It's fairly common practice for a company to blame the weather when it experiences softer sales, which is just what StoneMor Partners (STON +0.00%) did this quarter. However, few companies can get away with blaming a decline in the death rate as an additional headwind to sales, but that's actually what happened during the first quarter. However, despite a slow start to the year, the company does expect to still meet its full-year targets, because while we can extend life, we've yet to find a cure for mortality.
StoneMor Partners results: The raw numbers
|
Metric |
Q1 2016 Actuals |
Q1 2015 Actuals |
Growth (YOY) |
|---|---|---|---|
|
Number of cemetery contracts written |
26,031 |
27,399 |
(5%) |
|
Adjusted EBITDA |
$21.9 million |
$21.7 million |
1% |
|
Distributable available cash |
$29.0 million |
$25.9 million |
12.1% |
Data source: StoneMor Partners L.P.
What happened with StoneMor Partners this quarter?
StoneMor Partners' cemetery operations were affected by the weather.
- The slump in cemetery contracts is mainly due to a blizzard that hit the East Coast during the quarter, which shut down many of the company's properties for nearly a week. In addition to that the company noted that there was an approximate 4% to 6% decline in the death rate quarter over quarter, which also contributed to the decline in sales volume.
- Adjusted EBITDA and distributable available cash, however, increased due to stronger cemetery margins after costs decreased 2% while revenue remained constant. Earnings were also buoyed by acquisitions, with the company acquiring four cemetery properties and seven funeral homes over the past six months.
- Trust investment and interest income declined by $1.4 million to $12.8 million during the quarter due to the timing of realized gains. Meanwhile, trust fund investment returns were 1.5% during the quarter, or 5.9% annualized.
- Corporate overhead expenses for the quarter were $8.2 million, which is 4% less than the year-ago quarter.
- Subsequent to the quarter's end, StoneMor completed an equity offering, with the proceeds being used to reduce debt. As a result, total debt declined from $319.6 million to $269.3 million, with the company paying down its credit facility by reducing those borrowings from $151 million to $95.3 million. That gives it ample liquidity to take advantage of its robust acquisition pipeline.
What management had to say
CEO Larry Miller, commenting on the company's results, said:
The first quarter is traditionally our most challenging, particularly in the area of pre-need sales. Winter weather generally reduces cemetery visits, reducing potential walk-in sales, and if we experience a harsh storm in one of our main regions, that can prevent our sales force from getting out and meeting potential customers. To that point, many of our east coast properties were shut down for nearly a week in January with a major blizzard. An approximate 4% to 6% decline in the death rate quarter-over-quarter also contributed to the overall volume decline. In spite of these headwinds, we achieved a combined cemetery and funeral home margin of $17.2 million, which represents an 8% increase from the prior year first quarter.
As Miller notes, StonMor experienced two big headwinds during the quarter. First, rough winter conditions had a noticeable impact on walk-ins, impacting pre-need sales. In addition to that the company also noted that there was a big decline in the death rate. However, that was actually to be expected because last year's first quarter was a particularly brutal one due to a very strong flu season. That was something Tom Ryan, CEO of Service Corporation (SCI 0.06%), noted in its first quarter release. Ryan said that Service Corporation anticipated a challenge in funeral services performed during the quarter because it was going up a tough comparable quarter, which was affected by "the increase we experienced in the prior year quarter from a strong flu season." With the flu milder this year, it led to a decrease in the number of deaths, and therefore funerals performed.
Looking forward
In looking at what lies ahead, Miller said that:
While we underperformed our own expectations for the 1st quarter, we continue to believe that we will accomplish our goals for 2016, which include achieving Adjusted EBITDA of at least $26 million for the 2nd quarter 2016, and full year Adjusted EBITDA between $106 million and $115 million. In addition, our acquisition pipeline continues to be strong, with active acquisition opportunities currently exceeding our recent annual pace.
Miller notes that the company is particularly optimistic about acquisitions going forward, with its pipeline filled with opportunities. That's one reason why it recently restocked its liquidity by raising capital so that it can be in the position to capture these opportunities.
