Service Corporation International (SCI) Q3 2026 earnings review
Service Corporation International profit rises 11%, but it cuts outlook
Service Corporation International, North America's largest funeral and cemetery operator, grew third-quarter profit even as field costs squeezed its cemeteries. Revenue rose 5% to $1.11 billion, and profit per share excluding one-offs climbed 11% to $0.97 on lower corporate overhead and share buybacks. However, chief executive Tom Ryan cut the full-year profit plan, leaving fourth-quarter profit per share almost unchanged from a year ago at the middle of the range.
| Sales from businesses owned a year ago | +3.6% $1,091.6M total (by our math) |
|---|---|
| Profit per share, excluding one-offs | $0.97 +11% from a year ago |
| Full-year profit per share outlook | Cut $0.21 middle of the range: $3.99 (+3.6%) |
| Full-year operating cash flow outlook | Unchanged middle of the range: $1,085M (+12%) |
⚖️ Verdict: 🔴 Bearish
The story got worse because management gave up on the second-half earnings rebound it had promised all year. Lower funeral volumes join higher health insurance, marketing and guaranteed hourly sales wages to pull full-year profit growth down to about 4% by our math, well below the company's 8% to 12% target. The bright spot: advance funeral sales rose 6%, and working capital kept the full-year cash flow plan intact.
The question now is whether higher selling and wage costs are a temporary upfront hit for future revenue or a lasting drag on cemetery margins. If the new hourly pay structure builds the backlog efficiently, margins will recover as cemetery property is delivered; if it simply raises fixed costs, earnings growth stays below target. Fourth-quarter cemetery gross margin will show which view is right.
🐂 Bull Case
Advance Funeral Sales and Insurance Commissions Grew
Service Corporation International (SCI), North America's largest funeral and cemetery operator, sells many arrangements before death occurs, which it calls preneed sales. Customers often fund these contracts with third-party life insurance policies, and the deathcare provider earns a general agency commission at the time of sale.
In the third quarter, advance funeral sales at locations owned a year ago rose 6.1% to $323.5 million, beating the 4% to 6% second-half pace management indicated last quarter. Core general agency and other revenue climbed 12.5% to $63.8 million, and SCI said "The current commission rate is generally stable and is trending in line with expectations".
This matters because a switch in insurance providers had lowered commission rates earlier in the year and hurt funeral profit margins. Steady commission rates and rising contract volumes mean advance sales are adding to revenue again while building the backlog of future funerals.
What to watch: general agency revenue and commission rates in the fourth quarter, when the company laps last year's transition to the new insurance provider. A higher commission rate would lift funeral gross margins next year.
Lower Corporate Overhead Lifted Operating Cash Flow
While field costs rose at funeral homes and cemeteries, the Houston-based company spent less on corporate general and administrative overhead. Those corporate costs fell by $7.7 million, or 0.9 percentage points of revenue by our math, to $30.6 million because of a legal settlement and lower executive stock compensation.
Combined with $29.9 million from working capital timing, operating cash flow excluding one-offs rose 10.8% to $296.9 million. That allowed chief executive Tom Ryan to keep the full-year operating cash flow plan unchanged at a middle of $1,085 million even as he cut the earnings outlook.
What to watch: fourth-quarter cash tax payments, which by our math must reach $54.7 million to hit the $120 million full-year target. Lower tax payments would push full-year cash flow above the top of the company's range.
🐻 Bear Case
Lower Volumes and Higher Costs Cut the Profit Plan
"Today, we reported adjusted earnings per share of $0.97 and adjusted net cash provided by operating activities of $296.9 million, both delivering double-digit growth compared to the prior-year quarter," chief executive Tom Ryan said. On GAAP numbers, profit per share rose 24% to $1.03, helped by $11.2 million of gains from "non-strategic asset divestitures of excess land".
The forward plan tells the opposite story. SCI cut its full-year profit per share outlook, excluding one-offs, by 21 cents at the middle of the range to $3.94–$4.04. The new fourth-quarter forecast of $1.10 to $1.20 points to less than 1% growth at the middle, down from 11.5% in the third quarter.
- Underlying funeral volume: down 0.1% at 83,638 services, against an easy 3.5% drop a year ago
- Full-year profit per share growth at the middle of the range: 3.6% by our math, below the company's 8% to 12% long-term target
- Effective tax rate excluding one-offs: 25.3%, up 1.2 percentage points from a year ago
The company blamed the cut on "lower funeral volumes than we originally anticipated, coupled with the continued impact of higher healthcare costs, as well as higher selling compensation and advertising and marketing expenditures". Three months ago management needed second-half profit per share to grow 11% to 21%; by our math the new plan delivers about 3% to 8%.
What to watch: fourth-quarter funeral service volumes in the full-year report. Another drop would show that demographic growth has not yet arrived to offset rising fixed costs.
Higher Hourly Pay and Marketing Squeezed Cemetery Margins
Cemetery sales have been the company's main growth engine, but rising selling and employee expenses held back segment profit this quarter. Total cost of revenue—the direct cost of running funeral homes and cemeteries—rose 0.5 percentage points of revenue by our math, pulling consolidated gross margin down 0.5 percentage points to 24.6%.
At cemeteries owned a year ago, revenue grew 4.0% to $503.4 million, but gross profit barely moved, rising $1.1 million to $167.1 million as segment gross margin fell 1.1 percentage points to 33.2%. SCI said "Changes to our sales compensation structure, which increased guaranteed hourly wages, resulted in a higher selling compensation rate". Because hourly pay cannot be deferred like sales commissions, more cost hit the income statement right away.
At the same time, advance cemetery sales growth slowed to 4.8% from 8.0% last quarter, while completed cemetery property revenue rose only 1.2%. Higher health insurance and marketing bills added to the squeeze, and Ryan expects these higher costs to continue in the fourth quarter.
What to watch: cemetery gross margin and advance property sales recognition in the fourth quarter, when construction completions normally peak. If margins still fall when property deliveries rise, the new hourly pay structure is permanently more expensive.
Trust Fund Returns Turned Negative in the Third Quarter
SCI holds $10.1 billion in preneed and perpetual-care trust funds on its balance sheet to pay for future services and cemetery upkeep. Investment earnings from these trusts flow into revenue when contracts mature or when perpetual-care funds make distributions.
In the third quarter, higher distributions from endowment care trusts lifted other cemetery revenue by 19.7%, or $7.5 million, to $45.5 million, and trust income also helped raise average revenue per funeral by 2.8% to $6,022. However, combined trust fund returns turned negative in the quarter at -0.7%, down from +7.7% in the second quarter and +4.8% a year ago.
Lower market returns also reduced non-taxable gains on company-owned life insurance policies, which pushed the effective tax rate excluding one-offs up to 25.3% from 24.1% last year. What to watch: fourth-quarter trust fund returns and whether full-year trust income still reaches the $330 million to $360 million range management projected last quarter. Weak returns would slow average funeral price growth next year.
Risks This Quarter Didn't Answer
Three standing risks from prior quarters could not be fully tested in the third-quarter earnings release because the details live in the conference call or the quarterly filing.
- Cremation shift: the comparable cremation rate rose another 0.6 percentage points to 65.0%, which pressures traditional burial revenue, and the release gave no update on the rollout of cemetery products for cremation customers.
- Debt leverage and 2027 maturities: total debt stood at $5.17 billion, including $195.1 million due within a year, with no update on the credit-agreement leverage ratio or refinancing plans for 2027 bonds.
- State unclaimed-property audits: the release's risk factors again noted state unclaimed-property laws on preneed backlog, while the specific audit count awaits the quarterly filing.
💲 Other KPIs
Diluted shares fell 3.0% from a year ago, down from a 3.3% drop in the second quarter and 3.7% in the first. By our math, SCI spent $52.6 million on share buybacks in the third quarter, less than half its $123.2 million second-quarter pace, which still helped lift per-share profit growth above net income growth.
Combined balance-sheet deferred revenue ($1,820.6 million) and deferred receipts held in trust ($6,050.7 million)—money collected in advance for services not yet delivered—rose 5.0% from a year ago by our math, but dipped 0.9% from the second quarter as negative trust returns trimmed trust balances.
Total debt minus cash rose 4.4% from a year ago by our math, down from $5,042.8 million at the end of June. The funeral provider paid down $42.5 million of net debt during the quarter as it slowed share repurchases and collected more operating cash.
🔮 Guidance
New. The plan puts fourth-quarter profit per share at $1.15 in the middle of the range, up less than 1% from $1.14 a year ago and down from 11.5% growth in the third quarter. Lower funeral volumes and higher healthcare, wage and marketing costs weigh on the quarter.
Cut. Management lowered the middle of its full-year profit range by 21 cents, or 5.0% by our math, after holding it at $4.20 for three straight quarters. The new $3.99 middle represents 3.6% growth for the year, well below the company's 8% to 12% long-term target.
Unchanged. The full-year plan stays at a $1,085 million middle, up 12.4% from 2025 after a $50 million raise last quarter. By our math, that leaves $214.7 million for the fourth quarter, up 0.7% from a year ago.
Unchanged. The pre-tax cash flow target holds at a $1,205 million middle, up 9.0% from $1,106 million in 2025. By our math, that leaves $269.4 million for the fourth quarter, compared with $327.8 million in the third quarter.
Unchanged. Expected full-year cash tax payments remain at $120 million, down from $140 million in 2025 thanks to renewable energy tax credits bought in the second quarter. With $65.3 million paid through nine months, the plan leaves $54.7 million for the fourth quarter by our math, up from $25.8 million a year ago.
Unchanged. The budget for existing field locations ($140 million), cemetery property development ($170 million) and digital and corporate projects ($25 million) stays at $335 million. Having spent $226.1 million through September, the company has $108.9 million left for the fourth quarter by our math, up 2.3% from a year ago.
❓ Key Questions
How much did the hourly pay change cost in dollars?
Higher guaranteed hourly wages raised cemetery selling costs now because hourly pay cannot be deferred like commissions. Investors need the dollar impact in the third quarter and when the deferral benefit will start lowering future expense.
Why did funeral volume expectations drop for the fourth quarter?
Third-quarter comparable funeral services were nearly unchanged at -0.1%, yet management cut full-year earnings partly on lower expected funeral volumes. Did October volumes drop, or did the company give up on a fourth-quarter flu rebound?
How is the cremation cemetery rollout performing across new markets?
The comparable cremation rate rose another 0.6 percentage points to 65.0%, and management began rolling out its new cremation cemetery strategy in July. What sales lift did those markets see in the third quarter?
When will the 2027 debt maturities be refinanced?
Current debt maturities rose to $195.1 million on the balance sheet as 2027 bonds move closer to due dates. What interest rate does management expect on refinancing its $687 million of 2027 senior notes?