How The Pandemic Is Killing The Death Business

The rising bodycount means lower revenues for the nation’s largest funeral home and cemetery owner. After all, why have a funeral when no one can attend?

^It’s early April and most of the nation is locked down, but rather than log on for yet another video conference, Tom Ryan, the 54-year old chief executive of Service Corporation International, America’s largest funeral home proprietor, agrees to meet face-to-face with Forbes at company-owned Earthman Hunter’s Creek Funeral Home a few miles from SCI’s headquarters in Houston, Texas. The novel coronavirus has already killed 200 people in Texas, hospital and ICU admissions are grimly ticking higher, but it’s quieter here than usual. For the few funerals underway, viewings are staged in shifts of 10 people and everything is cleaned between groups.

“It’s sad,” says Ryan. “People are dying alone. Your family can’t come in the ICU, and then you have a funeral and remembrance without your friends around.”

 It would be easy to assume that the novel coronavirus—which has already killed 40,600 Americans—would be a boon for Service Corp (SCI) and others in the funeral business. As the nation’s biggest “deathcare” provider, SCI owns 1,471 funeral homes and 482 cemeteries across the U.S. and in Canada. Last year SCI averaged $10,000 in revenue on each of the 319,000 dead people it provided care for (about 12% of total U.S. deaths of 2.8 million last year). If Covid-19 ends up killing 100,000 Americans, and SCI gets 12,000 of them, that should mean an additional $120 million or so in new revenue growth. That’s not insignificant for a company who booked sales of $3.2 billion in calendar 2019. 

But rather than boost SCI’s revenues, Ryan insists that the pandemic will actually hurt business. “Our ability to get in front of the consumer is limited,” says Ryan. Death is not a one-size-fits-all business. A simple cremation with a plain-Jane urn and no reception costs around $3,000. But an elaborate funeral with a big crowd, a mahogany casket, lavish flowers and an ornate tombstone could run $20,000 or more. And the pandemic severely limits SCI’s ability to up-sell the bereaved.

Cremations had already been gaining in popularity and accounted for 56.8% of its services in 2019 versus 53.5% in 2017 up from about 30% twenty years ago. The COVID-19 death surge has created a mini-boom in demand for cremations because why have a funeral if no one can come?

 “A lot of people are going with fewer services than they may have planned for,” says Ryan. “We’re going to have some revenue pressures.” 

Also affected – so called “pre-need” sales, which are typically arranged by people well in advance of their actual death, most of which occur face-to-face by SCI’s salespeople. According to Raymond James
RJF
analyst John Ransom, “pre-need” cemetery plot sales are expected to decline to $158 million in the second quarter of 2020, from $226 million a year ago, down 30%. Death may be on people’s minds right now, according to Ryan, but not many are in the mood to tour cemetery plots or pick headstones.

Pre-need sales are critical to SCI in part because they generate reliable cash flow which is held in trust for future services. Most of these funds aren’t recognized as revenue until they are needed, but SCI can – and does — use that money for working capital. At the end of 2019, SCI had a $12 billion backlog in future revenues, with much of it invested in portfolios containing everything from stocks and bonds to private equity.

SCI is facing some added costs as well. In January, it acquired a half-dozen refrigerated trucks to deploy to Covid-19 hotspots. It has tapped its network for booties, gowns, masks, gloves, and face shields used by their body recovery teams and morticians and deploying them to coronavirus hotspots. To help overwhelmed New York City funeral homes, Ryan parachuted 28 morticians and funeral directors into the Big Apple, and has a team of 15 ready to head to New Orleans. Ryan says SCI doesn’t do hazard pay, because extracting dead people from contagion zones like hospitals is an everyday job, but he is considering “hero pay.”

Ryan, a CPA by training, joined SCI 24 years ago as an accountant, became president in 2003. He spent his early tenure cleaning up the balance sheet mess left by founder Robert Waltrip, who began rolling up mom-and-pop funeral parlors in the 1960s before embarking on an ill-advised round of international acquisitions. Ryan made his own round of domestic acquisitions, including the San Francisco-based Neptune Society in 2011 and Stewart Enterprises of Louisiana (for $1.4 billion in 2013). SCI handles many of the funeral operations at Arlington National Cemetery in Washington, D.C., including the funerals of presidents Reagan, Ford and Bush.

Up until the Covid-19 stock market crash, Ryan had presided over an incredible run. Shares were up seven-fold since he became CEO in 2005. In 2019, the company posted $464 million in pre-tax profits, up 5% over 2018. According to Raymond James because of coronavirus SCI’s top line could contract 14% in the second quarter. Scott Schneeberger at Oppenheimer & Co has reduced his 2020 earnings outlook 30% to about $260 million ($1.44 per share). “Anything that interferes with the sale of burial plots is a turnoff” he says of SCI, whose shares are down 25% from their all-time high in early March, compared to a 16% decline for the broader market. And things could get much worse if the outbreak resurfaces and another wave of lockdowns ensues.

But the business is changing, perhaps for good. Like most other funeral home operators, SCI now offers streaming services to accommodate grievers who can’t attend in person. (In a bit of serendipity, SCI was already exploring live-streaming before the pandemic, inspired by Kobe Bryant’s live-streamed memorial) They are trying other things too. At SCI’s Cook-Walden Capital Parks Funeral Home and Cemetery in Pflugerville, Texas, for instance, manager Rick Davis invested in a transmitter that will broadcast AM radio signals a quarter mile, so that friends and family can come to a drive-in funeral, tune to 1600 AM, stay in their cars and listen together to a service before paying respects in a drive-by procession.

Currently SCI isn’t charging customers for live streaming services, but ultimately Ryan figures that live streams are an add-on customers might be willing to pay around $300 for, and the option will be available even when social distancing is no longer necessary.

Despite Ryan’s complaints about SCI’s revenue woes, there may be a silver lining. Many people who were denied an expensive, well-attended funeral may choose to have a pricey memorial service once the pandemic passes and SCI is angling for that business.

for SCI if the company can figure out a way to cash in on the inevitable memorial service boom that is bound to occur once the pandemic passes.

“A live stream is better than no live stream,” says Megan Portorreal, a New Yorker who sat alone on her couch last week and used Facebook Live to watch her aunt’s funeral in Passaic, N.J. “But I still couldn’t help but think we should have been there for her in person.”

“There’s real pent up want and need to provide that closure, by having your loved ones around you at this time,”says Ryan.  

At one of SCI’s flagship locations—the 4-story Frank E. Campbell Funeral Chapel on Manhattan’s Upper East Side, with eight reception rooms and a 275 person chapel—director Bill Villanova says that in normal times they will orchestrate “life celebrations” for 40 families per month. These days his funeral home – which buried Greta Garbo, John Lennon and Malcolm Forbes—is doing more cremations, and tentatively scheduling full memorial services for months in the future. “They’ll wait,” hopes Villanova.

There is also a chance that SCI and other big funeral operators like Houston’s Carriage Services will use the stress inflicted on small independent funeral homes to make opportunistic acquisitions. SCI only has a 16% share of the total deathcare market, its balance sheet is strong and it has no debt due until 2024. 

There are a lot of overwhelmed mom-and-pops right now that will want to exit the business after COVID-19, says Ryan. “They don’t want to live through this again.”

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