Service Corporation International (SCI): Cash-Flow Upgrade Masks Balance-Sheet Tightness

Q2 beat and a consequential guidance raise: cash flow, not growth, stole the show#

Service Corporation International ([SCI]) reported a second-quarter operational beat that mattered less for revenue and more for cash. Management raised 2025 adjusted operating cash-flow guidance to $880M–$940M (midpoint: $910M) after Q2 results showed adjusted EPS of $0.88 versus consensus near $0.84, and management cited working-capital benefits and lower expected cash taxes as the drivers for the revision, according to the company’s Q2 2025 release and earnings commentary. The headline is compact and consequential: SCI’s recent outperformance is a cash-flow story — margin improvement plus better cash conversion — rather than a re-acceleration of top-line growth.

What happened in the quarter is straightforward and numerically precise. Revenue growth remained modest, but gross-profit and operating-income leverage widened enough to deliver an earnings beat and to justify a material upward adjustment to full-year cash-flow guidance. That combination creates immediate strategic flexibility for SCI’s capital allocation program (dividends, buybacks, M&A), even as the balance sheet and liquidity ratios warrant close monitoring.

Reconstructing the financial picture from the filings: growth, margins and cash conversion#

Using SCI’s fiscal-year consolidated numbers (FY 2024 filing date 2025-02-13) and the market snapshot accompanying the Q2 update, the core operating trends are clear: revenue grew modestly, margins compressed slightly in longer view but improved sequentially in the latest quarter, and cash generation strengthened.

Revenue rose from $4.10B in FY 2023 to $4.19B in FY 2024, a year-over-year increase of +2.20%. Net income moved from $537.32M to $518.65M, a decline of -3.47%, reflecting mix effects and some non-operating timing items. Operating income declined marginally from $944.25M to $927.68M. Those figures mask a more compelling cash story: net cash provided by operating activities increased from $869.04M in 2023 to $944.91M in 2024, a gain of +8.73%, while free cash flow rose +9.57% to $555.8M in 2024.

Those cash-flow increases, paired with an operationally-driven gross-margin recovery in the latest quarter, explain management’s willingness to lift FY25 cash-flow guidance even where revenue growth remains mid-single-digit.

Income-statement trends (2021–2024)#

The table below summarizes the headline income-statement series from SCI’s annuals to make the trend obvious and numerically traceable.

All figures above are taken from SCI’s consolidated annual results (FY 2021–2024). The most striking pattern is the stability of EBITDA around the ~$1.25B–$1.30B band versus flat-to-modest revenue variance, which underscores that margin and mix drive earnings volatility more than unit volume.

Cash-flow and capital allocation in numbers#

Cash generation is where SCI’s recent narrative fabric is woven. Management’s Q2 commentary highlighted preneed production and better working-capital timing as the primary reasons the FY25 adjusted operating cash-flow range moved higher. Recalculating the core cash metrics from annual cash-flow statements provides clarity on conversion and optionality.

Two cash-allocation shifts matter. First, free cash flow grew +9.57% while capex increased modestly, indicating underlying operations are producing more cash per dollar of revenue. Second, gross buybacks fell from -$544.84M in 2023 to -$253.73M in 2024, reflecting either share-price sensitivity, a desire to preserve liquidity, or re-prioritization of capital deployment.

A practical metric investors watch is cash conversion: operating cash flow divided by net income. For FY 2024 that ratio equals 944.91M / 518.75M ≈ 1.82x, indicating strong conversion of accounting earnings into cash in that year.

Balance-sheet posture: leverage, liquidity and the arithmetic of risk#

SCI’s balance sheet shows a substantial amount of leverage that amplifies margin and operating risks. At year-end FY 2024 total assets were $17.38B with total liabilities of $15.7B and total stockholders’ equity of $1.68B. Total debt was $4.92B and net debt (total debt minus cash) computes to $4.70B.

Using the FY 2024 EBITDA of $1.26B, net-debt-to-EBITDA recalculates to 4.70 / 1.26 ≈ 3.73x. Enterprise value, constructed from the market-cap snapshot of $11.21B plus total debt $4.92B minus cash $0.219B, produces an EV of approximately $15.91B, and an EV/EBITDA ratio of ~12.62x when measured against FY 2024 EBITDA.

Worth noting: the dataset contains a different TTM metric (net-debt-to-EBITDA of 5.08x and an EV/EBITDA of 17x). That discrepancy likely reflects a trailing-twelve-month EBITDA or a market-cap figure from a different timestamp. For transparency, this analysis prioritizes the FY 2024 audited (or reported) line items and the contemporaneous market-cap snapshot embedded in the dataset, and reports computed multiples from those elements. The divergence between TTM aggregates and fiscal-year arithmetic is material and investors should reconcile timing differences when comparing vendor-provided ratios.

Two other balance-sheet datapoints deserve emphasis. First, the current ratio at FY-end 2024 is 377.33M / 723.84M ≈ 0.52x, down from ~0.67x in 2023 — a meaningful drop in short-term liquidity. Second, debt-to-equity (total debt / equity) equals 4.92B / 1.68B ≈ 2.93x (or 292.86%) at year-end 2024, highlighting substantial financial leverage relative to equity.

Both metrics amplify the importance of consistent cash generation: SCI’s ability to fund dividends, M&A and repurchases without materially raising financing costs is contingent on continuing the improved cash conversion profile shown in 2024 and reinforced by Q2 messaging.

Margin decomposition: what moved and why it matters#

SCI’s historical gross margins show a multi-year drift lower from the 31.93% in 2021 to 26.05% in 2024. The most recent quarter, however, delivered a sequential gross-margin improvement (management cited a roughly 210 basis-point improvement in comparable funeral gross profit percentage in the Q2 release). That improvement was driven by higher average revenue per service, favorable mix, and fixed-cost absorption across a large footprint.

Decomposing margin gains shows three levers: price/mix, fixed-cost leverage and service-product mix (preneed vs at-need, cemetery products vs cremation). The secular shift toward cremation generally compresses average per-service revenue because cremations tend to be lower-ticket than traditional burials, but cremation also creates cross-sell opportunities (memorialization, scattering gardens, niche products). SCI’s margin management is therefore as much a product of mix optimization and pricing discipline as it is of cost control.

Sustaining the latest margin improvement requires continued discipline in branches (scheduling, selling efficiency) and successful monetization of preneed and cemetery products, which have higher margin and better cash flow timing. The Q2 lift in preneed cemetery production (+5.3% as cited in management’s Q2 commentary) is therefore an important signal when mapped onto the cash-flow upgrade.

Competitive positioning and secular drivers: scale remains the moat#

SCI is the largest consolidated operator in North America’s deathcare market and benefits from a national brand, scale in purchasing and distribution, and a preneed book that produces recurring-like revenue. The long-term drivers are familiar: demographic tailwinds (aging population), a secular rise in cremation rates that changes mix, and digital/experience upgrades that increase lead conversion.

Scale translates into margin and pricing power where local independents cannot match centralized marketing, leadership in cremation services in certain markets, and the ability to invest in preneed underwriting and compliance infrastructure — a point of emphasis after regulatory actions in California in 2024. But scale also exposes SCI to regulatory scrutiny and places a premium on governance and process controls in preneed administration.

Risks: regulatory history, mix shift and tight liquidity#

SCI’s May 2024 settlement with the California Attorney General (civil penalties and restitution tied to preneed administration practices) is a tangible reminder that preneed revenue carries consumer-protection and regulatory risk. While that settlement was finite and resolved a defined set of allegations, the reputational and compliance costs are ongoing and require management attention and investment.

Operationally, a long-term secular move to cremation can compress average revenue per disposition even as overall service addressable markets expand. Management’s actions to extract value from cremation-related memorial products matter materially to margin durability.

Finally, the FY 2024 current ratio of ~0.52x and leverage metrics mean that short-term liquidity or a prolonged margin contraction would strain flexibility. The reduced buyback cadence in 2024 demonstrates management’s capacity to tighten capital allocation under pressure, but it also signals constrained optionality should earnings weaken.

Valuation arithmetic and the competing narratives#

Recomputing valuation using the dataset-provided market-cap ($11.21B), debt and cash yields an EV of ~$15.91B, and an EV/EBITDA of ~12.62x on FY 2024 EBITDA. That arithmetic contrasts with vendor TTM multiples in the dataset that show EV/EBITDA nearer 17x and net-debt-to-EBITDA nearer 5.08x. The difference is primarily timing and the EBITDA window used. A reconciliation exercise is essential because valuation narratives flip depending on whether one uses trailing audited EBITDA, a TTM EBITDA that includes or excludes non-recurring items, or a forward EBITDA projection.

Forward-looking consensus embedded in the dataset shows modest revenue growth in 2025–2027 and EPS CAGR assumptions (2025–2027 EPS growth in the high-single digits, per analyst estimates). If SCI sustains the FY25 cash-flow midpoint of $910M and converts that to recurring free cash flow growth at mid-single digits, a DCF-style analysis will justify a multiple above the industry median. Conversely, if margins revert and cash conversion weakens, the premium embedded in current multiples quickly becomes a vulnerability given elevated leverage.

What this means for investors#

For investors who track operational proof points rather than narrative headlines, SCI’s Q2 and the subsequent FY25 cash-flow raise provide two immediate signals. First, the company demonstrated the capacity to turn modest revenue increases into materially better cash performance through mix, pricing and working-capital management; second, that cash performance is necessary to sustain dividends and buybacks given the company’s elevated leverage.

Investors should therefore prioritize three observables over the next several quarters: preneed sales production and conversion rates, sustained gross-margin improvement (not just one-quarter labor of efficiency), and stability in liquidity metrics (current ratio and net-debt-to-EBITDA). These are the concrete, measurable inputs that determine whether SCI’s access to capital remains favorable and whether the company can sustainably pursue M&A and shareholder returns.

Key takeaways#

SCI’s most important near-term development is the FY25 adjusted operating cash-flow guidance raise to $880M–$940M, which ties to improved working-capital timing and lower expected cash taxes. That guidance is both a defensive shield (bolstering liquidity) and an offensive tool (supports dividends/repurchases/M&A). The company’s operating model continues to generate strong cash conversion in FY 2024 (operating cash flow / net income ≈ 1.82x), but balance-sheet metrics — current ratio ≈ 0.52x and net-debt-to-EBITDA ≈ 3.73x (FY 2024 arithmetic) — leave limited room for material misexecution.

Featured snippet (short answer) — What changed in SCI’s Q2 2025 update? SCI beat Q2 consensus on EPS and raised FY25 adjusted operating cash-flow guidance to $880M–$940M, driven by margin improvement and working-capital benefits, which materially strengthens near-term cash flexibility.

Conclusion: cash-flow upgrade buys time, not invulnerability#

SCI’s recent results re-center the investment story on cash flow. The company has shown tangible ability to widen margins on a modest revenue base and to convert that into higher operating cash. That dynamic is essential for a highly leveraged operator in a low-margin secular mix shift. However, the arithmetic of SCI’s balance sheet — the low current ratio and high debt relative to equity — means operational outperformance must be sustained for the company to maintain strategic optionality without increasing financing risk.

The appropriate lens for investors is therefore process-oriented: monitor the conversion of preneed backlog into cash, the sustainability of margin expansion beyond one quarter, and the company’s ability to keep net-debt/EBITDA within manageable bands. These are the empirically testable outcomes that will determine whether the cash-flow upgrade translates into durable strategic advantage or merely temporary relief from headline risks.

(For specific source citations, see SCI’s Q2 2025 press release and Q2 earnings commentary on the company’s investor-relations page, and SCI’s FY 2024 consolidated financial statements filed 2025-02-13.)