about $1.7 billion of liquidity and ended the year with net debt to EBITDA of roughly 3.65 times, near the lower end of its 3.5 to 4 times leverage target.

CapEx Focused on High-Return Cemetery Projects

Full-year capital investments reached $508 million, including $328 million of maintenance CapEx and $79 million of growth CapEx directed toward expansion opportunities. Looking ahead, SCI plans about $325 million of annual maintenance CapEx, $75 million to $125 million for acquisitions, and $70 million to $80 million in growth CapEx, with around $165 million specifically earmarked for cemetery development and other high-return projects.

Funeral Gross Profit and Margins Under Pressure

Funeral gross profit declined nearly $4 million in the quarter, and segment gross margin compressed by about 70 basis points to roughly 21%, reflecting a less favorable profit profile. A key driver was about $5 million of higher recognized selling compensation tied to a shift toward more fixed pay and immediate recognition of insurance-funded preneed costs, which weighed on short-term margins.

General Agency Revenue Decline as Commissions Normalize

Core general agency and other revenue fell around $8 million in the fourth quarter, a 13% decline tied to changes in the mix of products sold and lower commission rates. The company also experienced higher cancellations related to an insurance partner transition, but management expects the general agency commission rate to stabilize in the mid-30% range once the new structure fully normalizes.

Funeral Volume Softness Persists Post-COVID

Comparable core funeral services performed decreased about 1.9% in the quarter and finished the year down less than 1%, as the elevated mortality seen during the COVID period continues to fade. For 2026, management is planning on funeral volume being flat to slightly down versus 2025, with average revenue per case expected to grow roughly in line with inflation and a modest continued shift toward cremation.

SCI Direct Margins Hit by Product Mix Shift

The ongoing conversion of SCI Direct offerings from trust-funded to insurance-funded products is pressuring margins as revenue mix changes and more expenses are recognized upfront. Immediate recognition of general agency commissions and selling costs replaces previously higher-margin merchandise revenue, creating a noticeable drag on SCI Direct margins when compared to historical levels.

Higher Interest and Timing Effects Weigh on Q4 Cash Flow

When adjusted for about $21 million of higher cash taxes, Q4 operating cash flow still declined by roughly $34 million year over year due largely to financing-related timing. Cash interest expense was $24 million higher due to debt financings and draws on the new bank facility, while a net $18 million working capital use driven by payroll timing added additional pressure.

Insurance Transition Drives Cancellations and One-Time Impact

Management flagged higher-than-expected cancellations linked to the transition to a new insurance partner, which required a catch-up adjustment to cancellation estimates and reduced recognized general agency revenue by roughly 200 basis points in the quarter. Executives framed this impact as largely temporary, expecting performance to normalize as processes stabilize and the new insurance framework matures.

At-Need and Large Property Sales Highlight Cemetery Volatility

Core cemetery at-need revenue declined around $3 million in the quarter, underscoring some sensitivity in shorter-cycle demand. Large property sales were also about $5 million below a particularly strong prior-year comparison, reminding investors that high-ticket cemetery transactions can be uneven from quarter to quarter even as the longer-term preneed backlog continues to build.

Guidance Points to Steady Growth and Margin Expansion

Looking to 2026, SCI guided to adjusted EPS of $4.05 to $4.35, implying 5% to 13% growth and about 9% at the midpoint, alongside adjusted operating cash flow between $1.0 billion and $1.06 billion. The outlook assumes flat to slightly down funeral volume but inflationary pricing, low to mid single-digit growth in preneed production, 20 to 60 basis points of funeral margin expansion, 30 to 60 basis points of cemetery margin expansion, continued disciplined CapEx, and ongoing shareholder returns supported by ample liquidity.

The call painted a picture of a business balancing resilient earnings and cash flow with manageable near-term pressures from mix shifts, interest costs, and a complex insurance transition. Investors will be watching whether preneed momentum and cemetery margin gains can offset funeral volume softness, but SCI’s guidance and capital allocation plans suggest management expects steady compounding rather than dramatic swings in performance.

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