Slow Salesforce Ramp Weighs on StoneMor Partners L.P.'s Q2 Results

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StoneMor Partners (STON) has not been satisfied with the quality of its sales force, nor the elevated level of turnover within its staff, which prompted it to make several changes. These changes have taken more time to produce results than anticipated, which was evident in the company's second-quarter report. Because of this, the company plans to announce additional measures in the coming weeks to boost its sales force to increase its pre-need sales back up to an acceptable level.

StoneMor Partners results: The raw numbers

YOY = year over year. Data source: StoneMor Partners L.P.

What happened with StoneMor Partners this quarter? 

The sales force transition impacted StoneMor Partners' cemetery operations.

• While cemetery contracts written slumped year over year, they did increase by 9% over the first quarter as the company's sales force transition starts delivering results. That said, sales were still well below expectations.
• The company's funeral home operations were stable. Funeral home calls rose 11.7% to 4,219 due primarily to recent acquisitions, which drove an improvement in that segment's margin.
• Weaker pre-need sales weighed on adjusted EBITDA, which came in well below the company's guidance of $26 million for the second quarter. In addition to that, the company recorded a $6.4 million decrease in trust-related investment income.
• Corporate overhead expenses for the quarter were down 20% year over year when excluding acquisition-related costs.
• While distributable cash flow slumped, the company had more than enough distributable available cash to cover its distribution due to retained cash from prior periods.

What management had to say 

CEO Larry Miller highlighted the company's salesforce turnaround efforts by saying:

While pre-need sales in our cemetery division rebounded strongly from the prior two quarters, they are not yet at levels we anticipated and were a significant driver of our shortfall to previously announced guidance for the period. We decided last year to focus our efforts on ensuring we have the highest quality salesforce possible and reducing salesforce turnover to better drive sales. In order to achieve these goals and be well positioned for future growth, we made structural changes which resulted in the elimination of our underperforming sales professionals. Because of our increased selectivity in filling these vacancies, headcount was slow to ramp, resulting in fewer salespeople engaging customers and pre-need sales falling below acceptable levels. The corrective action we are taking to improve overall sales performance is taking longer than we expected to implement and yield results. We expect to announce additional measures in the coming weeks and once our salesforce returns to its optimal size and strength, we expect pre-need sales to return to targeted growth levels.

StoneMor's growth-by-acquisition strategy left it with a salesforce that wasn't up to par. As a result, it has had to focus its efforts on improving the quality of its sales force so that it can grow sales at its existing cemeteries as well as to integrate new additions more quickly to its sales model. This transition is taking a lot longer than anticipated and it appears that additional actions are required before the company's salesforce can drive the volume it had expected to achieve out of its properties.

Looking forward 

Because of the weaker-than-expected sales during the second quarter, StoneMor is revising its full-year guidance. The company now forecasts that adjusted EBITDA will be in the range of $100 million to $110 million, which is down from its prior projection of between $106 million and $115 million. To ensure that the company meets this projection, it anticipates announcing an additional $5 million of annual operating and overhead cost savings in the coming weeks.