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From the Survey: Service Corporation International
Service Corporation International (SCI) provides death care products and services in the United States, Germany, and Canada. It is North America’s largest single provider of funeral and cremation services. Operations include cemeteries, funeral homes, combinations of funeral services and cemeteries, crematoria, and related services. Funeral-related products, such as caskets, burial vaults, cremation receptacles, and memorial products, are also sold.
The company was founded in 1962 by Robert L. Waltrip, and is based in Houston, Texas. The original funeral services business incorporated efficiencies of scale, and reduced costs by sharing resources and personnel among several funeral homes. With the success of the strategy, Service Corporation sought ownership of other businesses in the industry. By 1992, it had a North American network of nearly 1,400 funeral homes and cemeteries. In 1993, the Company expanded into international markets and acquired major companies in Australia, the United Kingdom and France, as well as smaller businesses in South America. At the end of 1999, Service Corp’s network numbered more than 4,500 funeral service, cemeteries and crematories in 20 countries.
After the aggressive expansion strategy purchase prices were inflated and corporate debt levels were elevated. The company then decided to implement numerous initiatives to pay down debt, reduced overhead, and increase cash flow. As a result, it also divested a majority of its offshore businesses and many North American funeral homes and cemeteries that were underperforming. In addition, it introduced Dignity Memorial, a brand of death care services and products. Most of the Company’s businesses today feature the Dignity Memorial logotype on their signage, along with the local heritage names under which some have operated for more than 100 years.
From 2002 through 2006, Service Corp. reduced its net debt by more than $1.0 billion, increased efficiency, raised profitability, and tightened internal controls. It also resumed quarterly dividend payments in 2005. Then, the company acquired its biggest competitor, Alderwoods Group, in November 2006. The move resulted in the addition of 600 funeral homes and cemeteries, as well as an expanded geographic network that enabled Service Corp. to serve customers in 46 states, eight Canadian provinces, the District of Columbia and Puerto Rico. More recently, it acquired Keystone North America, a Tampa-based funeral services provider, in March of this year. This acquisition increased the company’s network and helped the company branch out of traditional funeral services. Keystone’s pre-need backlog of deferred revenues has also increased Service Corporation’s long-term stability as well.
Service Corporation is one of the biggest players in the funeral services industry, which is fairly fragmented as the top 50 companies generate only 30% of the markets total revenue. The industry contains approximately 21,000 establishments, many of them family-owned. And revenues total about $15 billion annually. It is a slow growth industry, with much of the value coming from dividends issued by companies. As a result, in the 1990s, companies turned to consolidation as a way to bolster revenues and profits. Though acquisition activity was very prevalent at the time, it has since slowed down as the recession hit company finances. As mentioned in the short history provided above, Service Corporation divested a number of unprofitable enterprises in order to increase profits and efficiency. During this time, Service Corporation also introduced a new business model, in which it started buying successful funeral homes and rather than branding them with the Service Corp logo, the acquired businesses often retained their original names and management. The company also introduced the “Dignity” logo, mentioned above, which it required their subsidiaries to have on its funeral homes, cemeteries, paperwork, vehicles etc.
This company is one of the biggest players in the funeral services industry today. It also has a number of crematories, which will benefit the company in the future as people shift from traditional funeral arrangements to cheaper cremations. Finally, the company has a solid business model, and management will likely continue its aggressive acquisition strategy.
At the time of this article’s writing, the author did not have any positions in the companies mentioned.