Funeral home operator Stewart Enterprises (NASDAQ:STEI) will report Q4 2006 financial results on Wednesday, Jan. 17. Here's what to expect.

What analysts say:

  • Buy, sell, or waffle? Of the three analysts covering Stewart, two say it's anything but dead money with a buy rating, while one advises holding.
  • Revenues. Sales are expected to rise 4%, climbing to $119.3 million from the prior year's moribund results.
  • Earnings. Earnings are expected to creep up a penny, to $0.06 per share.

What management says:
It's been cold comfort to Stewart's investors that the company has finally gotten around to restating its financial results. It's now the subject of both an SEC investigation and shareholder lawsuits, but at least the stock has rebounded from the lows it set at the beginning of last year. While noting he was "pleased" with the recovery the company has made, CEO and CFO Thomas Kitchen noted that Stewart still faces legal challenges, as well as operational ones in Louisiana, which is still recovering from Hurricane Katrina.

Funeral revenues grew $2.8 million last quarter to $68.8 million, helped along by a $2.4 million influx of hurricane insurance revenue. Other segments have been helped along by adjustments, too, and the overall picture remains uncertain.

What management does:
While the profit picture has definitely improved, much of that has been aided by external conditions unrelated to management's ability to control costs or margins. Revenue growth has been anemic at Stewart, and it's found itself using insurance proceeds and restatements to paint a prettier picture.

Margin %

09/05

12/05

03/06

06/06

09/06

Gross

22.0

20.7

20.9

20.7

20.7

Op.

17.7

16.7

16.5

15.9

15.4

Net

(26.5)

(29.0)

2.1

5.4

5.0
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Stewart Enterprises' situation is not pretty, and it will undoubtedly take some time yet to turn itself around. That seems to be a recurring theme in the funeral industry; former Motley Fool Hidden Gems pick Alderwoods was a turnaround stock that ultimately got snatched up by Service Corp. International (NYSE:SCI). Whether anyone would consider picking up Stewart remains to be seen.

Investors should keep an eye on how much of Stewart's growth this quarter, if any, was due to improving industry prospects, and how much resulted from financial gimmicks that boosted the bottom line without generating real growth. Death rates are declining in the U.S., creating a problem for the whole industry, but pre-need funeral services are one area in which Stewart has seen some decent growth. Perhaps exploiting that trend, while continuing to pay down the enormous debt load that it carries, will allow the company to rebound.

Competitors:

  • Carriage Services (NYSE:CSV)
  • Stonemor Partners (NASDAQ:STON)

Related Foolishness:

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Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.