Service Corporation International (NYSE:SCI) Q1 2018 Earnings Conference Call - Preliminary Transcript

Apr 26, 2018 • 09:00 am ET

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Service Corporation International (NYSE:SCI) Q1 2018 Earnings Conference Call - Preliminary Transcript

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Presentation
Operator
Operator

Welcome to the First Quarter 2018 Service Corporation International Earnings Conference Call. My name is Mattie, and I will be your operator for today's call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) Please note that this conference is being recorded.

I will now turn the call over to SCI management. Please go ahead.

Executive
Debbie Young

Good morning everyone. This is Debbie Young, Director of Investor Relations at SCI. I will start as usual with the customary Safe Harbor language before we begin with prepared remarks. The comments made by our management team today will include statements that are not historical and are forward looking. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, those factors identified in our press release and in our filings with the SEC that are available on our website.

Today we may also refer to certain non-GAAP measurement such as adjusted EPS, adjusted operating cash flow and free cash flow. A reconciliation of these measurements to the appropriate measures calculated in accordance with GAAP is provided on our website and in our press release and 8-K that were filed yesterday.

I'll now turn the call over to Tom Ryan, SCI's Chairman and CEO.

Executive
Tom Ryan

Thank you, Debbie, and hello everyone and thank you for joining us on the call this morning. Today, I plan to give an overview of the quarter followed by a more detailed analysis of our funeral and cemetery operation and finally comment on our outlook for 2018. So let's begin with an overview of the quarter.

As you saw in our press release yesterday, we're off to a nice start to 2018 as adjusted earnings per share grew $0.09 or 24% to $0.47 per share. Within this $0.09 of growth quarter-over-quarter, I'll speak to three components. First and most importantly higher operating profit from our funeral and cemetery operation contributed $0.05 or 13% of growth, which was led by increased services performed in our funeral and cemetery segment, bolstered by a strong flu season and favorable cost trends, particularly in our cemetery segment.

Next, earnings per share benefited by a net $0.02, primarily from the impact of new revenue recognition standards requiring us to defer certain selling costs. This benefit was slightly reduced as processing fee revenue that was previously recognized as income on SCI's direct contracts is deferred under the new standard, both of these items have a timing element that were normalized in 2019. Finally, a lower tax rate, a reduced share count and a slightly higher interest expense combine the benefit of our earnings per share by an additional $0.02. We also reported strong adjusted operating cash flow of $206 million, which was an improvement of $18 million or almost 10% over the prior year quarter.

Finally, we continue our commitment to deploy our free cash flow to the