SCI (SCI) Q3 2025: Cemetery Revenue Climbs 7% as Pre-Need Velocity Accelerates
SCI’s Q3 revealed a decisive shift in growth drivers, with cemetery revenue and pre-need sales velocity outpacing funeral segment softness. Management leaned into flexible financing, consumer education, and operational discipline to offset funeral volume headwinds and margin mix challenges. Guidance affirmed, with leadership signaling confidence in long-term EPS growth as demographic and backlog tailwinds build into 2026.
Summary
- Cemetery Sales Velocity Surges: Pre-need sales and large transactions outpaced expectations, driving segment strength.
- Funeral Segment Faces Margin Compression: Volume softness and product mix shifts pressured profitability despite average revenue gains.
- Demographic and Backlog Tailwinds Build: Management expects improving funeral volume and backlog monetization to fuel multi-year growth.
Performance Analysis
Cemetery operations emerged as SCI’s primary growth engine in Q3 2025, with comparable cemetery revenue up nearly 7% year-over-year, led by a $27 million increase in pre-need property sales and robust large-sale transactions. Pre-need sales production rose almost 10%, with large sales up 19% and core sales contributing the bulk of growth. Cemetery gross profit and margin both expanded, with operating margin reaching 34% as higher property sales and merchandise trust earnings flowed through the P&L.
The funeral segment delivered mixed results, as core funeral revenue fell by less than 1%, reflecting a 3.5% decline in services performed, partly offset by a 3% rise in average revenue per service. Funeral gross profit and margin both contracted—down $9.5 million and 170 basis points respectively—due to volume softness, higher selling costs, and a shift toward lower-margin products. SCI Direct’s transition to insurance-funded pre-need contracts weighed on non-funeral home sales, though management expects this headwind to subside by early 2026.
- Cemetery Segment Drives Margin Expansion: Pre-need property and merchandise outperformance led to a 160 basis point margin lift.
- Funeral Revenue Headwinds Persist: Lower volumes and merchandise mix pressured profitability despite higher sales averages.
- Cost Discipline Maintained: Corporate G&A fell over $5 million, with fixed cost increases held below inflation at 1.4%.
SCI’s capital allocation remained shareholder-focused, with $123 million returned via dividends and buybacks, and year-to-date repurchases totaling 5.1 million shares. The company’s liquidity position and leverage (3.6x net debt/EBITDA) support continued investment in acquisitions and development, with the acquisition pipeline described as robust.
Executive Commentary
"We saw impressive increases in cemetery revenue and gross profit, as well as lower corporate general and administrative expense, which was partially offset by slightly lower funeral revenues and gross profits... We feel very good about our momentum that we will carry into 2026. We expect favorable trends in funeral volume, funeral average, SCI direct, pre-need cemetery sales, and lower interest rates, and believe that we can achieve earnings per share growth within our long-term growth framework of 8% to 12%."
Tom Ryan, Chairman and CEO
"We generated adjusting operating cash flow of $268 million in the quarter... Our strong balance sheet position and its liquidity, combined with the robust cash flows, continue to support our ongoing capital investment program, which provides us tremendous flexibility to invest opportunistically for the long-term benefit of SCI's customers, our associates, and our shareholders."
Eric, Chief Financial Officer
Strategic Positioning
1. Cemetery Growth Engine
SCI’s cemetery segment is now the company’s most dynamic growth lever, with pre-need sales velocity and large transactions driving both near-term revenue and a high-margin backlog. Management attributes this to flexible consumer financing, improved sales management, and targeted inventory investments—$160 million annually—enabling rapid conversion of new inventory into sales. The segment also benefits from rising cremation consumer adoption of cemetery products, which remains a multi-year growth opportunity as consumer education efforts scale.
2. Funeral Segment Resilience Amid Transition
Funeral operations are navigating a challenging mix environment, with volumes slightly down but average revenue per service rising. The shift to insurance-funded pre-need contracts in SCI Direct, while temporarily disruptive, is expected to deliver higher-value backlog monetization over time. Management’s operational discipline—controlling fixed costs and leveraging staffing flexibility—has partially offset margin pressure, but the segment’s return to growth will depend on demographic tailwinds and backlog realization.
3. Capital Allocation and Acquisition Pipeline
SCI continues a disciplined capital return strategy, balancing buybacks and dividends with ongoing investments in maintenance, growth capital, and acquisitions. The company is on track to meet its $75 to $125 million annual acquisition goal, with a robust pipeline and ample liquidity. This approach supports both organic and inorganic growth, reinforcing SCI’s market leadership and long-term earnings power.
4. Consumer Education and Product Innovation
Management is investing in consumer education, particularly around cremation options within cemeteries, to unlock new growth segments. Efforts include web presence upgrades, in-lobby digital displays, and sales training to standardize messaging and increase awareness of cremation gardens and niches. Early research shows significant untapped demand, with a majority of cremation consumers interested once informed of the options.
5. Operational Leverage and Cost Management
SCI’s ability to flex staffing and leverage technology is central to its margin defense strategy. While cemetery maintenance costs (water, labor) remain a pressure point, management’s focus on metrics-based staffing, part-time labor, and AI-driven process improvements is designed to contain SG&A growth even as volumes recover. This operational flexibility is key to maintaining profitability through cycle turns.
Key Considerations
SCI’s Q3 results highlight a business in transition, with the cemetery segment now outpacing funeral operations as the primary growth vector. The company’s ability to monetize its pre-need backlog, educate new consumer segments, and manage costs will determine its ability to sustain double-digit EPS growth in coming years.
Key Considerations:
- Pre-Need Backlog Monetization: Higher-value pre-need contracts maturing out of backlog are set to drive future revenue and profit compounding.
- Cremation Consumer Opportunity: Targeted education and product innovation could add incremental growth, as most consumers remain unaware of cemetery offerings for cremation.
- SCI Direct Transition: Insurance-funded contract shift is a temporary drag, but sets up for higher profitability and backlog value in future periods.
- Cost Structure Flexibility: Operational discipline and technology adoption are vital to containing inflationary pressures, especially in cemetery maintenance and SG&A.
- Acquisition Pipeline Health: Continued M&A activity supports market share gains and long-term earnings power.
Risks
SCI faces ongoing volume headwinds in funeral operations, with potential for continued margin pressure if demographic tailwinds or backlog realization underdeliver. Inflation in cemetery maintenance and labor costs remains a threat, and the success of cremation consumer education is not guaranteed. Regulatory changes and tax normalization may also impact cash flow and EPS growth.
Forward Outlook
For Q4 2025, SCI guided to:
- Normalized EPS of $1.09 to $1.19
- Flat to low single-digit cemetery revenue growth, with gross profit flat to slightly down
For full-year 2025, management affirmed guidance:
- Normalized EPS midpoint of $3.80 to $3.90
- Adjusted operating cash flow midpoint raised to $930 million
Management emphasized:
- Funeral volume expected to stabilize, with demographic trends and backlog driving future growth
- Pre-need cemetery sales production to grow low- to mid-single digits, with large-sale volatility possible
Takeaways
SCI’s Q3 marked a strategic pivot toward cemetery-led growth, with pre-need sales velocity and large transactions underpinning earnings momentum. The funeral segment remains under pressure but is positioned for recovery as demographic and backlog trends turn favorable.
- Cemetery Momentum: Robust pre-need sales and large transactions are driving margin expansion and future backlog monetization.
- Operational Discipline: Cost control and staffing flexibility are critical levers as the business navigates product and mix transitions.
- 2026 Watchpoint: Investors should monitor SCI Direct’s insurance transition, funeral volume stabilization, and the impact of consumer education on cremation sales as key drivers of multi-year EPS growth.
Conclusion
SCI’s Q3 2025 results underscore a business in active transition, with cemetery operations now leading growth and funeral segment headwinds managed through cost discipline and product innovation. With demographic trends and backlog monetization building, SCI is positioned to deliver on its long-term growth framework, but investors should track execution on consumer education and operational leverage as key drivers into 2026.
Industry Read-Through
SCI’s results signal a broader industry pivot toward pre-need and cemetery-driven growth, as traditional funeral volume softness persists post-pandemic. The success of flexible financing, consumer education, and product innovation in unlocking new segments—particularly among cremation consumers—offers a blueprint for peers. Operators with robust sales management and backlog monetization capabilities will be better positioned as demographic shifts and inflationary pressures reshape the deathcare landscape. Acquisition pipelines and capital discipline remain differentiators in a consolidating sector.