DEF: Service Corporation International: Strong 2025 Performance, Board Refreshment

Service Corporation International reports solid 2025 financial results, driven by strategic initiatives and disciplined capital deployment, while announcing key board succession plans.

Summary

• Adjusted earnings per share totaled $3.85 in 2025, representing a 12% compound annual growth rate since 2019.
• Adjusted operating cash flow was $966 million in 2025, a 1% decrease over the prior year but above expectations.
• Preneed sales production increased by 2.3% over the prior year to $2.6 billion, supported by a $17 billion preneed backlog.
• Invested $101 million in 22 funeral service locations and two cemeteries, and $79 million in real estate, new construction, and existing facility expansions.
• Returned $645 million to shareholders through dividends and share repurchases in 2025.
• Achieved a 255% total shareholder return over the past decade (2015-2025), significantly outperforming the S&P MidCap 400's 177%.
• The Board of Directors nominated Carl Loredo for election at the 2026 Annual Meeting and announced Alan R. Buckwalter will not stand for re-election after 22 years of service.
• Shareholders will vote on proposals including reducing the minimum number of directors, permitting the Board to fill newly created vacancies, limiting officer liability, and approving the 2026 Equity Incentive Plan.

Sentiment

Score: 8

Explanation: StockSavvy.ai views this as a strong performance report, with key financial metrics meeting or exceeding targets, robust capital deployment, and significant shareholder returns. The proactive board succession planning and governance enhancements further bolster confidence, despite a slight dip in operating cash flow and some volatility in funeral sales production.

Positives

• Adjusted EPS of $3.85 in 2025, representing a 12% compound annual growth rate since 2019, achieved despite elevated interest and tax rates and inflationary pressures.
• Adjusted operating cash flow of $966 million in 2025, which was well above the high end of expectations.
• Preneed sales production increased by 2.3% to $2.6 billion, supported by a robust $17 billion preneed backlog.
• Successfully executed a new credit facility agreement, which improved liquidity, reduced pricing, and extended average debt maturities.
• Deployed capital effectively, investing $101 million in 22 funeral service locations and two cemeteries, and $79 million in real estate, new construction, and existing facility expansions.
• Returned $645 million to shareholders in 2025 through dividends and share repurchases.
• Achieved a 10-Year Total Shareholder Return of +255% (2015-2025), significantly outperforming the S&P MidCap 400's +177%.
• The 'We Listen Survey' in 2025 resulted in an impressive average employee engagement score of 8.3 out of 10, placing the company in the top 25% of retail companies on the platform.
• Approximately 20% of electricity usage in 2025 came from renewable sources, demonstrating progress in environmental initiatives.
• 90% of Directors have exceeded their stock ownership guideline levels for 2026, aligning interests with shareholders.
• 9 out of 10 Directors are independent and non-management, indicating strong independent oversight.
• The Board and Board committee meetings in 2025 had a combined attendance record of 98%, reflecting high engagement.
• Customer satisfaction ratings (Google stars) exceeded the target with an average rating of 4.67, indicating strong client service.

Negatives

• Adjusted operating cash flow decreased 1% over the prior year to $966 million.
• Funeral sales production decreased, primarily due to volatility associated with the transition from trust to insurance-funded contracts for non-funeral home production.
• One Form 4 for Mr. Tom Ryan reporting a gift transfer was filed late on March 11, 2026.
• A Form 4 reporting the issuance of shares and stock option awards to several officers was inadvertently filed two business days late on February 24, 2026.

Risks

• Evolving macroeconomic backdrop, including elevated interest and tax rates and inflationary pressures, could impact financial performance.
• Volatility associated with the transition from trust to insurance-funded contracts for non-funeral home production may affect future revenue streams.
• Cybersecurity risks are a concern, with the Audit Committee responsible for oversight of these risks.
• Risks related to the investment of trust funds and the primary funeral preneed insurance provider are overseen by the Investment Committee.
• Major financial risks relating to accounting matters and financial reporting compliance are under the Audit Committee's purview.
• Risks associated with the company's compensation programs are assessed by the Compensation Committee.
• Potential for frivolous lawsuits, which the proposed amendment to limit officer liability aims to mitigate.

Future Outlook

The company is confident in its ability to continue executing its strategy emphasizing sustainable growth and long-term shareholder returns. It plans to strengthen its position and create lasting value in the years ahead, focusing on client-first approaches, associate support, and strong governance and financial discipline. The preneed insurance marketing agreement is expected to continue delivering significant benefits and supporting future revenue streams.

Management Comments

• "Looking ahead to the 2026 Annual Meeting, we are proud to build on the strong momentum in 2025 and further strengthen our performance."
• "During the year, we concentrated on Board succession planning, advancing priority initiatives, and carrying out our strategic framework to enhance growth, realize operational efficiencies, and deploy capital with discipline."
• "These efforts supported a year of healthy financial performance and underscored our continued focus on delivering enduring value for our shareholders."
• "In 2025, we advanced our strategic objectives and produced solid financial results amid an evolving macroeconomic backdrop."
• "Our blended trust and insurance preneed model is supported by approximately $17 billion of preneed backlog, supporting growth and providing stable future revenue streams."
• "Our disciplined approach to capital allocation has driven a 255% total shareholder return over the past decade, significantly outperforming our peer group and the S&P MidCap 400."
• "The Board of Directors remains focused on governance and succession planning."
• "We are deeply grateful for the more than 25,000 associates who bring care, professionalism, and commitment to the communities in which we serve."
• "Our strategy emphasizes sustainable growth and long-term shareholder returns, and we are confident in our ability to continue executing against these priorities."
• "We appreciate your continued confidence in SCI and look forward to strengthening our position and creating lasting value in the years ahead."

Industry Context

StockSavvy.ai notes that Service Corporation International operates in a unique and highly regulated industry, the funeral and cemetery services sector. The company's emphasis on digital capabilities, personalized memorialization options, and a blended trust and insurance preneed model reflects broader industry trends towards modernization and catering to evolving consumer preferences. The strategic focus on insurance-funded preneed funeral offerings aims to streamline administration and regulatory efficiency, a key consideration in this complex sector. The company's strong 10-year TSR outperformance against the S&P MidCap 400 suggests effective navigation of industry-specific challenges and successful execution of its growth and capital deployment strategies.

Comparison to Industry Standards

• SCI's 10-Year Total Shareholder Return of +255% (2015-2025) significantly outperformed the S&P MidCap 400, which returned +177% over the same period.
• SCI's 3-year (2023-2025) TSR performance of 19% ranked between the 25th and 50th percentile of the S&P MidCap 400 index constituents.
• SCI's average normalized Return on Equity (ROE) for 2023-2025 was 33.2%, substantially outperforming the S&P MidCap 400 three-year ROE average of 11.2%.
• The peer group for executive compensation benchmarking includes 181 general industry companies, with SCI positioned near or above the median in terms of revenue, market capitalization, and enterprise value. Direct industry competitors like Carriage Services, Inc. and Matthews International Corp. are mentioned as part of a custom peer group for TSR comparison in the 2024 data, but not for the 2025 compensation benchmarking.

Management Changes

Corporate Governance

Legal Proceedings

• The Audit Committee reviews any legal matters that could have a significant impact on the company's financial statements.
• Corporate general and administrative expenses in 2024 included a $20.3 million reduction of the California legal reserve as the primary claims period expired.
• Legal settlement payments were $1.1 million in 2025, $29.5 million in 2024, and $13.3 million in 2023.
• Proposal 6 aims to amend the Articles of Incorporation to limit the liability of officers as permitted by law, intended to mitigate unnecessary litigation and expense.

Related Party Transactions

• In 2025, SCI Shared Resources, LLC paid $352,742 in compensation to Mr. Bryan Bentley, the son-in-law of Director Alan R. Buckwalter.
• Sumner J. Waring, III's mother owns a company that leases funeral homes to the Company under a lease expiring in 2026, for which the Company paid $200,000 in rent in 2025. This amount represents approximately 1% of the total real estate rent paid by the Company.

Stakeholder Impact

• Shareholders benefit from strong financial performance, significant capital returns ($645 million in 2025), enhanced corporate governance, and increased transparency through proxy access rights and detailed disclosures.
• Employees (associates) are supported through structured training, mentoring, leadership initiatives, and continued investment in learning resources, reflected in a high employee engagement score of 8.3 out of 10.
• Customers (client families) receive a consistent, high-quality experience through continued investment in digital capabilities, simplified preplanning processes, and innovative, personalized memorialization options, leading to high customer satisfaction ratings (4.67 Google stars).
• Officers and executives are incentivized through performance-based compensation, subject to stock ownership guidelines and clawback provisions, with proposed amendments to limit liability providing additional protection.
• Creditors benefit from improved liquidity, reduced pricing, and extended debt maturities resulting from the new credit facility agreement.

Next Steps

• Shareholders to vote on the election of 10 Directors at the 2026 Annual Meeting on May 6, 2026.
• Shareholders to vote on the ratification of PricewaterhouseCoopers LLP as the independent registered public accounting firm for 2026.
• Shareholders to vote on the "Say-on-Pay" advisory vote to approve Named Executive Officer compensation.
• Shareholders to vote on amending Articles of Incorporation and Bylaws to reduce the minimum required number of Directors.
• Shareholders to vote on amending Articles of Incorporation and Bylaws to permit the Board to increase the number of Directors and fill newly created vacancies.
• Shareholders to vote on amending Articles of Incorporation to limit the liability of Officers.
• Shareholders to vote on approving the 2026 Equity Incentive Plan.
• The company intends to file a Certificate of Amendment with the Secretary of State of Texas promptly after the Annual Meeting if proposals 4, 5, and 6 are approved.
• The company will hold say-on-pay votes annually until the next required vote on frequency in 2029.
• The company will continue to engage with shareholders through its outreach program.
• The company will continue to support opportunities that reduce its environmental impact, including piloting enhanced irrigation methods, introducing alternative end-of-life options, and converting electricity contracts to renewable sources.

Key Dates

Recommendation

The company demonstrates solid financial performance in 2025 with strong adjusted EPS growth and significant capital returns to shareholders, alongside proactive governance enhancements and board refreshment. However, the slight decrease in adjusted operating cash flow year-over-year and volatility in funeral sales production due to a strategic shift warrant a 'hold' rather than a 'buy'. The long-term strategy appears sound, and the company's historical TSR outperformance is notable, but these factors are largely priced in. Investors should monitor the execution of the preneed model transition and its impact on future revenue streams.

Keywords

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