Stewart Enterprises Staying Alive

Against a backdrop of stiff competition, death services provider Stewart Enterprises (Nasdaq: STEI) outlived expectations for its second quarter. Stewart is the death products and service industry's third-largest player behind Service Corporation International (NYSE: SRV) and Motley Fool Hidden Gems selection Alderwoods Group (Nasdaq: AWGI), and ahead of Carriage Services (NYSE: CSV).

Stewart Enterprises reported second-quarter earnings per share of $0.12 (from continuing operations), which bested the $0.11 consensus estimate and easily beat the $0.09 earned last year. The 31% earnings increase (year over year) was mainly attributed to the company's cost-reduction initiatives that kept results from flatlining.

Stewart produced a 2.2% increase in revenues, including 3.2% growth in cemetery revenues, which were tempered by 1.3% higher funeral revenues. Same-store funeral operations gained 4.3% for traditional funeral services and 4.6% per cremation service.

Additionally, Stewart paused from all of its cheery news for a minute to inform the investment community that CEO William E. Rowe has decided to step down from his position after 39 years in the industry and 18 years with the company. CFO Kenneth C. Budde will take over as interim CEO until a successor is found. It appears that Rowe wants to deviate from the Hair Club for Men boss who said, "I'm not only the president of the company, but I'm also a client."

Management changes usually make me nervous because there is often a transition period where the company's operations tend to hiccup. In Stewart's case, a murmur could lead to operating difficulties, but not a death sentence. With the company's cost controls being so under control, Budde must have had a primary role in digging up new ways to cut corners.

When analyzing an industry, it is always best to take a top-down approach in finding stocks that are truly alive. Although the words alive and dead go together as well as clean and dirty, one only has to look up for guidance in this industry. Although the top players, Service and Alderwoods, are efficient producers, companies such as Stewart have ample room to operate amidst the stiff competition and should continue to breathe strong.

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Fool contributor Phil Wohl spent more than 12 years on Wall Street and now concentrates his writing on more fictional characters. He has no stake in any firm mentioned above.