Service Corporation International (SCI) Q1 2019 Earnings Call Transcript

Service Corporation International (SCI 0.73%)
Q1 2019 Earnings Call
April 25, 2019 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the first-quarter 2019 Service Corporation International earnings conference call. My name is Brandon, and I will be your operator for today. [Operator instructions] Please note, this conference is being recorded. And I will now turn it over to SCI management.

You may begin.

Debbie Young -- Director of Investor Relations

Good morning, everyone. This is Debbie Young, director of investor relations at SCI. We thank you for joining us today as we discuss our first-quarter results. As usual, I'm going to go over the customary safe harbor language before we begin.

The comments made by our management team today will include statements that are not historical and are forward-looking. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, those factors identified in our press release and in our filings with the SEC that are available on our website. Today, we may also refer to certain non-GAAP measurements such as adjusted EPS, adjusted operating cash flow and free cash flow.

A reconciliation of these measurements to the appropriate measures, calculated in accordance with GAAP, is provided on our website and in our press release and 8-K that were filed yesterday. With that, I'll now turn the call over to Tom Ryan, SCI's chairman and CEO.

Tom Ryan -- Chairman and Chief Executive Officer

Thanks, Debbie. Hello, everyone, and thank you for joining us on the call this morning. Today, I'm going to begin my remarks with a high-level overview of the quarter, followed by a more detailed analysis of our funeral and cemetery operations and, finally, comment on our outlook for 2019. So let's begin with a few highlights of the quarter.

As you saw in our press release yesterday, we reported adjusted earnings per share of $0.47, which was on par with the same period last year. Our reported earnings per share was significantly higher in both our own and analysts' consensus expectations. Comparable cemetery revenue growth, primarily driven by preneed sales production into a higher percentage of already developed property, coupled with noncustomer facing, purposeful cost reductions and a lower tax rate, essentially offset reduced funeral segment profits impacted by a milder flu season as compared to the prior year. Now shifting to some more detail around the funeral operating performance for the quarter.

As we discussed with you in February, we anticipated a challenging funeral volume comparison as we experienced a much milder flu season this quarter. Therefore, our teams were acutely focused on managing our fixed costs at the location, market and overhead levels. Comparable funeral revenue declined about $28 million or 5.5% compared to the same period last year. Core funeral revenue was the primary reason, declining over $30 million, led by a 5.5% decline in core funeral case volume.

This decline was most pronounced in January and February, with March volumes trending back toward flat. Our core revenue per case absorbed a 200-basis-point increase in the cremation rate, resulting in a 1.6% decrease in the core funeral average. The organic revenue per case at the customer level, before mix change, grew about 70 basis points. Recognized preneed revenues declined by almost $2 million or just over 5%, as a result of fewer contracts sold through our nonfuneral home operating channel.

This shortfall was caused by the temporary sales production issues from the conversion and on-boarding of sales associates from independent contractors to employee status. This conversion puts us on the right path for growth as we now can provide enhanced benefits and training to counselors, which should result in higher retention and higher productivity. We saw a challenging January and February, followed by a strong March performance. We're at about 80% of our target Salesforce staffing, and while it may take a few more months to fully staff our teams, I'm highly confident we'll be back to impressive growth soon.

Finally, on the revenue front, other revenue increased almost $5 million quarter over quarter. This is primarily due to higher general agency commissions on increased preneed funeral insurance sales production, coupled with lower cancellations. Shifting to funeral profits. We experienced a decrease in operating profit of $17 million, and operating margins decreased 210 basis points to 21.7%, primarily due to the revenue decline I just described.

The margin decline was partially mitigated by cost-reduction initiatives implemented during the first quarter, which we believe will have continuing benefit throughout the remainder of 2019. Finally, total preneed funeral sales production, which gets deferred into our backlog, grew just over 2% for the quarter. Preneed funeral sales production from our core locations grew approximately 4%. This is particularly impressive, considering a large percentage of our sales leads comes from atneed customer interaction, which was down about 5% at our core location.

This is an encouraging sign for us and highlights the beneficial impact that Beacon is providing. Preneed sales production at our SCI Direct locations declined 3.5% in the quarter, primarily due to the temporary sales production issues from on-boarding our sales counselors as employees. Now turning to cemetery operations. Before diving a little deeper, I would like to give a special thank you to our sales and cemetery operation teams for the strong cemetery preneed sales production performance during the quarter.

They were a key reason why we are able to close earnings per share gap created by the mild flu season as compared to the prior-year flu season, which had positively impacted both funeral and atneed cemetery revenues. This team stepped up to the challenge, and I couldn't be more pleased with their performance. Total comparable cemetery revenue grew nearly $21 million or 7.5% in the quarter. Included in this $21 million increase is a $17 million or 9% increase in recognized preneed revenue, which was the function of strong sales production as well as higher revenue recognition rate.

Recall that higher recognition rates means more of what we're selling is getting recognized in earnings. This higher rate is a result of our sales team selling a larger percentage of existing developed property versus undeveloped, as well as achieving the down payment criteria for some of the sales production from the fourth quarter of 2018. Cemetery preneed sales production grew a healthy $13 million or 6.3%. The majority of our sales production growth came from almost 6% growth in our core cemetery sales production, which is inclusive of property, merchandise and services.

This was enhanced by high single-digit growth in our large property sales. As you can see, we continue to benefit from our tiered inventory property strategy. Also helping the top-line growth, we had just over $7 million increase in perpetual care trust fund income due to strong market performance, as well as the timing of capital gain distribution. Partially offsetting the higher preneed revenue in perpetual care trust fund income was a $3 million decline in atneed revenues as there were fewer walk-in sales during the milder flu season in the first quarter compared to the prior-year quarter.

Comparable cemetery operating profits grew an impressive $11 million or nearly 15% as we expanded margins 190 basis points to 28.8%, primarily resulting from the revenue increases that I just described. Fixed cost growth in cemetery segment was generally in line with expectations as [Audio gap] costs helped to offset higher maintenance and allocated overhead expenses. So to wrap it up, I want to thank and congratulate our team for their focused execution in a challenging revenue environment. I also want to thank them for their continued focus on serving our client families during one of life's most difficult times and providing peace of mind for our preneed client families.

I feel really good about the momentum and our focus as we execute during the rest of the year. While we exceeded consensus analysts, as well as our own internal expectations for earnings per share and cash flow in the first quarter, we're only three months into the year. At this point, we remain very comfortable with our annual guidance, and in July, we should be in a better position to evaluate how we're stacking up against those annual ranges. In the meantime, we'll continue to pursue our three core strategies of growing our revenues, leveraging our scale and deploying capital in a disciplined manner toward the highest and best use for the long-term benefit of our company and our shareholders.

With that, I'll turn the call over to Eric.

Eric Tanzberger -- Senior Vice President and Chief Financial Officer

Thanks, Tom. Good morning. So as usual, I'm going to begin by discussing our capital deployment for the quarter, and then I'll follow with some thoughts on our cash-flow results and then briefly touch upon our full-year cash-flow guidance as well as plans going forward for the rest of the year in terms of capital deployment. So let's begin with capital deployment, but talk about the quarter.

So we deployed about $75 million toward acquisitions, new location builds, dividends and share repurchases. In terms of the various components, first, we developed -- we deployed $19 million toward acquisitions and real estate purchases during the quarter. The acquisitions relate to several funeral homes purchased in Ohio and in Quebec, and we certainly welcome these associates to the Dignity Memorial family. We believe acquisitions like these continue to be our highest and best use, with mid-teen after-tax IRRs.

We also invested an additional $7 million on the new builds and expansion of several funeral homes, including two new funeral homes that completed construction in both Dallas, Texas and Shreveport, Louisiana. These new builds should provide us with great low double-digit percentage returns going forward and expand our footprint into desirable markets. Dividend payments in the first quarter totaled $33 million, representing an increase of just over 5% over the prior year. This obviously reflects the $0.01 per share or 6% increase in our dividend to the now level of $0.18 per share per quarter, which was announced by our board in February.

Finally, we returned $50 million of capital to investors in the form of share repurchases by purchasing approximately 350,000 shares at an average cost of $40.97 per share. Our current number of shares outstanding is just over 182 million shares at the end of this quarter, and today, we have about $180 million of remaining share repurchase authorization, which gives us ample capacity as we move forward in 2019. So a little bit of color here. Our capital deployment during the quarter was somewhat modest when compared to the first quarter last year, as well as our normal quarterly track record.

I can tell you this was intentional. As a backdrop, our leverage increased during 2018 toward the higher end of our desired leverage ratio range of three and a half to four times as we absorbed some large acquisitions, and we're actively repurchasing shares. So remember, we deployed almost $200 million toward acquisitions in 2018, as compared to our $50 million to $100 million guidance, and we repurchased 7.3 million shares for a total investment of $278 million, and by the way, that was at an average price of $37.78. So as we entered 2019, we recognize that we're facing a tough funeral comparison in the first quarter, and that's due to the expected weaker flu season that would further pressure our leverage temporarily toward four times, which is not where we want to be.

This, in addition to higher share prices observed earlier in the quarter, compelled us to make a conscious effort to delever and improve our leverage ratios while maintaining significant liquidity. The result was a net reduction of total debt by approximately $125 million during the quarter, which brought our leverage down closer to the midpoint of our desired leverage ratio range. As a result of this, we have also benefited by increasing our total liquidity by about $75 million to just over $845 million. So while we don't unilaterally use our leverage ratio to govern our capital deployment levels, the actions taken in this quarter provide the flexibility we desire to deploy capital for the remainder of this year to the highest relative return opportunities, including share repurchases.

So again, although we're off to a little bit of a slower start than normal, I'm confident that we are now well-positioned with the financial flexibility for the remainder of this year. So now let's shift gears here and talk about cash flow for the quarter. We are pleased to report better-than-expected adjusted operating cash flow of $185 million in the quarter, which is primarily due to the higher-than-anticipated earnings that Tom just discussed. Compared to prior year, operating cash flow was down about $20 million, which is due to an expected $4 million reduction in operating profit, primarily result of the lower operating funeral performance because of the weaker flu season and a net $16 million increase in preneed and other working capital uses in the quarter.

In particular, we had about $12 million of higher working capital use from financing the strong growth and recognized preneed cemetery property sales production using customer installment sales contracts. And as we've discussed this in the past, recognition of revenue from preneed cemetery constructed property generally occurs at sale, while the associated cash is typically received over a period of time. In addition, we had an expected $12 million of other working capital uses largely related to our payables, which generally support the growth of our business. These working capital uses were partly offset by a cash source of $8 million from trust funds in the quarter as a result of our ongoing working capital initiative.

Cash interest payments were flat quarter over quarter, and recurring cash taxes declined modestly in the quarter. And just a quick note on taxes. Our guidance for cash tax payments for the year remains unchanged at approximately $100 million. Moving on to free cash flow.

Maintenance and cemetery development capex combined, the two components that we define as capex in our -- for free cash flow calculation, was approximately $45 million for the quarter, which was just over $3 million higher than prior year, but generally in line with our planned spending for the quarter. Deducting these recurring capex items from cash flow, we calculate our free cash flow in the quarter to be about $140 million. So now let's shift to the outlook for the rest of the year. As Tom mentioned, we remain confident in our guidance, specifically in our existing 2019 guidance range of adjusted operating cash flow of $550 million to $610 million.

This, in addition to almost $850 million of liquidity, sets us up nicely to deploy capital over the remainder of the year by investing in highly accretive acquisitions and new build projects, while funding the dividend and, of course, returning capital to our shareholders in the form of share repurchases. So in closing, I think we're off to a great start in 2019. I'm proud of our team's performance, despite the challenges that we faced, coming into a tough comp for the first quarter because of the more mild flu season this year. I'd like to specifically thank all of our 23,000 SCI associates for helping to deliver these results.

So with that, operator, that concludes our prepared remarks for this quarter. And we'll go ahead and shift it back to you now to open up the call to questions. 

Questions and Answers:

Operator

Thank you, sir. [Operator instructions] And from Credit Suisse, we have A.J. Rice. Please go ahead.

A.J. Rice -- Credit Suisse -- Analyst

Thanks. Hi, everybody. First, maybe just to ask about the trending cremation, again, like the fourth quarter a little elevated relative to historical norms. I wonder if you had any chance to sort of look at what is happening there.

And do you think there is been a little bit of a shift in the market? Or is there some other way to attribute it? And when you look at the 5% year-to-year comparable case volume decline, is there any reason to think that would be more skewed toward your traditional cases than cremations? I'm not sure why, but I just wondered if that might be part of the factor.

Tom Ryan -- Chairman and Chief Executive Officer

Sure, A.J. Good to hear from you. It's Tom. Let me -- so if we talk about cremation, obviously, the mix is changing, and we know which direction it's changing, and the question is the velocity of that change.

And historically what we have experienced in our own businesses is about 80 to, call it, 120-basis-point range of shift. So when we talk about it long term, we historically used the 100 basis points as what we thought would happen. The U.S. rate, if you looked at the market itself, it's probably been growing at about 150 basis points when you look back over the last few years.

We talked a little bit about it at investor day, but if you think about the cremation consumer and historically, at least last 15 years, I think we've competed really well for the cremation consumer that's focused on quality and reputation, and we've done that through our core businesses and competed very effectively. We've also, I think, served the customers through SCI Direct and Neptune brands. They are very value-oriented. And I think we've done a really good job of communicating to those consumers and competing.

Where I think we probably missed the boat a bit, and this is probably a function of some of our pricing changes we did 10, 12 years ago, and we talked a little about this on Investor Day. You remember, John Faulk giving this presentation. We have found in certain markets and in certain locations in those markets where maybe our pricing as it relates to, what I'll call, the simple cremation. And this is probably about 30 markets over the last 12, 18 months that we've looked at, that we weren't at the right price points to compete effectively for that simple cremation consumer.

We have rolled that out, like I say, in certain of these test markets if you will, and markets that we felt were being impacted, and the results of that, again, they're staged different times, but if you look at, let's say, a four- to six-month look back in some of these test markets, we saw increases in case -- cremation and case volume of about 13%, versus the rest of our network that's essentially flat. So we know by making these changes, we were driving more business through these locations, but we also adjusted this pricing. So what we experienced in those market is pretty flat revenue with a lot more volume and a little less price for that particular customer. We believe that that by initiating those changes in those 30 markets, it's probably responsible for, call it, 40 basis points of change.

In addition to that, another thing that we've noticed is in our new acquisitions, take '16, '17 and '18, the average cremation rate in those businesses that we've acquired is probably in the mid-60s, just in the markets that we're looking at. So as you think about on-boarding those and then putting them into your mix, it's probably responsible for another 30, 40 basis points. So I think our opinion is we've probably accelerated the rate temporarily. I would expect as time moves on it may move closer to the national rate, which is about 150 basis points, but then again, that's my speculation, but hopefully, that's helpful, A.J.

And the same thing on preneed, I would just point out, we're seeing some similar trends. And I think the way to think about that is that, obviously, cremation mix is changing with the consumers. But on top of it, the lead source -- probably 40% of the time, the lead source for our preneed is coming from an atneed interaction. So as you see, increased simple cremation is being performed in our network.

We're probably following up with that family and there's a pretty good likelihood that they may select the same simple cremation package. So we view it as an opportunity. We view this as -- we believe that we're capturing share that we weren't getting previously and that's accounting for some of this mix change, which is a positive thing.

A.J. Rice -- Credit Suisse -- Analyst

OK. That's interesting. Thanks. Second, maybe just to ask about the trend in the perpetual care trust fund, I think you guys said in the prepared remarks, it ended up being a little bit better than you thought and certainly was a little better than we thought as well.

I know part of it is probably just the market rebound as you alluded to, but part of it's also your change in the strategy to where how you're managing that trust fund. Any way to comment on sort of, I'm assuming you would say don't extrapolate first quarter through the next three quarters, but any sense of what a run rate might look like in that -- on that line?

Eric Tanzberger -- Senior Vice President and Chief Financial Officer

Hey, A.J., this is Eric. So as you correctly noted, ECF was up the income quarter over quarter by little over $7 million. I agree I wouldn't really extrapolate that. I'll come back to that and comment.

But I do think some of that is a little bit outperformance, maybe by our particular portfolio managers versus market. But the vast majority to that is really just timing. It has to do with the -- to just refresh your memory and level set this, a lot of the ECF income, for example, last year $75 million of ECF revenues, maybe $15 million to $20 million of that, may be distribution to capital gains and that timing is somewhat out of our control because that's obviously controlled by the underlying portfolio managers. And going back to when we shifted to total return, in 2017, we moved a lot of assets and created different gains and such by moving those assets from the traditional funds into the total return funds.

And what really happened quarter over quarter is that the first quarter of 2018 should be considered artificially low because of the capital -- lack of capital gain distribution and some of the noise around that area. And so this is more of a normalized rate, although comparison purposes, it looks to be up. But when you look at it full year, I think this variance will kind of give back throughout the rest of the year. And so the $75 million of revenues that are occurring last year in ECF is a pretty good proxy, all else being equal without having a crystal ball and able to predict the market, to what it would be in 2019 as well.

The volatility, though, that could be created outside of our control, again, is any type of capital gains that are distributed to us from the trustees, but ultimately, are the portfolio managers during the years, they will choose in their normal activities whether those gains are realized or not. So I hope that gives you a little bit more color.

A.J. Rice -- Credit Suisse -- Analyst

Yeah. That's good. Thanks And maybe just a last question for now. I know last quarter you wanted to signal that the first-quarter comp because of the flu-related cases a year ago was particularly a tough comp and you wouldn't -- this is something you don't normally do which is give quarterly outlook.

I know you're probably not ready to, you're not going to do that for second, third and fourth quarter. But do we have now a series of somewhat easier comps? Is second quarter still a little bit of a tougher one than the back half? Or how -- any way you'd like to characterize the relative comps, since a lot of pull forward happened last year, presumably making the second, third and fourth quarter a little easier comps for you?

Tom Ryan -- Chairman and Chief Executive Officer

Yeah, A.J. I believe, again, all we can really do is we, obviously, have sort of April vision into that, but history is really what drives this for us, and we've got a lot of data that goes back. So the last year that kind of looked like this one was 2016. We were down 10% in January.

We finished the quarter down 5%, and we ended up down less than 2% for the year. So what you experienced in that, and that's not unlike trends that were even previous to that, is you tend to gravitate back toward flat, probably not quite getting there, but that would say that look for generally, to be flat to slightly up for the rest of the year. That's what we would expect and would probably push us to that somewhere between 1% and 1.5% down. But, again, a lot of things are happening, and it could move one direction or another.

I tell you that April looks pretty good as far as snapping back to what we'd expect normal trends to be, so hopefully, that's helpful in your thinking.

A.J. Rice -- Credit Suisse -- Analyst

Yeah. Great. OK. Thanks a lot.

Operator

From Oppenheimer, we have Scott Schneeberger. Please go ahead.

Scott Schneeberger -- Oppenheimer -- Analyst

Thanks. Good morning. I just want to follow up on A.J.'s first question, and then I have two others. Could you discuss -- you mentioned that we're seeing a bit of elevation in cremation.

Could you talk about what you've factored into the guidance for the year? Was it, in fact, your 100 basis points, or did you factor something higher. based on the high fourth quarter?

Tom Ryan -- Chairman and Chief Executive Officer

We run a variety of models. So we don't -- I wouldn't tell you that we have a perfect, exact. We generally ran scenarios that range from, I'd tell you, 100 to 160 basis points. I don't think we believe 200 basis points is the new normal.

But, again, we don't know. I would tell you that it's our more common belief that we should -- we revert to the norm of what we're seeing in the United States if we're competing for all customers, and that will push you toward this 150 basis points, and that's well within our guidance range that we've provided to you guys as you think about earnings and cash flow.

Scott Schneeberger -- Oppenheimer -- Analyst

All right. Thanks. Appreciate that. Could you -- given the progress update on Beacon penetration, how we should think about its impact on funeral preneed sales growth in the quarter and going forward.

Certainly, a progression from the fourth quarter to the first quarter on preneed funeral, just want to get a better understanding of the Beacon impact there?

Eric Tanzberger -- Senior Vice President and Chief Financial Officer

Sure, Scott. This is Eric. I'll -- I'm going to take that one up. Let me level set too, because there's a little bit of confusion on last quarter's call in terms of where it's rolled out.

So remember, to level set funeral, Beacon is going first with the prearranged funeral sales force and, ultimately, we're working on cemetery. What is rolled out? What is eligible to be used in terms of Beacon? First of all, it's rolled out in most of our network in the United States. We don't yet have it rolled out in Canada from a funeral perspective. We don't have it rolled out in certain states from a geographic perspective, because of some complex trust laws in a handful of the states, and we also don't have it rolled out in terms of a language differential from English.

So for example, we don't have it rolled out in Spanish, we don't have it rolled out in Chinese for our West Coast Asian consumers as well. When you ask like how should we think about it? So there's really two metrics that we're managing to when we think about Beacon: One is eligibility; and one is usage. And what we mean by that is, of all the contracts that are sold from a prearranged funeral perspective, for all the various reasons I just mentioned, how many contracts are eligible to use the Beacon software, the Beacon platform, in that interaction with that client family and that right now is about 75%. Then another metric that we use is, OK, for everything that is eligible, how much is it being used by our sales force.

That also is about 75%. So those two metrics are how we're managing to it. Ultimately, what our goal in 2019 from a management perspective is to increase that usage, from 75% to a higher number, and our sales teams and our sales management are working proficiently to go ahead and increase that usage during 2019. Now, what we also knew is that we pivoted to working on the cemetery module earlier in 2019 as well.

This is a little bit harder and a little bit more complex. There's really two reasons in terms of that in front of the build. One is the uniqueness of the cemetery property itself at each and every one of our 450 cemeteries. And one is the different -- very numerous vendors that we use and merchandise itself that we're selling individually to -- from each of the cemeteries.

And believe it or not, when you really talk to the team that's building it, it's the latter one of those two scenarios that's really getting to be more complex in terms of interacting with the numerous merchandise vendors and all the products that they're selling along the way. So I don't -- we're continuing to work on cemetery like we said, very proficiently. We pivoted away from funeral late last year and early this year in terms of the technical resources, to really push cemetery, and we'll get to, hopefully, at some point, giving you an update later in 2019 with, hopefully, some -- with a possible effect thereafter. But for right now, it's a work in progress in terms of cemetery.

Scott Schneeberger -- Oppenheimer -- Analyst

All right. Thanks. Appreciate that. My final question is relating to the FTC's pending review of the funeral rule.

It's our understanding that the FTC will request for comments at some point 2019. Could you please discuss the process during the comment period and how SCI will be involved? Thanks.

Tom Ryan -- Chairman and Chief Executive Officer

Sure. Maybe set the table for everybody to give them a flavor for this, because I think it's a topic some people are very educated on. But the Federal Trade Commission reviewed the funeral rule essentially every 10 years. Last time they did it was 2008.

And we recognize that certain consumer groups are pushing for changes to the funeral rule and wishing to require to put prices online. At this point, we're not so sure how valid a concern these consumer groups have, because it's our understanding that total customer complaints of the Federal Trade Commission across all industries has been increasing over the past few years, from about a 2.8 million complaints to 2.9 million in 2018. And the number of funeral-specific complaints has actually declined from 1,300 to under 1,000 complaints in 2018. So I think as you think about a priority, it begins to look less like one.

This may be because quite honestly, pricing is already available to our customers. We've got a general price list that's been available at our locations, and we've been providing that since 1984, when the funeral rule was first implemented. That being said, when the FTC takes a look at this funeral rule process, and we anticipate that will happen in 2019, we look forward working with them and continuing to work with the industry groups and providing insights into, particularly for us, the relationships around 300,000 atneed families we service and 200,000 preneed families that we sell to each year. And so we had ongoing dialogues within the industry.

We have not -- we've had interactions with the pieces of the Federal Trade Commission and that process should begin to initiate. It may take quite a bit of time in gathering the data over a period, but we're prepared to help them and are already helping a variety of industry groups in providing input. Today, we send out about 245,000 J.D. Power surveys, received back almost 70,000 of those.

And in our interactions with consumers, the primary thing they're concerned about are quality of service and reputation of the provider and convenience. And those three things actually rate higher than pricing when it comes to things that they're concerned about. So I think the way I think about this is for many consumers, providing price without quality and reputation could actually be misleading. Today, we provide online pricing at many of our direct cremation locations, where pricing is a top priority for the consumer.

So we think that's the better way to think about it. We have several initiatives under way today evaluating approaches through our websites and addressing these numerous customer preferences. We've even got including starting-at pricing in certain markets where we believe the consumer wants that information in conjunction with other data. So really, ultimately, we believe putting prices online should be voluntary, and except in cases where you're selling online, where, obviously, you'd provide this pricing to the consumer.

So we'll continue to work within the funeral industry groups, and we stand ready when the FTC is ready to review the funeral rule, and we anticipate that, again, to happen sometime in 2019.

Scott Schneeberger -- Oppenheimer -- Analyst

All right. Thanks for that. I'll turn it over --

Operator

From Raymond James, we have John Ransom. Please go ahead.

John Ransom -- Raymond James -- Analyst

Hey, good morning. Just looking over the last eight quarters, your atneed funeral ASP has dropped a couple of hundred bucks from the peak and your matured preneed has flattened out. I know it's kind of hard to pick apart all the strands, but how much of that is cremation, how much of that is acquisition mix, other stuff? And if you were to hazard to guess over the next two to three years, where do you see the blended funeral ASP growing on a percentage basis from here?

Tom Ryan -- Chairman and Chief Executive Officer

Hey, John. I hope you're well. I think you're right, we've experienced two things. Cremation mix is the primary reason I would tell you that the average sales price, particularly on the atneed, that's the No.

1 reason. We've also, as I've mentioned earlier, we think we've put another, call it, 30 plus, 30 basis points between acquisition mix and between, again, competing more effectively for that simple cremation consumer by having the right price point to do that. Those -- I view those as somewhat temporary that I think will fade from that. So I think on the atneed front, because of the cremation mix that we'd anticipate, our belief is as you look out the next few years that that's going to be flat to slightly down, but slightly down, I'd say, less than 1%, when you get to that point and, again, I'm speculating at this point.

I think on the preneed going atneed, our anticipation is that that's kind of the opposite. It can grow at very slight levels. So as I think about the blended mix, once you work through this, you're probably in a position where you're between 0% and 1% type of growth in your average when you blend the two together. Now things could get bit better.

I don't want to paint this picture, but I think it's competitive. I think we're going to find ways to enhance that value. I think you can do it through additional revenue streams that we've done historically, and we'll continue to work on. But I think that's probably the reality and then our hope is that we're going to capture more share as we see these volumes tick up and that will allow you to have some really good revenue growth when you think about that funeral side.

John Ransom -- Raymond James -- Analyst

Hey, thanks. And this one, this may be kind of an unfair math question and I struggled to do math down here in Florida. But the -- obviously, you had some elevated trust income with -- in the cemetery side relative to a year ago, and some of that would bleed into your funeral revenue. So if you had to say looking at the year versus the quarter, how much of the year was representative of the quarter from kind of the outsized capital markets gains? And how should we think about that flowing through the P&L for the rest of the year? Let's assume the market is flat from here or something, how would the sequential trends work with trust and investment income flowing through the P&L?

Eric Tanzberger -- Senior Vice President and Chief Financial Officer

OK. John, the way to think about it is really this, especially I already answered the question of ECF I think earlier in the call. So let's talk about preneed funeral and preneed cemetery and as you saw in the release and you're mentioning now, it was up 10% in terms of the three months. But you have to remember the fourth quarter was down 10%.

So you're really just kind of almost breaking even. The way to think of this is and you remember, and you know this very well, about how it peels out over a trailing 10 years. So the way we think about it is, what has been our trailing 10-year kind of nominal return to these trust funds, and that's been about 5.5%. And then the metrics that we talked about before as a very general statement holding a lot of things equal, frankly, is that, if that 5.5% increased about 1% and that's about $1 million to $1.5 million of EBITDA on an annual basis.

And so one thing to really take away with this is, it's just not that volatile, and we've said that before when you see it down 10%. It's a very long-term 10-year peel out of this trust fund income that affects both cash flow and earnings, and it really is a lack of volatility if the trust goes down or go up. You need a bunch of quarters going a certain direction for a certain period of time for it to really affect it. But as a general statement, these simple rules that you're asking about, I believe, is that, when you look at that trailing 10-year return, again, 1% movement in that is almost about $1.5 million in EBITDA, all else being equal.

John --

John Ransom -- Raymond James -- Analyst

And just to make clear, that's -- go ahead, sorry.

Tom Ryan -- Chairman and Chief Executive Officer

I was going to say the other point to keep in mind is, cemetery is all trust, so it's probably got a little more of this volatility in it versus the funeral contract, where maybe 55% or 60% of what's come out of the backlog is an insurance product with a fixed return. So there's probably even less volatility when you think about the funeral backlog rollout.

John Ransom -- Raymond James -- Analyst

Right. Last one for me and I appreciate the color is, it's hard for us to get obviously real-time market share. And I know you segment, so there are certain parts of the market that you don't really worry about, but I think it's probably, a generally true statement that your comparable volumes have lagged the overall U.S. death rate.

So how do you think about market share on a real-time basis? And how should investors think about that?

Tom Ryan -- Chairman and Chief Executive Officer

Well, the way we did, John, is the reporting is so inconsistent by jurisdiction. But I hear you on the national statistics and I agree, and we look at those too. But I think more effectively for us, is we try to track it by market. And so you've got market leadership teams and regional leadership teams effectively looking at what's happened in these markets and reacting to those or proactively putting in programs.

I would just generally tell you this, I think in our relevant markets, we are better today, particularly because if I'd say, beginning to reach out to this simple cremation consumer in a more effective way, that we believe we're beginning to capture more than we have historically relative to the market and, obviously, every market is different. We believe that's the consumer that is going to continue to grow, so we think it's very important that we have the right mix of products, service and customer interaction tools to compete more effectively for that consumer. So I think we're getting better and better. I think the preneed will continue to be a advantage for us, because we're selling it more aggressively than our competitors.

So I guess I'd put you on that track is, I would expect that even with the national statistics, you should see an enhanced comparison. And, again, they're tracking markets that we may or may not compete in, and I'm talking about income level markets. I'm talking about geographic markets, so it's really hard to put them together. I would tell you we generally feel we're competing effectively, and we're moving to a more effective competitive position by utilizing interactions over our website, interactions over search engine opportunities, more effective ways of getting at consumers through leads and preneeds -- particularly on the preneed side.

We've really embraced Salesforce as a tool. It's -- I would say, it was an optional criteria and now, you don't get paid for your sales commission unless it's -- the lead is followed up in Salesforce. So I think there's a lot of positive things that we're beginning to, I'd say, flex our scale muscle a little more to compete more effectively, and we think drive enhanced performance on market share.

John Ransom -- Raymond James -- Analyst

Hey, last one for me. I'm a little dated on Neptune, but when you bought it, I think I remember a number something like $125 million of revenue. Can you give us a general idea of how big Neptune is now and how much it's growing and how much of -- I mean, even though it's small, I assume it's growing at a much outsized rate relative to your core and then just how much -- how we should think about that channel growing out in the future?

Tom Ryan -- Chairman and Chief Executive Officer

Yeah. First of all, I can have a counselor come see you and talk to you more about that if you want to know everything. But -- we've got one in your area. The second of all, I would tell you the growth rate, I don't have last year's revenues in front of me, my memory would say it's around $175 million, so call it $175 million revenues.

What we've experienced, John, for the most part, is we've been growing in the, what I would call, mid- to high-single digit rates as it relates to that business over the last few years. What you're going to see is a -- we had a temporary pause as you think about 2018 and 2019. And the '18 pause was related to what we sell on a contract, so the recognized GAAP revenues took a temporary pause, because we allocated more to deferrable trusted items versus a service product that got recognized. So we took a little dip and then at the beginning of 2019, as we talked about a lot, we've onboarded our sales force.

And in doing that, like any good change, you have a temporary distraction. We feel like we're on a path to grow again, and it's our belief that that business should grow in the high single digit revenues and probably put an additional $4 million on the bottom line over the next few years. '19 will be a little less than that, but that's the kind of growth rate that we've seen with that business.

John Ransom -- Raymond James -- Analyst

OK. Thanks a lot.

Operator

From Bank of America, we have Joanna Gajuk.

Joanna Gajuk -- Bank of America Merrill Lynch -- Analyst

Good morning. A couple of questions here remaining. So you mentioned the cost-cutting that you initiated in the Funeral segment on the fixed costs, so in anticipation of the pressure from -- though I guess weaker top line. So can you help us quantify how much of this occurred in Q1? And what you had been assuming for your -- in your guidance, for the full year guidance previously and how do you feel about that number currently after initiating those efforts in Q1?

Tom Ryan -- Chairman and Chief Executive Officer

Sure, Joanna. I hope you're well. And what we -- I think the way to think about it is this, clearly, we went into the year like we do every year, looking hard at ways to drive value for the shareholders. And we have things to leverage our scale or reduce our cost and that's a normal part of what we're doing in the guidance that we're providing you guys.

I think what we're trying to convey here is, we had a focused effort at every level to say, as we think about and I'll make this very important, noncustomer-facing cost and I'm sure everybody that's an employee on the line right now is choking listening to me say that, we've talked about it a lot, and we're trying to find more effective ways to meet, more effective ways to coach, more effective ways to develop people. I think sometimes you can get into a mode of having a development dinner or having a meeting because you want to talk about this, and this was a conscious effort at every level, 24,000 employees of saying let's be smarter about the way that we think about these things. And let's not, for instance, cut back on customer-facing things like leads. And that's really -- the concept is, we want to fund opportunities to grow our revenues, and we pitched it as a collective effort to say, let's create the funding mechanism.

And so that's what you're seeing and I would just tell you, as normally happens with this great group of people that I get to work with, they overperform, and I think we're finding that maybe there's more there than we originally thought. And so we did probably see a little bit of an impact in Q1, and I wouldn't even round it to $0.01 when you think about what was already baked into our plans. But I do think we believe it's going to continue. And so as you think about, when we said guidance to you there could be a $0.01 or $0.02 of better performance for the year that we think we're now structured to deliver.

That's the way to think about that piece.

Joanna Gajuk -- Bank of America Merrill Lynch -- Analyst

OK. That's helpful there. And then in terms of the discussion that was happening here just minutes ago in terms of the FTC funeral rule review and I guess, you mentioned that you do provide already ] a lot of the online at least, a base pricing or starting price that's in some of your markets. So is there a way for you to quantify things there in terms of the experience to say there was a market where you make a decision to do that and then how does that affect your market share, because I guess that maybe what the concern would be from something like that in terms of -- or if you don't want to talk specifically, but just in general terms in terms of what you had experienced when you do provide online pricing and how does that affect your market share or any other metrics that you might be able to share with us?

Tom Ryan -- Chairman and Chief Executive Officer

Sure, Joanna. What we've done, I reference that we have rolled out online, and we're rolling out online starting-at prices in certain locations and certain markets. That actually had already existed in the form of a landing page and then -- so it what was available on the Internet. It wasn't on the website itself.

If you searched a term that said, I want pricing, whatever you could find it and get to. So it isn't new. I think what we're doing there is utilizing some of the starting-at and the reason we like starting-at it makes sense, is it gives people a concept of if price is your discussion, by all means, we want to help you. But what we understand about the product and service that we provide is there is a wide array of choices you can make.

There is big differences in quality, there's big differences in reputation. There's all sorts of things that the consumer should know. So to provide comparison pricing in two locations, it's like taking the high-end steak house and price shopping that against a Sizzler and probably -- Sizzler may not exist anymore, but any. But you get the point is, it's hard to -- you have to convey what's the ambiance of the restaurant, where is it located, what's the safety, what's the -- and that's what we're really at is, we want to provide a bunch of information to the consumer.

We think price by itself could be misleading without having -- backing that up with the rest. So starting-at is a great discussion point. It allows the consumer to provide more data to them, and they can make the choice to buy at that starting-at or they can move up to a more robust selection of products and services.

Joanna Gajuk -- Bank of America Merrill Lynch -- Analyst

Great. That's helpful. I guess if you at some point can give us some numbers around performance in those markets. I guess you just proved the point that would be helpful.

But in terms of just coming, my one last thing, in terms of seasonality through the year, so last year, we talked about -- it was last year, the Chinese holiday timing versus Easter and there were some issues around that. So can you talk about where we are on that front this year and what, I guess, you've seen already around those events?

Tom Ryan -- Chairman and Chief Executive Officer

Yeah. So Ching Ming is a holiday that Joanna is referencing. And for the most part, the mix between quarters wasn't much of an issue. There was some mix between months, but, obviously, that -- as a quarterly report, it's not much to talk about.

I will point out this, and I think one's not so good and one's offset by a good, Joanna, that's helpful. With our Ching Ming, we saw a reduction in the amount of sales, particularly in the Vancouver market, which is the biggest market when you think about Ching Ming. And it's being influenced by a couple of things that's happening in Vancouver and if you look at the local real estate market, you'll see similar things. They implemented a foreign buyers' tax in that market, which is I'd say slowed the economy as it relates and changed the opinion about people buying real estate and settling with roots in those markets.

And probably, it puts a little bit of a pause as it relates to people wanting to conduct, even buying cemetery property, because it's where they may finally land. The other thing is China, and, again, we have a big Chinese and Hong Kong presence in Vancouver, has implemented some restrictions on its citizens and their ability to withdraw funds from the country and bring them over to invest. And so those two things, we believe had a dampening effect on our ability to really excel in the Vancouver market. We still did very well, but it was a negative carrier as we think about that.

We hope that as those things get better, I think we're most impacted in the first quarter because the Ching Ming presence. The positive of that is, we've taken the great learnings in Rose Hills in California, and Vancouver and transferred that knowledge into a variety of new markets. We rolled out Ching Ming in six new markets this year that we've never done before. And we sold, I believe, over $6 million as it relates to those markets.

Some of the big performers were Houston, Seattle, Las Vegas. So we're really encouraged by the -- our ability to push this initiative for Ching Ming into a variety of new markets as we move forward. And our hope is, I think Vancouver is going to stabilize. It's just a temporary pause.

We've got great people, great properties, and we'll continue to work very hard to grow. So the things, I'd say, are looking good. We feel really good about the rest of the year. I think we think by embracing the Salesforce tool universally, utilizing leads through there, we believe we have higher quality leads, which will be followed up with a better process.

So we're excited, Joanna, for the rest of the year and look forward to reporting hopefully good results next quarter.

Joanna Gajuk -- Bank of America Merrill Lynch -- Analyst

That's great color. And just to wrap it up to your comment, so in terms of the presales production outlook, where you say you still expect mid-single-digit growth for the year?

Tom Ryan -- Chairman and Chief Executive Officer

Yeah, Joanna. At this point, we still expect. We're very pleased with the first quarter, but I wouldn't change any opinion as we think about moving forward and hopefully, again with six months behind us, you can compare better into that annual guidance and if there's something positive to report, we will. And if there's a concern, we'll report that, too.

Joanna Gajuk -- Bank of America Merrill Lynch -- Analyst

Great. Thanks so much.

Operator

From Wells Fargo, we have Duncan Brown. Please go ahead.

Duncan Brown -- Wells Fargo -- Analyst

Hey, good morning. Just one quick one from me. In the press release, you highlighted $8 million of legal expenses in the quarter in G&A. I just wonder if you can provide any color on that and then confirm is this onetime or should we see more of this leak into future quarters.

Eric Tanzberger -- Senior Vice President and Chief Financial Officer

Hey, Duncan, it's Eric. Obviously, it's hard to discuss active litigation in legal accruals in a positive environment while those cases are still going on. So I'll try to answer as best I can. I mean, obviously, as part of our process, we review our legal accrual each quarter and each quarter, you're going to see some movement based on any movement that we see in active cases.

There was obviously a good amount of movement in this first quarter that caused us to isolate that $8 million that you're referring to. While I don't want to talk anything specific, maybe I could say it this way, I don't believe that this situation related to the $8 million is anything that is systemic across our organization. I think it's somewhat isolated matter and very specific matter as well that caused the vast majority of that movement. And so with that and that may give you a little bit of comfort in terms of not being systemic.

And that's all I can probably say in terms of commenting on litigation that's active at any point in time. So hopefully, that's helpful to you.

Duncan Brown -- Wells Fargo -- Analyst

No, that's fair. Thank you.

Eric Tanzberger -- Senior Vice President and Chief Financial Officer

Yeah. Thanks, Duncan.

Operator

All right. It appears there are no more callers in queue. We'll now turn the call back to SCI management.

Tom Ryan -- Chairman and Chief Executive Officer

Thank you, everyone, for being on the call. We look forward to talking to you on our second-quarter call, which will be sometime in late July. Thank you, everyone. Have a great week.

Operator

[Operator signoff]

Duration: 62 minutes

Call Participants:

Debbie Young -- Director of Investor Relations

Tom Ryan -- Chairman and Chief Executive Officer

Eric Tanzberger -- Senior Vice President and Chief Financial Officer

A.J. Rice -- Credit Suisse -- Analyst

Scott Schneeberger -- Oppenheimer -- Analyst

John Ransom -- Raymond James -- Analyst

Joanna Gajuk -- Bank of America Merrill Lynch -- Analyst

Duncan Brown -- Wells Fargo -- Analyst

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