"Service Corporation International Reports First Quarter 2005 Loss Of $.49 Per Diluted Share"

Whatever you may think you read in the earnings report out Monday from Service Corporation International (NYSE:SCI), rest in peace: Reports of the company's death have been greatly exaggerated. Yes, the funeral services operator lost $0.49 per share, as accounted for under generally accepted accounting principles. Yes, that looks a whole lot worse than the $0.10 in profits the company reported a year ago. But no, it's not nearly as bad as it seems.

For one thing, the entirety of the quarter's loss can be chalked up to a host of one-time items, running the gamut from litigation costs to the expense of retiring debt. And when the company changed its system for recognizing "pre-need" revenues, this alone cost it $0.59 in GAAP profits and ensured an "unprofitable" quarter.

Rather than dig through the host of one-time pluses and minuses to income, let's instead drive a stake into the heart of the matter and examine the company's cash flow situation. In a move that Foolish investors can only applaud, Service Corp breaks these numbers down for us pretty clearly right up front, describing its free cash flow (FCF) in terms of cash from operations minus maintenance capital expenditures only. Thus, Service Corp's FCF numbers differ from the standard, in that they exclude expenditures to grow the business ($6.9 million in Q1). They also exclude mandatory debt repayments ($2 million in Q1), a twist with which a Fool might quibble. FCF ordinarily represents the funds available to be spent as a business thinks best. Given that lenders aren't going to be willing to let Service Corp "take a pass" on paying its debts as they come due, debt repayments probably should be subtracted when calculating FCF.

With those caveats in mind, then, the company generated plenty of its own brand of free cash flow in Q1 2005: $84.9 million, to be exact. On a continuing-operations basis, netting out FCF received from the company's now-divested French operations, FCF from continuing operations increased $5.3 million year on year.

What's more, Service Corp is putting its copious cash flow to work for its shareholders' benefit. Over the past nine months, the company has repurchased nearly 37 million shares of its own stock at an average price of $6.87 per share, a small discount to today's price. That resulted in diluted shares outstanding declining by 10% year over year. The company also began paying a dividend in February of this year, the payment of which currently yields 1.4%.

Between arguably good cash flow results and unarguably shareholder-friendly actions on management's part, it remains a wonder why the company's share price doesn't show more signs of life.

Fool contributor Rich Smith does not own shares in Service Corp.