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Event Brief of Q1 2009 Stewart Enterprises, Inc. Earnings Conference Call - Final.

Article Excerpt
PARTICIPANTS

. Leslie Loyet, Stewart Enterprises, Inc., Financial Relations Board . Tom Crawford, Stewart Enterprises, Inc., President, CEO . Tom Kitchen, Stewart Enterprises, Inc., SEVP, CFO . Henry Reukauf, Deutsche Bank, Analyst . Bob Willoughby, Banc of America, Analyst . Jamie Clement, Sidoti & Co., Analyst

OVERVIEW

STEI reported 1Q09 net earnings of $5.7m and EPS of $0.06. 1Q09 earnings after adjusting for current tax valuation allowance were $6m and EPS after adjusting for current tax valuation allowance was $0.07.

FINANCIAL DATA

A. Key Data From Call 1. 1Q09 net earnings = $5.7m. 2. 1Q09 earnings (after adjusting for current tax valuation allowance) = $6m. 3. 1Q09 EPS = $0.06. 4. 1Q09 EPS (after adjusting for current tax valuation allowance) = $0.07. 5. 1Q09 EPS decline = 33% from 1Q08. 6. 1Q09-end cash on hand = $71.5m.

PRESENTATION SUMMARY

S1. Opening Remarks (L.L.) 1. Note: 1. Co. uses EBITDA and free cash flow as financial measures. 1. These financial measures are not in accordance with accounting principles generally accepted in US (GAAP). 2. Intended to supplement rather than replace or sue proceed any information presented in accordance with GAAP.

S2. 1Q09 Business Review (T.C.) 1. Note: 1. It became clear to Co. that there is some confusion around trust portfolios. 1. Where STEI thought it gave adequate information in 4Q08 call, it realized that confusion exists and it needs to take time to more fully explain the situation. 2. Financial Highlights: 1. Net earnings, $5.7m vs. $8.9m for 1Q08. 2. EPS, $0.06 vs. $0.09. 1. Down 33% from 1Q08. 3. After adjusting for current tax valuation allowance, earned $6m vs. $8.9m. 1. Generated EPS of $0.07 vs. $0.09. 1. Down 22% on an adjusted basis. 4. Two main factors contributed to decline in net earnings and EPS. 1. Decline in trust-related earnings of $2.2m. 1. In line with expectations. 2. Good news in earnings decline from trust funds was that the decline was less than Co. had anticipated. 2. Decline in cemetery property sales. 1. Down $7.2m or 27.9% over prior period. 5. Operating cash flow, $7.3m. 1. Up $3.2m or up about 78%. 2. Even after making adjustment for fact that there was a decrease in tax payments made in 2009 vs. 2008, cash still increased over previous period by about $800,000 for growth of approx. $0.11. 3. Grew cash over previous year. 1. Generated more cash than earnings. 4. Evaluates every decision Co. makes for cash generation capability in addition to earnings potential. 6. Liquidity position remained strong. 1. 1Q09-end cash on hand, $71.5m. 7. In relation to obligations to lenders, has: 1. No significant near-term debt maturities. 2. No amounts drawn on $125m revolving credit facility, which matures in Nov. 2009. 8. In today's economy, strength of liquidity position is a significant fact that cannot be overlooked. 3. Funeral Operations: 1. Revenues declined by 2.3% vs. previous qtr. 1. Resulted from lower services and events flowing through facilities and lower trust earnings. 2. Even with decline in funeral revenue, was able to grow GM dollars by 1.7% and increase margin yield by 100 BP to 25.5% up from 24.5% of last year. 1. Gains were made despite additional headwind of funeral trust earnings decline of $900,000. 3. Pleased with organization's ability to better manage costs and scale locations to meet market conditions. 2. Increased revenue per event on funeral side by 6%, as Co. saw positive increases in traditional and cremation services. 1. Believes this demonstrates: 1. Ability to positively communicate value of offerings to consumers and that consumers will select according to their needs and values despite low consumer confidence measures in economy and negativity that is being bombarded to public on daily basis by media. 3. Calls, down by 6.3%. 1. Fully expected the calls to be down, as Co. tracks death data, probe suppliers and listen to other operators, but not by 6.3%. 2. While traditional calls are down, which is expected given growth information, believes vast majority of above expected decline in calls was due to loss of low-end cremations. 4. During 1Q09, saw positive growth in terms of price and volume in mid and upper-end cremation price points. 1. Indicates that field personnel are doing a much better job in explaining value and options to families selecting cremation. 5. Experienced high percentage decline in number of low-end cremation cases. 1. Low-end cremation avg. prices are well above prices of low-cost, direct-cremation operators that are out there today. 2. Charges more because family gets more than low-price provider. 6. Because of large decline in low-end cremation business, concluded from analysis that those families in that segment are more sensitive to economic conditions and have opted to pursue a lower-cost alternative. 1. Co. can understand movement to low-cost alternatives by families that are closer to margin and more troubled by current economic conditions. 2. Low-end cremations generate positive margins and help cover fixed costs. 1. Not happy with loss of volume in share. 3. Evaluating options to better appeal to those types of customers and bring them back to facilities. 7. After Co. normalizes for reduction in low-end cremation volume loss, overall volume decline does come back in line with what overall market conditions are today. 4. Cemetery Segment: 1. Felt largest impact from weak economy. 1. Experienced decline in cemetery property sales of approx. 28%. 2. Cemetery performance was negatively affected by reduction in trust income of $1.3m. 3. Given the fact that approx. 80% of property sales are made well in advance of death and given effects of economy and incredible drop in consumer confidence from a year ago, it is not terribly surprising that cemetery property sales have declined. 1. When compared to other consumer businesses, that it would be surprising that decline was not greater. 4. Decision to purchase cemetery property on pre-need basis is one that can be postponed. 1. While ability to postpone hurts Co. in short-term, continues to believe that it remains a benefit to Co. over long-term. 5. When economy begins to recover or consumer confidence increases, believes consumers who are more likely and who have been more likely to postpone decision to buy premium property will return to their past purchase behaviors. 1. Because historical reasons are making it desirable to purchase cemetery property pre-need like availability of desired spaces, planning in advance, less stress in an already difficult time, locking in price where demand continues to outpace supply, have not...

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