SCI - Service Corporation International

04/30/2026 | Press release | Distributed by Public on 04/30/2026 10:48

Quarterly Report for Quarter Ending MARCH 31, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations
The Company
We are North America's largest provider of deathcare products and services, with a network of funeral service locations and cemeteries unequaled in geographic scale and reach. At March 31, 2026, we operated 1,487 funeral service locations and 503 cemeteries (including 314 funeral service/cemetery combination locations), which are geographically diversified across 44 states, eight Canadian provinces, the District of Columbia, and Puerto Rico. Our funeral and cemetery operations consist of funeral service locations, cemeteries, funeral service/cemetery combination locations, crematoria, and other related businesses, which enable us to serve a wide array of customer needs. We sell cemetery property and funeral and cemetery merchandise and services at the time of need and on a preneed basis. We strive to offer families exceptional service in planning life celebrations and personalized remembrances. Our Dignity Memorial® brand serves approximately 700,000 combined preneed and atneed families each year with professionalism, compassion, and attention to detail.
Our financial position is enhanced by our $17.1 billion backlog of future revenue from both trust and insurance-funded preneed sales at March 31, 2026. Preneed selling provides us with a strategic opportunity to gain future market share. We also believe it adds to the stability and predictability of our revenue and cash flows. While revenue on the majority of preneed merchandise and service sales is deferred until the time of need, sales of preneed cemetery property provide opportunities for revenue recognition to the extent that the property is developed and available for use.
We believe we have adequate liquidity and a favorable debt maturity profile, which allow us to reinvest and grow our business as well as return capital to shareholders through share repurchases and dividends.
Factors affecting our operating results include: demographic trends in terms of population growth and average age, which impact death rates; establishing and maintaining leading market share positions supported by strong local heritage and relationships; effectively responding to increasing cremation trends by selling complementary services and merchandise; controlling salary and merchandise costs; and exercising pricing leverage. The average revenue per funeral contract is influenced by the mix of traditional versus cremation services as our average revenue for cremations is lower than that for traditional burials. To further enhance revenue opportunities, we continue to focus on our cremation customers' preferences, and remaining relevant by developing additional cemetery property, memorialization merchandise and services that specifically appeal to cremation customers. We believe the presentation of these additional offerings through our customer-facing technology improves our customers' experience by allowing them to visualize the enhanced product and service offerings. In addition, we believe this will help drive increases in the average revenue for a cremation or incremental cemetery property sales in future periods. While general economic conditions, inflation, and consumer confidence may affect the timing or mix of customer purchases, demand is generally deferred rather than lost. Accordingly, demand for these products and services has historically been less sensitive to economic cycles than other discretionary consumer purchases.
For further discussion of our key operating metrics, see our "Cash Flow" and "Results of Operations" sections below.
Financial Condition, Liquidity, and Capital Resources
We have adequate liquidity and a favorable debt maturity profile, which allow us to reinvest and grow our business as well as return capital to shareholders through share repurchases and dividends.
Capital Allocation Considerations
We rely on cash flow from operations as a significant source of liquidity. Our cash flow from operating activities provided $333.8 million in the first three months of 2026. As of March 31, 2026, we had $1,448.3 million in remaining borrowing capacity under our Bank Credit Facility.
Our Bank Credit Facility requires us to maintain a certain leverage ratio with which we were in compliance at March 31, 2026. We target a leverage ratio of 3.5x to 4.0x.
Our financial covenant requirements and actual ratio as of March 31, 2026 were as follows:
Per Credit Agreement Actual
Leverage ratio 5.00 (Max) 3.68
We have the financial strength and flexibility to reward shareholders with dividends while maintaining a prudent capital structure and pursuing new opportunities for profitable growth.
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Our unencumbered cash on hand, future operating cash flows, and the available capacity under our Bank Credit Facilities give us adequate liquidity to meet our short-term needs as well as our long-term financial obligations. Due to cash balances residing in Canada and minimum operating cash requirements, a portion of our cash on hand is encumbered.
We consistently evaluate the best uses of our cash flow that will yield the highest value and return on capital. Our capital investment strategy is prioritized as follows:
Investing in Acquisitions and Building New Funeral Service and Cemetery Locations. We manage our footprint by focusing on strategic acquisitions and building new funeral service and cemetery locations where the expected returns are attractive and exceed our weighted average cost of capital. We target businesses with favorable customer dynamics and/or where we can achieve the benefits of economies of scale. We continue to pursue strategic acquisitions and build new funeral service and cemetery locations in areas that provide us with the potential for additional scale.
Returning Excess Cash to Shareholders. In addition to any strategic acquisitions or new build opportunities, we continue to return cash to shareholders through regular quarterly dividends and our share repurchase program. Our quarterly dividend rate has steadily grown from $0.025 per common share in 2005 to $0.34 per common share in 2026. We target a dividend payout ratio of 30% to 40% of after tax earnings excluding special items and intend to grow our cash dividend commensurate with the growth in our business. While we intend to pay regular quarterly cash dividends for the foreseeable future, all future dividends are subject to limitations in our debt covenants, and final determination by our Board of Directors each quarter upon review of our financial performance. We also expect to continue to repurchase shares of our common stock in the open market or through privately negotiated transactions, subject to market conditions, debt covenants, and normal trading restrictions. There can be no assurance that we will buy our common stock under our repurchase program in the future. During the three months ended March 31, 2026, we repurchased 1,789,293 shares of our common stock at an aggregate cost of $144.4 million, which is an average cost per share of $80.69.
Managing Debt. We continue to focus on maintaining optimal levels of liquidity and financial flexibility. We generate a relatively consistent annual cash flow stream that is generally resistant to down economic cycles. This cash flow stream and our significant liquidity allow us to substantially reduce our long-term debt maturities should we choose to do so.
Cash Flow
Our ability to generate strong operating cash flow is one of our fundamental financial strengths and provides us with substantial flexibility in meeting operating and investing needs.
Operating Activities
Net cash provided by operating activities was $333.8 million and $311.1 million for the three months ended March 31, 2026 and 2025, respectively. The $22.7 million increase in operating cash flows from 2025 comprises:
•a $31.4 million decrease in vendor and other payments,
•a $24.6 million increase in cash receipts from customers, General Agency (GA) commission and other receipts,
•a $4.0 million decrease in restructuring payments,
•a $0.5 million decrease in cash tax payments, and
•a $0.2 million decrease in payments for certain legal matters, partially offset by
•a $28.4 million increase in employee compensation payments,
•a $5.9 million increase in net trust deposits, and
•a $3.7 million increase in cash interest payments.
Investing Activities
Net cash flows used in investing activities was $132.3 million and $90.7 million for the three months ended March 31, 2026 and 2025, respectively. The $41.6 million increased outflow in 2026 over 2025 is primarily due to the following:
•a $19.3 million increase in capital expenditures related to construction of our new corporate headquarters which is substantially financed through a separate construction loan facility,
•a $9.2 million increase in cash spent on business acquisitions,
•a $5.8 million decrease in cash receipts from divestitures and asset sales,
•a $3.8 million decrease in net proceeds for Company-owned life insurance policies,
•a $1.8 million increase in cash spent on real estate acquisitions,
•a $1.7 million increase in total capital expenditures, which comprises:
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•a $2.1 million increase in expenditures for growth capital expenditures/construction of new funeral service locations, partially offset by
•a $0.4 million net decrease in maintenance capital expenditures, which includes:
•a $0.7 million decrease in expenditures for capital improvements at existing field locations,
•a $0.5 million decrease in expenditures for cemetery property development, partially offset by
•a $0.8 million increase in expenditures for digital investments and corporate.
Financing Activities
Net Cash used in financing activities was $184.9 million and $205.7 million for the three months ended March 31, 2026 and 2025, respectively. The $20.8 million decreased outflow in 2026 over 2025 is primarily due to the following:
•a $23.6 million increase in borrowings from our corporate headquarters debt facility,
•a $9.3 million decrease in debt repayments, net of proceeds, and
•a $2.1 million increase in proceeds from exercises of stock options, partially offset by
•a $12.7 million increase in purchase of Company common stock,
•a $1.1 million increase in payments of dividends, and
•a $0.4 million increase in bank overdrafts and other.
Financial Assurances
In support of our operations, we have entered into arrangements with certain surety companies whereby such companies agree to issue surety bonds on our behalf as financial assurance and/or as required by existing state and local regulations. The surety bonds are used for various business purposes; however, the majority of the surety bonds issued and outstanding have been used to support our preneed sales activities. The obligations underlying these surety bonds are recorded on our unaudited Condensed Consolidated Balance Sheet as Deferred revenue, net. The breakdown of surety bonds between funeral and cemetery preneed arrangements, as well as surety bonds for other activities, is described below.
March 31, 2026 December 31, 2025
(In millions)
Preneed funeral $ 211.8 $ 209.2
Preneed cemetery:
Merchandise and services 134.9 134.9
Pre-construction 68.3 64.5
Bonds supporting preneed funeral and cemetery obligations 415.0 408.6
Bonds supporting preneed business permits 8.7 8.7
Other bonds 77.5 76.5
Total surety bonds outstanding $ 501.2 $ 493.8
When selling preneed contracts, we may post surety bonds where allowed by state law. We post the surety bonds in lieu of trusting a certain amount of funds received from the customer. The amount of the bond posted is generally determined by the total amount of the preneed contract that would otherwise be required to be trusted, in accordance with applicable state law.
Surety bond premiums are paid annually and the bonds are automatically renewable until maturity of the underlying preneed contracts, unless we are given prior notice of cancellation.
Except for cemetery pre-construction bonds (which are irrevocable), the surety companies generally have the right to cancel the surety bonds at any time with appropriate notice. In the event a surety company were to cancel the surety bond, we are required to obtain replacement surety assurance from another surety company or fund a trust for an amount generally less than the posted bond amount. Management does not expect that we will be required to fund material future amounts related to these surety bonds due to a lack of surety capacity or surety company non-performance.
During the second quarter of 2025, we replaced our letters of credit with a $46.0 million surety bond and a related indemnity obligation with a large insurance company, which is included in Other bonds in the table above.
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Preneed Activities and Backlog of Contracts
In addition to selling our products and services to client families at the time of need, we enter into price-guaranteed preneed contracts, which provide for future funeral or cemetery merchandise and services. Because preneed funeral and cemetery merchandise or services will generally not be provided until sometime in the future, most states and provinces require that all or a portion of the funds collected from customers on preneed contracts be deposited into merchandise and service trusts until the merchandise is delivered or the service is performed. In certain situations, as described above, where permitted by state or provincial laws, we may post a surety bond as financial assurance for a certain amount of the preneed contract in lieu of placing funds into trust accounts. Alternatively, we may sell a life insurance or annuity policy from third-party insurance companies or use other non-insurance funded third-party providers.
Insurance and Other Funded Preneed Contracts
Where permitted by state or provincial law, we may sell a life insurance or annuity policy from third-party insurance companies, for which we earn a commission as a general sales agent for the insurance company. These general agency commissions (GA revenue) are based on a percentage per contract sold and are recognized as funeral revenue when the insurance purchase transaction between the preneed purchaser and third-party insurance provider is completed. All selling costs incurred pursuant to the sale of insurance-funded preneed contracts are expensed as incurred. We do not reflect the unfulfilled insurance and other funded preneed contract amounts in our unaudited Condensed Consolidated Balance Sheet. The proceeds of the life insurance policies or annuity contracts will be reflected in funeral revenue as we perform these funerals. In addition, we have shifted our non-funeral home preneed sales production strategy from trust to insurance-funded contracts.
The table below details our results of insurance-funded and other non-insurance funded third-party preneed production and maturities.
Three months ended March 31,
2026 2025
(Dollars in millions)
Preneed insurance-funded:
Sales production(1)
$ 214.0 $ 187.2
Sales production (number of contracts)(1)
42,989 37,049
General agency revenue $ 70.9 $ 69.7
Maturities $ 110.2 $ 111.4
Maturities (number of contracts) 17,601 17,882
Other non-insurance funded third-party:
Sales production(1)
$ 11.2 $ 9.9
Sales production (number of contracts)(1)
1,104 1,040
Maturities $ 8.2 $ 8.3
Maturities (number of contracts) 833 843
(1) Amounts are not included in our unaudited Condensed Consolidated Balance Sheet.
Trust-Funded Preneed Contracts
The funds collected from customers are deposited into trusts as required by state or provincial law. We retain any funds above the amounts required to be deposited into trust accounts and use them for working capital purposes, generally to offset the selling and administrative costs of our preneed programs. Although this represents cash flow to us, the associated revenues are deferred until the merchandise is delivered or services are performed (typically at maturity). The funds in trust are then invested by professional money managers with oversight by independent trustees in accordance with state and provincial laws. As discussed above in Insurance and Other Funded Preneed Contracts, we have shifted our non-funeral home preneed sales production strategy from trust to insurance-funded contracts.
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The tables below detail our results of preneed production and maturities, excluding insurance contracts:
Three months ended March 31,
2026 2025
(Dollars in millions)
Funeral:
Preneed trust-funded (including bonded):
Sales production $ 84.6 $ 90.4
Sales production (number of contracts) 12,680 16,333
Maturities $ 106.8 $ 103.8
Maturities (number of contracts) 21,912 22,612
Cemetery:
Sales production:
Preneed $ 356.6 $ 324.6
Atneed 110.5 113.2
Total sales production $ 467.1 $ 437.8
Sales production deferred to backlog:
Preneed $ 181.8 $ 157.4
Atneed 77.9 79.7
Total sales production deferred to backlog $ 259.7 $ 237.1
Revenue recognized from backlog:
Preneed $ 110.3 $ 96.2
Atneed 76.2 78.0
Total revenue recognized from backlog $ 186.5 $ 174.2
Backlog of Preneed Contracts
The following table reflects our backlog of trust-funded deferred preneed contract revenue, including amounts related to Deferred receipts held in trust at March 31, 2026 and December 31, 2025. Additionally, the table reflects our backlog of unfulfilled insurance-funded contracts and other non-insurance funded third-party contracts (which are not included in our unaudited Condensed Consolidated Balance Sheet) at March 31, 2026 and December 31, 2025. The backlog amounts presented include amounts due from customers for undelivered performance obligations on cancelable preneed contracts to arrive at our total backlog of deferred revenue. The table does not include the backlog associated with businesses that are held for sale.
The table also reflects our preneed receivables and trust investments associated with the backlog of deferred preneed contract revenue including the amounts due from customers for undelivered performance obligations on cancelable preneed contracts. The table below is meaningful because it sets forth the aggregate amount of future revenue we expect to recognize as a result of preneed sales, as well as the amount of funds associated with this revenue. Because the future revenue exceeds the assets, future revenue will exceed the cash distributions actually received from the associated trusts and future collections from the customer.
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March 31, 2026 December 31, 2025
Fair Value Cost Fair Value Cost
(In billions)
Deferred revenue, net $ 1.80 $ 1.80 $ 1.78 $ 1.78
Amounts due from customers for unfulfilled performance obligations on cancelable preneed contracts 1.00 1.00 1.01 1.01
Deferred receipts held in trust 5.71 4.91 5.78 4.83
Allowance for cancellation on trust investments (0.28) (0.25) (0.29) (0.24)
Backlog of trust-funded deferred revenue, net of estimated allowance for cancellation 8.23 7.46 8.28 7.38
Backlog of insurance and other funded deferred revenue(1)
8.84 8.84 8.73 8.73
Total backlog of deferred revenue $ 17.07 $ 16.30 $ 17.01 $ 16.11
Preneed receivables, net and trust investments $ 7.26 $ 6.46 $ 7.36 $ 6.41
Amounts due from customers for unfulfilled performance obligations on cancelable preneed contracts 1.00 1.00 1.01 1.01
Allowance for cancellation on trust investments (0.28) (0.25) (0.29) (0.24)
Assets associated with backlog of trust-funded deferred revenue, net of estimated allowance for cancellation 7.98 7.21 8.08 7.18
Policies associated with insurance and other funded deferred revenue (1)
8.84 8.84 8.73 8.73
Total assets associated with backlog of preneed revenue $ 16.82 $ 16.05 $ 16.81 $ 15.91
(1) Amounts are not included in our unaudited Condensed Consolidated Balance Sheet.
The fair value of our trust investments was based on a combination of quoted market prices, observable inputs such as interest rates or yield curves, and appraisals. As of March 31, 2026, the difference between the backlog and total assets at fair value represents $0.17 billion related to contracts for which we have posted surety bonds as financial assurance in lieu of trusting, $1.42 billion collected from customers that were not required to be deposited into trusts, and $0.20 billion in allowable cash distributions from trust assets partially offset by $1.54 billion in amounts due on delivered property and merchandise. As of March 31, 2026, the fair value of the total backlog comprised $5.03 billion related to cemetery contracts and $12.04 billion related to funeral contracts. As of March 31, 2026, the fair value of the assets associated with the backlog of trust-funded deferred revenue comprised $5.07 billion related to cemetery contracts and $2.91 billion related to funeral contracts. As of March 31, 2026, the backlog of insurance-funded contracts of $8.84 billion was equal to the proceeds we expect to receive from the associated insurance policies when the corresponding contract is serviced by one of our operating locations.
Trust Investments
In addition to selling our products and services to client families at the time of need, we also enter into price-guaranteed preneed funeral and cemetery contracts, which provide for future funeral or cemetery merchandise and services. Since preneed funeral and cemetery merchandise or services will generally not be provided until sometime in the future, most states and provinces require that all or a portion of the funds collected from customers on preneed funeral and cemetery contracts be paid into trusts and/or escrow accounts until the merchandise is delivered or the service is performed. Investment earnings associated with the trust investments are expected to mitigate the inflationary costs of providing the preneed funeral and cemetery merchandise and services in the future at the prices that were guaranteed at the time of sale. Also, we are required by state and provincial law to pay a portion of the proceeds from the preneed or atneed sale of cemetery property interment rights into perpetual care trusts. For these investments, the original corpus generally remains in the trust in perpetuity and the earnings or elected distributions are withdrawn as allowed to defray the expenses to maintain the cemetery property. While many states require that net capital gains or losses be retained and added to the corpus, certain states allow the net realized capital gains and losses to be included in the earnings that are distributed. Additionally, some states allow a total return distribution that may contain elements of income, capital appreciation, and principal.
Independent trustees manage and invest the majority of the funds deposited into the funeral and cemetery merchandise and service trusts as well as the cemetery perpetual care trusts. The majority of the trustees are selected based on their respective geographic footprint and qualifications per state and provincial regulations. These trustees, with input from SCI's wholly-owned registered investment advisor, establish an investment policy that serves as an operating document to guide the investment activities of the trusts including asset allocation and manager selection. The investments are also governed by
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state and provincial guidelines. All of the trusts are intended to control risk and volatility through a combination of asset classes, investment styles, and a diverse mix of investment managers.
Asset allocation is based on the liability structure of each funeral, cemetery, and perpetual care trust. Based on the various criteria set forth in the investment policy, the investment advisor recommends investment managers to the trustees. The primary investment objectives for the funeral and cemetery merchandise and service trusts include 1) preserving capital within acceptable levels of volatility and risk and 2) achieving growth of principal over time sufficient to preserve and increase the purchasing power of the assets. Preneed funeral and cemetery contracts generally take several years to mature; therefore, the funds associated with these contracts are often invested through several market cycles.
Where allowed by state and provincial regulations, the cemetery perpetual care trusts' primary investment objectives are growth-oriented to provide for a fixed distribution rate from the trusts' assets. Where such distributions are limited to ordinary income, the cemetery perpetual care trusts' investment objectives emphasize providing a steady stream of current investment income with some capital appreciation. Both types of distributions are used to provide for the current and future maintenance and beautification of the cemetery properties.
As of March 31, 2026, approximately 96% of our trusts were under the control and custody of five large financial institutions. The U.S. trustees primarily use five managed limited liability companies (LLCs), three merchandise and service trust type and two for the cemetery perpetual care trust type, with independent trustees as custodians. Each financial institution acting as trustee, manages its allocation of trust assets in accordance with the investment policy through the purchase of the appropriate LLCs' units. For those accounts not eligible for participation in the LLCs or where a particular state's regulations contain other investment restrictions, the trustee utilizes institutional mutual funds that comply with our investment policy or with such state restrictions. The U.S. trusts include a modest allocation to alternative investments. These alternative investments are held in vehicles structured as LLCs and are managed by certain trustees. The trusts that are eligible to allocate a portion of their investments to alternative investments purchase units of the respective alternative investment LLCs.
Investment Structures
The managed LLCs use the following structures for investments:
Commingled funds allow the trusts to access, at a reduced cost, some of the same investment managers and strategies used elsewhere in the portfolios.
Separately managed accounts are trusts that utilize separately managed accounts, where appropriate, to reduce the costs to the investment portfolios.
Mutual funds employ institutional share class mutual funds where operationally or economically efficient. These mutual funds are utilized to invest in various asset classes including U.S. equities, non-U.S. equities, corporate bonds, government bonds, high yield bonds, and commodities, all of which are governed by guidelines outlined in their individual prospectuses.
Asset Classes
Equity investments have historically provided long-term capital appreciation in excess of inflation. The trusts have direct investments in individual equity securities primarily in domestic equity portfolios that include large, mid, and small capitalization companies of different investment styles (i.e., growth and value). The majority of the equity allocation is managed by institutional investment managers that specialize in an objective-specific area of expertise. Our equity securities are exposed to market risk; however, we believe these securities are well-diversified. As of March 31, 2026, the largest single equity position represented approximately 1% of the total securities portfolio.
Fixed income investments are intended to preserve principal, provide a source of current income, and reduce overall portfolio volatility. The majority of the fixed income allocation for the trusts is invested in institutional share class mutual funds. Where the trusts have direct investments in individual fixed income securities, these are primarily in government and corporate instruments.
Canadian government fixed income securities are investments in Canadian federal and provincial government instruments. In many cases, regulatory restrictions mandate that the funds from the sales of preneed funeral and cemetery contracts sold in certain Canadian jurisdictions must be invested in these instruments.
Alternative investments serve to provide high rates of return with reduced volatility and lower correlation to publicly-traded securities. These investments are typically longer term in duration and are diversified by strategy, sector, manager, geography, and vintage year. The investments consist of numerous limited partnerships invested in private equity, private market real estate, energy and natural resources, infrastructure, transportation, and private debt including both distressed debt and mezzanine financing. The trustees that have oversight of their respective alternative LLCs work closely with the investment advisor in making all investment decisions.
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Trust Performance
During the three months ended March 31, 2026, the Standard and Poor's 500 Index decreased 4.3% and the Bloomberg's US Aggregate Bond Index decreased 0.1%. This compares to the SCI trusts that decreased 0.7% during the same period. The SCI trusts have a diversified allocation of approximately 59% equities, 27% fixed income securities, 10% alternative and other investments with the remaining 4% available in money market funds.
Recognized trust fund income (realized and unrealized) related to our preneed trust investments was $56.2 million and $48.2 million for the three months ended March 31, 2026 and 2025, respectively. Recognized trust fund income (realized and unrealized) related to our cemetery perpetual care trust investments was $30.9 million and $26.1 million for the three months ended March 31, 2026 and 2025, respectively.
SCI, the trustees, and the investment advisor monitor the capital markets and the trusts on an on-going basis. The trustees, with input from the investment advisor, take prudent action as needed to achieve the investment goals and objectives of the trusts.
Results of Operations - Three Months Ended March 31, 2026 and 2025
Management Summary
In the first three months of 2026, we reported consolidated net income attributable to common stockholders of $135.8 million ($0.97 per diluted share) compared to net income attributable to common stockholders for the same period in 2025 of $142.9 million ($0.98 per diluted share). These results were impacted by certain items including:
Three months ended March 31,
2026 2025
(In millions)
Pre-tax gains on divestitures and impairment charges, net $ 1.3 $ 5.0
Tax effect from significant items $ (0.5) $ (1.3)
Change in non-recurring tax items $ (0.3) $ (0.4)
In addition to the above items, higher cemetery gross profit combined with a lower share count and a favorable tax rate slightly offset lower funeral gross profit resulting from a decline in funerals performed during the quarter.
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Funeral Results
Three months ended March 31,
2026 2025
(Dollars in millions, except average revenue per service)
Consolidated funeral revenue $ 630.6 $ 639.5
Less: revenue associated with acquisitions/new construction 10.4 0.7
Less: revenue associated with divestitures - 1.2
Comparable(1) funeral revenue
620.2 637.6
Less: non-funeral home preneed sales revenue 22.0 22.1
Less: core general agency and other revenue 53.4 54.6
Adjusted comparable funeral revenue $ 544.8 $ 560.9
Comparable services performed 91,603 97,475
Comparable average revenue per service(2)
$ 5,947 $ 5,754
Consolidated funeral gross profit $ 134.0 $ 154.0
Less: gross profit (loss) associated with acquisitions/new construction 1.9 (0.3)
Less: gross losses associated with divestitures (0.5) (1.1)
Comparable(1) funeral gross profit
$ 132.6 $ 155.4
(1) We define comparable (or same store) operations as those funeral locations owned by us for the entire period beginning January 1, 2025 and ending March 31, 2026.
(2) We calculate comparable average revenue per service by dividing comparable funeral revenue, excluding general agency revenue, non-funeral home preneed sales revenue, and other revenue to avoid distorting our average of normal funeral services revenue, by the comparable number of funeral services performed during the period.
Funeral Revenue
Consolidated revenue from funeral operations was $630.6 million for the three months ended March 31, 2026, compared to $639.5 million for the same period in 2025. This $8.9 million decrease in revenue is primarily attributable to a $17.4 million decrease in comparable revenue, partially offset by a $9.7 million increase in revenue contributed by newly constructed and acquired properties.
Comparable revenue from funeral operations was $620.2 million for the three months ended March 31, 2026 compared to $637.6 million for the same period in 2025. The $17.4 million, or 2.7%, decrease was due to a $16.1 million decrease in adjusted comparable funeral revenue and a $1.2 million decrease in core general agency and other revenue, partially offset by a $0.1 million increase in non-funeral home preneed sales revenue.
Adjusted comparable funeral revenue decreased $16.1 million, or 2.9%, primarily due to a 6.0% decrease in comparable funeral services performed reflecting the impact of a strong prior year flu season, which aligns with broader industry and demographic trends. This decrease was partially offset by a 3.4% increase in total average revenue per service. The total comparable cremation rate increased 40 basis points over the prior year to 64.5%.
Core general agency and other revenue decreased $1.2 million. Core general agency revenue benefitted from higher insurance sales production which was more than offset by a lower general agency commission rate quarter over quarter. The current commission rate has now stabilized and is trending in line with expectations.
Funeral Gross Profit
Consolidated funeral gross profit decreased $20.0 million, or 13.0%, in the first three months of 2026 compared to the same period in 2025. This decrease is primarily attributable to a $22.8 million, or 14.7%, decrease in comparable funeral gross profit, partially offset by a $2.2 million increase in gross profit contributed by acquired and newly constructed properties. Comparable funeral gross profit decreased $22.8 million to $132.6 million, and the comparable gross profit percentage declined 300 basis points from 24.4% to 21.4%. This is primarily attributable to the $17.4 million decline in comparable funeral revenue applied to our high fixed cost operating structure. This decline was slightly offset by our focus on disciplined controllable cost management, limiting fixed cost growth to approximately 1% versus the prior year quarter.
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Cemetery Results
Three months ended March 31,
2026 2025
(In millions)
Consolidated cemetery revenue $ 465.9 $ 434.7
Less: revenue associated with acquisitions/new construction 0.4 -
Comparable(1) cemetery revenue
$ 465.5 $ 434.7
Consolidated cemetery gross profit $ 152.5 $ 137.4
Less: gross profit (loss) associated with acquisitions/new construction - (0.1)
Comparable(1) cemetery gross profit
$ 152.5 $ 137.5
(1) We define comparable (or same store) operations as those cemetery locations owned by us for the entire period beginning January 1, 2025 and ending March 31, 2026.
Cemetery Revenue
Consolidated revenue from our cemetery operations increased $31.2 million, or 7.2%, in the three months ended March 31, 2026 compared to the same period in 2025, primarily due to a $30.8 million, or 7.1%, increase in comparable cemetery revenue and a $0.4 million increase in revenue contributed by acquired and newly constructed properties.
The $30.8 million increase in comparable cemetery revenue was primarily attributable to a $25.2 million increase in comparable cemetery core revenue and an increase in other revenue of $5.6 million. The increase in core revenue was primarily due to an increase of $20.7 million from higher property revenue and $7.8 million from higher merchandise and service revenue. Total recognized preneed revenue benefited from growth in comparable preneed sales production of $31.6 million, or 9.7%. The increase in other revenue was primarily from an increase in endowment care trust fund income related to higher total return distributions.
Cemetery Gross Profit
Consolidated cemetery gross profit increased $15.1 million, or 11.0%, in the three months ended March 31, 2026 compared to the same period in 2025. This increase is primarily attributable to a $15.0 million increase in comparable cemetery gross profit. Comparable cemetery gross profit increased from $137.5 million to $152.5 million, and the gross profit percentage increased from 31.6% to 32.8% primarily due to the growth in core revenue mentioned above.
Other Financial Statement Items
Corporate General and Administrative Expenses
Corporate general and administrative expenses decreased $0.8 million to $43.9 million for the three months ended March 31, 2026.
Interest Expense
Interest expense increased $2.5 million to $64.0 million for the three months ended March 31, 2026. The average balances on our floating rate debt increased approximately $250.0 million, partially offset by lower average floating rates decreasing from 6.8% to 5.8%.
Provision for Income Taxes
Our effective tax rate was 25.0% and 26.1% for the three months ended March 31, 2026 and 2025, respectively. The decrease in the effective tax rate in the current period was primarily due to tax benefits from an investment in a renewable energy project recognized in the quarter. The effective tax rate for the three months ended March 31, 2026 was higher than the federal statutory tax rate of 21.0% primarily due to state and foreign taxes.
Weighted Average Shares
The diluted weighted average number of shares outstanding was 139.9 million for the three months ended March 31, 2026 compared to 145.3 million for the same period in 2025. The decrease primarily reflects the impact of shares repurchased under our share repurchase program.
FORM 10-Q 35
PART II
Critical Accounting Policies, Recent Accounting Pronouncements, and Accounting Changes
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Although we base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances, actual results may differ from the estimates on which our financial statements are prepared at any given point of time. Changes in these estimates could materially affect our consolidated financial position, consolidated results of operations, or cash flows. Significant items that are subject to such estimates and assumptions include revenue and expense accruals, fair value of merchandise and perpetual care trust assets, and the allocation of purchase price to the fair value of assets acquired. Our critical accounting policies have not significantly changed since December 31, 2025 and are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025.
Recent Accounting Pronouncements and Accounting Changes
For discussion of recent accounting pronouncements and accounting changes, see Part I, Item 1. Financial Statements, Note 2 of this Form 10-Q.
Cautionary Statement on Forward-Looking Statements
The statements in this Form 10-Q that are not historical facts are forward-looking statements made in reliance on the safe harbor protections provided under the Private Securities Litigation Reform Act of 1995. These statements may be accompanied by words such as "believe", "estimate", "project", "expect", or "anticipate", "predict" that convey the uncertainty of future events or outcomes. These statements are based on assumptions that we believe are reasonable; however, many important factors could cause our actual consolidated results in the future to differ materially from the forward-looking statements made herein and in any other documents or oral presentations made by, or on behalf of, the Company. These factors are discussed below. Except as required by applicable law, we assume no obligation and make no undertaking to publicly update or revise any forward-looking statements made herein or any other forward-looking statements made by the Company, whether as a result of new information, future events, or otherwise.
•Our affiliated trust funds own investments in securities, which are affected by market conditions that are beyond our control.
•We may be required to replenish our affiliated funeral and cemetery trust funds to meet minimum funding requirements, which would have a negative effect on our earnings and cash flow.
•Our ability to execute our strategic plan depends on many factors, some of which are beyond our control.
•We may be adversely affected by the effects of inflation.
•Our results may be adversely affected by significant weather events, natural disasters, catastrophic events or public health crises.
•Our credit agreements contain covenants that may prevent us from engaging in certain transactions.
•If we lost the ability to use surety bonding to support our preneed activities, we may be required to make material cash payments to fund certain trust funds.
•The financial condition of third-party insurance companies that fund our preneed contracts may impact our future revenue.
•Unfavorable publicity could affect our reputation and business.
•Our failure to attract and retain qualified sales personnel and licensed funeral professionals could have an adverse effect on our business and financial condition.
•We use a combination of insurance, self-insurance, and large deductibles in managing our exposure to certain inherent risks; therefore, we could be exposed to unexpected costs that could negatively affect our financial performance.
•Declines in overall economic conditions beyond our control could reduce future potential earnings and cash flows and could result in future impairments to goodwill and/or other intangible assets.
•Any failure to protect personal information relating to our customers, their loved ones, our associates, and our vendors could damage our reputation, could cause us to incur substantial additional costs and to become subject to litigation, and could adversely affect our operating results, financial condition, or cash flow.
•A failure of a key information technology system or process could disrupt and adversely affect our business.
•Our Canadian business exposes us to operational, economic, and currency risks.
•Our level of indebtedness could adversely affect our cash flows, our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, and may prevent us from fulfilling our obligations under our indebtedness.
36 Service Corporation International
PART I
•The funeral and cemetery industry is competitive.
•If the number of deaths in our markets declines, our cash flows and revenue may decrease. Changes in the number of deaths are not predictable from market to market or over the short term.
•If we are not able to respond effectively to changing consumer preferences, our market share, revenue, and/or profitability could decrease.
•The continuing upward trend in life expectancy and an increase in the number of cremations performed in North America could result in lower revenue, operating profit, and cash flows.
•Our funeral and cemetery businesses are high fixed-cost businesses.
•Risks associated with our supply chain, such as tariffs, could materially adversely affect our financial performance.
•Regulation and compliance could have a material adverse impact on our financial results.
•Unfavorable results of litigation could have a material adverse impact on our financial statements.
•Cemetery burial practice claims could have a material adverse impact on our financial results.
•The application of unclaimed property laws by certain states to our preneed funeral and cemetery backlog could have a material adverse impact on our liquidity, cash flows, and financial results.
•Changes in taxation, or the interpretation of tax laws or regulations, as well as the inherent difficulty in quantifying potential tax effects of business decisions could have a material adverse effect on the results of our operations, financial condition, or cash flows.
For further information on these and other risks and uncertainties, see our Securities and Exchange Commission filings, including our 2025 Annual Report on Form 10-K. Copies of this document as well as other SEC filings can be obtained from our website at www.sci-corp.com.
FORM 10-Q 37
PART I
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