Jul 30, 2010
Executives
Debbie Young - Director, IR Tom Ryan - CEO and President Eric Tanzberger - CFO, Sr. VP and Treasurer Steve Tidwell
Analysts
A J Rice - Susquehanna Clint Fendley - Davenport Robert Willoughby, Bank of America Merrill Lynch Nicholas Jansen - Raymond James & Associates
Operator
Good day ladies and gentlemen and welcome to the second quarter 2010 Service Corp. International earnings conference call.
My name is Lisa and I will be your coordinator for today. At this time all participant are in a listen-only mode.
We will be facilitating a question-and-answer session towards the end of today's conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.
I would now like to turn the presentation over to SCI Management. Please proceed.
Debbie Young
Good morning everyone. This is Debbie Young, the Director of Investor Relations for SCI.
We want to welcome you to our call this morning to discuss our second quarter results. Our call today will include some forward-looking statements that involve risks and uncertainties that could cause our results to differ materially from management’s current expectations.
We encourage you to review the Safe Harbor statement contained in our earnings release published yesterday as well as our most recent SEC filings for a more complete description. Additionally on the call today Tom and Eric may use terms like normalized EPS, normalized operating cash flows.
These are non-GAAP financial terms. Please see our press release and 8-K that was filed yesterday where we have provided a detailed reconciliation of these measures in the appropriate GAAP terms.
Now, I will turn the call over to President and CEO, Tom Ryan.
Tom Ryan
Thank you Debbie and thanks everybody for being on the call today. As usual we are going to have kind of a quick overview of the quarter as to funeral operations, cemetery operations.
Eric will add some comments on the financial side of the house and then some concluding comments. So for the overview of the quarter, second quarter again we delivered consistent positive performance.
If you look at earnings per share, our normalized earnings per share were $0.15 versus the $0.12 in the prior year quarter with again normalized for both quarters. So if you take about year-over-year improvements, it’s really driven through things continuing, one being the largest.
The first thing that's really driving our results is the acquisition that occurred only in this year and late in last year. So the Keystone and Palm Mortuaries were big contributors to our improvement.
And it predominantly benefits the funeral segment as we gathered thus and why that is so accretive as well is essentially we've funded this predominantly with cash. So you can think about the alternatives of earning money and cash and the alternatives of these very accretive acquisitions shows up the nucleus pretty well.
Secondarily we continue to see solid simultaneous sales production. We've been doing this for some time now and the comps are going to get harder and harder but again we delivered positive growth and that arena and lastly we continue to manage our expenses very prudently and every level of the organization, at the G&A line, the overhead line, the allocation of the field as well as in the field of expense so I want to congratulate everybody in the company for continuing to do that.
Now as you compare EPS to our internal expectations because obviously we had improvement of the party, we had a good quarter as well. This exceeded I think external expectations, analyst consensus as well as our own internal expectations.
I mean you think about our internal expectations, even our comparable funeral revenues help offset some lower recognition rates on cemetery. So if you think about year-over-year we expected cemetery to be better.
We expected funeral to really be challenged and I would say intellectually performing a little ahead of probably we would expect it to be. Other key positives to take way from the quarter again I think are the big headline things, number one the acquisitions were very accretive and contribute meaningfully to core.
Houston and home combined contributed $37 million in revenue and $10 million of gross profit in the second quarter. Also Berkley’s announced that at the end of this quarter we completed the sale of the freight commission required properties from the Keystone acquisition.
Those are 22 funeral homes and five cemeteries. And it generated about $35 million in proceeds.
With these proceeds along with our strong cash flow enables to return to you more than a $103 million a year-to-date in the form of share purchases and the dividends that we've paid out and I am actually including the dividend is going to be paid tomorrow so forgive me for predicting something but that's over $100 million back to you guys. So I think what this all says as you look at the accretive acquisitions we are able to complete as you look at what we've given back to shareholders it really reiterates our confidence and our optimism and the long term future of SCI.
Now I'm going to move to the funeral operations and talk a bit there. We talked already really about Keystone so I am going to talk about comparable funeral operations.
They generally reflect compared to prior year but as I said before they perform well relatively to our expectations. As we had anticipated, we continue to struggle with the top line as lower case volume and the struggling economy keeps downward pressure on the revenue line.
Comparable funeral revenues in the quarter increased 1.4% to $344 million. We break it down let's talk first about volume.
Same store volumes were down 2.2% for the quarter and I never thought I would say this but we are kind of encouraged by that when you think about the sequential moderation of the rate decline over the last four to six quarters. We would like to see comparable growth but I think there's two things that are putting a lot of pressure on that.
One the advances in medicine or what we call access to health care within the markets that we operate and secondarily the sign of the generation and kind of the lack of (inaudible) that are impacting us as well as the GI generation where we saw a lot of gas occurring and that's going to turn downward just because of the age of GI generation but that's putting pressure on the volume that we expected and therefore and we are probably little better than we had intended it. On the funeral average side we saw the average growth at 3.1% despite the 70 basis point increase in our cremation revenue.
3.1% increase takes into account the higher trust fund income that we are getting on the (inaudible) asset and positive currency effects from our Canadian operations. If you exclude both these favorable impacts the average without currency is bringing the growth to 0.9%.
I will first say it and again this is within our expectation we had modeled kind of well single digit around 1% to 1.5% for the year and what's causing this, there's two things that are putting pressure on the comparable number. Number one, the economy’s impact on consumer sentiment.
You got a consumer that is a more concern and probably a little more discerning as it relates to what they going to spend. Secondarily, remember you are comparing that to 2009 which experienced some very favorable growth rate because of the Dignity display effect.
As we rolled out the new Dignity splash it had a big impact in year one. It continued to have a positive impact if not as big an impact.
But I will leave you with one positive thought on average because this is not going to go away. Consumer sentiment is probably going to be 12% or higher.
But here's some good news. Remember what we are putting in the back of that $5,400 average contracts.
This is a higher cremation rate and what we are pulling out of the backlog about $4,950 so there's a $450 difference that is going begin to trend that way and impact some one-third of our go forward so that is a trend that will get positive winding our back. The last piece of revenue I will talk about is a $2.3 million increase in G&A revenue and this was driven by our huge success and increase in the insurance funded printing production.
So we are very, very pleased to see that because we are putting positive things in our backlog which bodes very well for the future. So if you drop down from revenue to talk about comparable funeral profits, they declined $1.7 million in the quarter.
And this really is an example of what a good job we are doing managing our variable expenses in the declining volume environment. However, the one item that we saw and increased in selling cost, this really accounts for the entire decline in profit due to the increased printing production resulted in higher selling costs.
Remember the cost we saw a pretty funeral it recognized immediately in the period that they incurred and the revenue gets deferred and so do deliveries. So to get back now our profits actually are flat to prior year on a comparable basis.
So that leaves us to the preneed front, the good news about this on the preneed funeral front we had an outstanding quarter. Preneed funeral sales grew 23% or roughly $27 million for the quarter and the numbers through the year-to-date are I think 17% as well so we are excited about that.
One caveat, I just want to alert everybody to about the loans for the quarter. The majority of the increase internal preneed funeral sales in the quarter came from our locations in Canada, particularly in the provinces of Ontario and British Columbia.
In Canada the changes in the tax code basically incentive consumers to prearrange prior to July 1 to be exempt from an additional sales tax of about 7% or 8%. So again that was utilized to generate sales in the quarter and probably there's some quarter down the back half of the year I should say some sales productivity into the second quarter so we are excited about it, the growth but again not a level that we expect to continue in the future.
As we stated in previous quarters we are very, very pleased with our progress (inaudible). The selling environment in which we operate is much more challenging today when you roll back the clock by (inaudible) we are far better equipped to compete, to better lead better systems, enhance training, combined with the operating structure that we recently put in place that added such things that imbedded our leadership and this allowed our sales force deliver the results that they do.
Now I am going to cemetery operations. Comparable cemetery revenue increased about 3% quarter-over-quarter.
Atneed was about flat and our GAAP preneed was up about 5%. When you back off what GAAP is again remember we sell a lot of things to get deferred our true comparable printing sales production grew $4.7 million in the quarter or about 4.6%.
And again the change in the tax code mentioned earlier that benefited our Canadian cemetery operations also benefited to a lesser extent our cemetery sales as well. Keep in mind that after a 7% growth rate in preneed cemetery sales in 2009 the accelerated projection from Canada in Q2 and the fact that we are up 9.6% in preneed selling year-to-date.
We had modeled low single increases for the entire 2010. But that would lead you to believe that the back half of the year is going to be challenging on a comparable basis but we would be very successful on an achievement basis.
So please keep in mind we've got some tough comps coming up. Cemetery trust fund income was basically flat for the quarter and in line with our expectations.
So drop all the way down comparable cemetery profits were basically flat on increased revenues, slightly higher and the real reason for not dropping it all the way at the bottom line is higher selling cost. And a large part of this was attributable to selling costs that are recognized in association with an increasing deferred preneed cemetery revenue.
So you've got sales costs that you are recognizing today and the revenues remain deferred. We expect this to turn around and these profits to be recognized in future quarters.
I don't think its something that we are overly concerned about. So in conclusion we are very pleased with our performance in the quarter in the first half of the year with increase in revenues, earnings per share and free cash flow.
For the balance of the year we continue to expect the each environment will probably remain challenging. Our thought that leverage levels with consumers continue to remain high, leverage levels and government, both city, state and nationally probably mean that future tax increases that are out there and when you think about how being in a rising mode will often and not just in the subprime arena you've got a lot of the option arms that are going to reach that over the next follow months.
When you think about all these things it’s hard for us to envision a US consumer segments being very positive. And therefore probably not going to have a big impact on jobs.
So we know that out there there's a macro thing you can't do a lot about but we know one thing, we feel confident about our ability to continue to deliver solid performance. This concludes my prepared comments.
Now I will turn it over to Eric.
Eric Tanzberger
Thanks Tom. I am going to pick up the conversation talking about the cash flow and subsequent performance for the quarter.
And then we will talk a little bit about expectations and the cash balance and cash flow and our liquidity expectations as well. And then I will comment a little bit about our capital deployment that occurred during the second quarter.
Starting with cash flow, cash flow from operations at the quarter was just under $79 million excluding the $1.5 million of one time transition costs that related to our acquisition in Keystone. This represents an increase about $9 million from last year and is also about the same amount higher than our internal expectations.
Now to understand this increase I really need to mention two specific items. First, recall on the last conference call that on March 31 we partially funded our April 2 payroll was created of positive drains in this quarter of about $16 million.
Secondly, in the second quarter of last year, we received $15 million of proceeds from cash surrender value of certain license term debt. So when we compare cash flow quarter over quarter these two unique items basically offset each other.
And we still had an increase of roughly $8 million. So that increase really can be attributed to the higher pre-tax income that was shown in the quarter and we really had some improvement in the collections of our receivables that are really a result of our associated hard work and focus on our field operations and this was both partially offset by higher payments for trade payables as well which is really just a timing difference.
Total CapEx for the quarter was about $23 million and what we call the current CapEx meaning maintenance and cemetery development was $22 million or just $23 million. Year-to-date the recurring CapEx was about $40 million.
We still expect this maintenance and cemetery development CapEx to approximate $85 to $95 million for the full year in 2010 which means that in the second half of this year we estimate that we will spend about $50 million. When you deduct these recurring capital spending items from the cache of March we calculate our free cash flow for the quarter to be about $56 million.
This is an increase of just under $2 million from last year and is also just slightly ahead of our internal expectations. And within that $56 million we had cash interest and cash tax payments during the quarter of $59.4 million and $7.5 million respectively.
Now turning to an outlook of cash flow and as we indicated in the press release we are increasing our cash flow from operations outlook for the full year to $330 to $360 million. The previous guidance was $300 to $350.
So this represents an increase of roughly $20 million at the midpoint of these ranges. The primary reason for the increase really relates to better working capital.
We've had good success in 2010 with various working capital initiatives that contributed cash flow particularly as I just mentioned relating to suitable collection efforts within our fuel operations. An I mentioned earlier that our guidance for maintenance and cemetery development CapEx remains unchanged so therefore with the increased cash flow assumption, flat CapEx the free cash flow is now expected to range between $235 and $275 million.
And again this is a great story. This represents a 12% to 14% yield as the current share price just stays at about $7.80.
So strong cash flow continues to be the positive story here at FDI. As the increase in cash flow expectations limited to the working capital component generally of our cash flow our estimates for earnings per share of $0.48 and $0.56 remained unchanged.
However, based on where we are today and as we mentioned in the release we believe it is likely that we will end up the year in the middle to the upper end of the ECS range. Now, let me we shift to trust funds as well.
The combined trust fund assets are about $3.1 billion and that decreased about 4.3% in the second quarter. So not a great quarter for performance but better than the market as the S&P 500 for example was down 11.4% for the quarter.
Year-to-date though the trusts are generally flat. They are down about 0.6%.
Our guidance ranges for the rest of the year that we mentioned earlier assume that the trust fund performance was generally flat in our models for the remainder of the year. In total trust fund income recognized in our income statement in the quarter was $20.1 million which was up from $17.6 million in the second quarter of 2009 and this $20 million of trust fund income was in line generally with our expectations.
Shifting to liquidity subsequent to the quarter we had share repurchases in the month of July totaling about $18 million. We also had positive cash flow in July that offset that.
So the cash balance at the end of the quarter was about $152 million and we continue to have about a $150 million of cash on hand as we speak today. We currently have $210 million available on our $400 million bank credit facility which again is long term and matures in November 2013.
We currently use this facility to afford just under $45 million of letters of credit and we've drawn about $145 million on it and that really hasn't changed since the last time we spoke on the last conference call. Total debt was about $1.86 billion at June 30.
That again has not meaningfully changed either. And again we have no meaningful maturities until November 2013 which again is primarily the bank credit facility.
The cost is specifically within the quarter of the capital deployment. During the second quarter and in the month of July as I mentioned, we purchased about $8.6 million shares for a total cost of about $72 million.
We currently have just over $50 million remaining on our existing share repurchase authorization. Also in the second quarter we also spent about $23 million in buying back our bonds or short (updated) bonds in the open market.
Our current leverage ratio on a net debt basis at the end of the quarter and again this includes a full year pro forma EBITDA for Keystone according to our bank credit facility definition was about 3.25 so about three in a quarter. Generally it’s where we want to be as we believe the appropriate capital structure for us is having a net debt to EBITDA leverage ratio between 3 and 3.5 times.
In terms of capital deployment going forward our assets will be on strategic acquisitions at the appropriate returns, returning cash to shareholders which will be in the form of share repurchases and dividends and reducing liquidity risk and managing and debt maturity profile as well. In conclusion we are pleased with our successes as we look through the first half of 2010.
Our current financial position is very strong as I mentioned to you. The $150 million of cash, liquidity, a favorable debt maturity profile and very attractive free cash flow.
So that concludes my remarks. But before we go to questions I am going to turn the call back over to Tom for some final thoughts.
Tom Ryan
Thanks Eric. I really wanted to kind of level up with you guys, it’s an issue we can talk about, we provide annual guidance, we had some discussions about what we believe kind of the near term future is in this business and so I thought what I will do is take a minute and tie it back to again why we own SCI and what I will do is use the year-to-date results to kind of help tell the story that we've been telling or better define the story.
So let's take the funeral side of the business first of all. What we said over and over our belief over the next few years is that this will be a week where we have strong consistent cash flow.
We believe that there will be flat to modest profit growth as we struggle with the top line group, volumes were challenging and through averages it will be challenging in a tough consumer segment market. So let's talk there for a second.
What happened so far and I will through in there that we are going to manage our costs very diligently and therefore be able to provide the consistent light to modest profit growth. So let's take a step back and look at the first six months.
First six months of this year on the funeral side we were in the $155.5 million. That's down $3.2 million when you compare the first six months of 2009.
If you look at the revenue line item and you take out Canadian currency movements and G&A revenue because I want to talk about that separately. Our revenues are down some $8 million or about 1%.
The (inaudible) volume is down 2.8%. The average is at 1.5 if you take out that currency.
But we've managed our costs diligently. If you look at costs excluding currency impacts, and excluding selling costs we've actually reduced overall costs of $6.6 million or 1.3%.
So when you look at the entire profits (inaudible) correctional profit is $3.2 million for the six months. That can all be explained by the fact that our selling costs in excess of G&A revenues are up $3.2 million.
So in that line, it gets what we've always said, generates a lot of cash. We also said we grew plenty of backlog with the minimum capital investment.
For year-to-date our preneed funeral production is $266.8 million, it’s up $38.7 million over the prior someone or about 17%. So we are seeing some real success in the reading we thought we told you we would.
And what we said was that long term our market share growth we believe, we are seeing an increasing number of debts. So as we approach larger pools of consumers that suited us we are going to have a larger market share to tone up that backlog.
So I will tell you we are on pace to do the things that we told you we are doing and we could tie that six months numbers. Now I will shift over to cemetery.
We've always said about the cemetery is that there's more volatility tied to both consumer sentiment because it’s silver line on sales and the financial markets. It’s more volatile as it relates to them because of the trust fund impact on that earning stream.
As we've always said the training property can grow by blowing sales. It’s not tied to the only piece of our revenue stream, it’s not tied to the minimum debt.
So we feel like that our client resources is, this is one area the company is expected to begin to move the needle. So let's look at it, cemetery preneed production for the first six months is $201.3 million.
It’s up $17.6 million in the prior year or about 9.6%. I will be the first to admit we are comparing that against a pretty easy comp on the first half of 2009.
Having said that, there's some real improvements going on that I think we are going to continue into the future. The second piece we said on the cemetery is we are going to introduce more technology and manage cost pretty diligently.
Cemetery maintenance piece is on a run rate to deliver $12 million of savings over the 2008 levels of what we spent. So because of those costs here we are obviously going to having inflationary costs and going forward they are going to add back some but we are able to execute that and are in place and on the run rate to do so.
The second project that we mentioned before cemetery administration we call it our next gen HMIS internally and we believe this too will deliver $10 to $12 million of savings and those are going to show up in 2011 and 2012. So we feel like on the cemetery side because of the opportunity of the technology because of our ability to grow cemetery as property sales there's a real opportunity to grow cemetery property sales, there's a real opportunity to move EBITDA and operating earnings modestly on this side of the business.
And sure enough these six months our cemetery profits were up $11.1 million or 23.7%. We delivered $57.8 million in cemetery profits for the six months.
The challenge there's no doubt cremation is the bigger hurdle on the cemetery side but they are not making any more cemeteries generally across the United States and the baby boomers who reached there in early 60s and they are really poised to begin to have the discussions with us. So we feel confident there will be adequate sales opportunities to grow above and beyond what's happening in inflation.
So on this side of the business we believe we could grow modestly particularly on the cemetery side and generate a lot of cash. The most important thing we can do for you to enhance the value is how we deploy our capital and we've really done three different things that I want to look back upon today.
The strong cash flows with the modest organic growth allows us to do number one, to grow through strategic acquisitions. So if you think about it, since June 30 of last year we've acquired Keystone, we've been acquired Palm Mortuaries for the net price of about $300 million.
That has to be divested into things that we will acquire to divest them. This as you can see in the quarter is highly accretive to our results.
You've got $10 million of income in Q2 alone when you look at it on an unlevered basis in the funding from this as I mentioned before was predominantly through cash flow. We've added about $100 million to our debt balance since June 30 of last year but again we paid $300 million for this amount on a net basis.
The second bullet point we return cash to shareholders. So if you think about through share purchase and dividends over the last 12 months since June 30 of last year we've returned $72 million through buybacks and we've returned $41 million through quarterly dividend.
So there's another $113 million of being put to good use on that for our shareholders. The last thing that we try to do is manage liquidity and our debt maturity profile.
So think about it, over the last twelve months, we've done something with $400 million, either given it back to you or put it on accretive acquisitions. And all along we've reduced our net debt to EBITDA ratio from 3.63 down to about 3.25 of debt.
We paid down some $50 million of short term debt and in November of last year we did a 12 year note and about $150 million. So we've got a lot more EBITDA, we've got a $100 million in debt, $150 (million) pushed out and just the short term taken in.
We've got a $150 million of cash on the balance sheet and we've got the $210 million reference on the credit system. I hope you can see as you think about the investment opportunity of SCI, we are following the model that we try to describe to you guys and we are working very hard because it gives an example and we believe enhancing the value of SCI's shares.
We will continue to try to create value and minimize risks as we position the company to be the very best at leading the funeral cemetery industry in the future. So thank you for your time and I am going to turn it over to questions.
Operator
(Operator Instructions) your first question comes from the line of A J Rice with Susquehanna. Please proceed.
A J Rice - Susquehanna
Couple of questions if I might ask. First on the Keystone deal, is there any updated expectation on synergies and how much of the original synergies did you realize in the current quarter and how much is still in progress.
Eric Tanzberger
A J I think the original synergies we talked about were $8 to $10 million and I would tell you on the run rate basis we are very, very comfortable with the high end of that range. And I think we are almost want to move away from talking about synergies because once you get into it, we got the ones that we identified for you guys but I will give you an example as we move forward and we can do things once they are on the cemetery side of the business for Keystone.
If we can put more sales people in place and generate higher sales, that's going to generate more profit. I wouldn't call that a synergy anymore.
It’s hard to kind of refer back to it so I guess the way I would describe it as synergies as the high end and we continue to see opportunities to grow the profits of the business for the quarter.
A J Rice - Susquehanna
Okay sounds good. On the divestitures where you said you got $35 million furnaces roughly how much in revenues went out of the door of those divestitures.
Eric Tanzberger
I don't have the revenues in front of me but generally they are sold at about seven times EBITDA multiples.
A J Rice - Susquehanna
You mentioned a couple of times strategic acquisitions and being open to that looking to that is there any, can you just maybe give us an update on the pipeline and what you are seeing out there. Is there more activity now than there was six to 12 month ago.
Eric Tanzberger
I would say surely more than 12 months ago we are seeing activity, we are seeking opportunities, we are just trying to ensure that again we are getting the right view in our strategy and at prices that can be very accretive in funeral time search but yes we see the pipeline more active and particularly I some of the businesses that we are interested and which makes us very excited.
A J Rice - Susquehanna
Okay and just last thing I will ask about on the atneed case alliance obviously down 2.2% and still negative but relative to where you've been I guess the last four or five quarters that's an improvement, I know you guys will then try to look at us from a lot of different ways and have outside people to get new perspectives on what's happening with the debt rate that you would be want to share with us.
Eric Tanzberger
I think I know you are referring back to some of the studies we've done as it relates to the (harbors) studying and I would tell you that if it is completed the preponderance of that study was for internal use and I do think there will be some things that we will be able to share with you guys but at the same time I think its really billed for specific markets and how we operate within them. I will tell you this observation because it confirmed a lot of things we knew, it confirmed number one, that medical advancements have had a more dramatic impact than we thought.
The lack of smoking is the way I will describe it has a bigger impact than anybody thought and to think about and I am so sorry my grandfather got, believe me, he loved me very much, he used to while driving the car with me, he would blew smoke in my face and maybe that's what's wrong. But today he can't smoke in a bar, he can't smoke in a restaurant, anywhere particularly in major cities and so that had a big impact.
Silent generation is what we thought it was and probably the thing we learned was the real downward trend into GI generation debt and that's been the minimum debt for some time and again allowed us people to die les and less. So I would say that the study confirmed a lot of things we knew and probably gave some insights into others and would lead me to believe that we are competing very effectively within the markets that we operate and kind of gave us little more confidence that we are hoping there for good.
Operator
Your next question comes from the line of Clint Fendley with Davenport. Please proceed.
Clint Fendley - Davenport
I was wondering how much of Q1 growth in preneed production might have been attributable to the Canadian demand pull forward.
Eric Tanzberger
I don't think Q1 had a lot because we would expect much often that as it relates to preneed funeral. It’s really something that we kind of marketed even late in the second quarter of where we thought it would.
Clint Fendley - Davenport
Okay and what was the split roughly between the trust funded and insurance funded of the Canadian preneed.
Eric Tanzberger
I don't have it in front of me Clint but it’s…
Tom Ryan
Mostly insurance.
Eric Tanzberger
It’s mostly insurance and I am saying and again I would say if you look at it historically we saw a lot more trust and we shifted a lot more into insurance recently so a lot of that is going to go into insurance backlog.
Clint Fendley - Davenport
And modeling question here but on depreciation and amortization I guess I would have expected maybe a slightly bigger increase given the acquisitions.
Eric Tanzberger
Well I think at the end of the day the claim, it probably added both acquisitions somewhere in the range of $10 to $12 million of G&A per year and I don't there was anything I will use more or less than what we are truly expecting. So if you look at the prior year G&A which is somewhere in the low 160s I think you should probably expect somewhere in the low to mid 170s.
Does that help you?
Clint Fendley - Davenport
Yeah it does.
Eric Tanzberger
And that's a whole year number now when I say that okay.
Clint Fendley - Davenport
Last question but just on the priorities and uses of cash Eric I guess in your prepared statements you talked about acquisitions, share repurchases obviously and reducing the liquidity of risk, I mean I am reading too much into it that acquisitions were listed first I mean is your pipeline maybe improving relative to a few months ago.
Tom Ryan
That was purposely listed first.
Clint Fendley - Davenport
You will be seeing I mean any kind of incentives maybe with regard to tax planning and people motivated to sell before the end of the year.
Eric Tanzberger
I think there's a lot of background reasons for that say those are the hard and fast, I think with time, for a lot of people, they reach a point and I think what's happening is somebody let's say they would in a decision point over the next three to five years. I would tell you that the spirit of taxes the spirit of economy and those I think will push them to move a little bit early.
But I don't think if somebody is saying oh my god you know I've got to get out of here because that's just more of kind of background music that makes people go let's look at this because the landscape is going to change.
Operator
Your next question comes from the line Robert Willoughby with Bank of America Merrill Lynch. Please proceed.
Robert Willoughby, Bank of America Merrill Lynch
Are the Keystone facilities as well as Palm, are they onboard now with your pricing practices kind of bundled packages approach or were they pretty much there already with some type of similar offering.
Eric Tanzberger
Well Tom now has packages the Dignity packages in place. We've had a longer time.
I think I mentioned this before Bob but Keystone had a very successful package program themselves. So there's nothing new as it relates to the package process for them.
What we are going through now is looking at some of the things in their package and some of the things in ours and beginning to kind of melt the two together and put them in place. But in only gives our expectations that that's going to have a huge impact let's say on these businesses as you would expect all of them and we will proceed with them all.
So yeah I think a lot of it is impacting the numbers. We will kind of melt the two things together and we believe will result in a positive event just probably not the pop you saw and in other words the pop we hope we hope to be seeing.
Robert Willoughby, Bank of America Merrill Lynch
And as your success in Canada in the second quarter here I mean, does that turn around on you here in the third and fourth quarters maybe with some lower bookings or how do you guys think about that.
Eric Tanzberger
People would like to say that but I don't think Mike Webb has got a loan. No I think the reality is there's no doubt a follow are going to happen in the quarter, one is Ching Ming which is a huge impact particularly on the cemetery side of the business and that's called late March early April type of impact and I think this year we've got more of it in April when you compare it back to 2009 so that's a little bit of a quarter, then you got this tax change, I think there's two things, there's no doubt that I am sure the second quarter will add some sales from Q3 and Q4 but I don't want to paint a picture of we are done selling because I can tell you in looking there at July results so far they continue the trend looking very, very good and again these are people who are paying the extra tax.
So we don't think its going to kill us by any means. Did rob some sales, absolutely.
Robert Willoughby, Bank of America Merrill Lynch
And maybe question Eric we just leave some nominal amount going forward on a quarterly basis in share repurchases, I don't think your guidance is predicated on that but realistically some effort will continue in the third and fourth quarters.
Eric Tanzberger
Yeah, I mean it obviously is a value play relative to other opportunities all right. So if we have strategic acquisitions that have the proper return and we are proving that that's what we execute on, the proper return and I think that would go before share repurchases so its hard to predict there are things in the pipeline as Tom mentioned.
If they are in the pipeline then you could probably assume based on our past track record that they have very good returns. That would be better relatively to share repurchases.
Robert Willoughby, Bank of America Merrill Lynch
But even if we think about $10 million or $15 million events which wouldn’t tax your cash flow materially that does take out a meaningful amount of stock.
Eric Tanzberger
Yes I agree Robert.
Robert Willoughby, Bank of America Merrill Lynch
And is that a realistic expectation with all the other opportunities a small amount such as that can continue to happen.
Eric Tanzberger
Yeah its realistic that that could happen yeah.
Robert Willoughby, Bank of America Merrill Lynch
Okay and I guess I joined the call a bit late I am on about six about calls at the moment but obviously the numbers look pretty good, what was the concern I guess you moved the expectation up to the upper end of the range but is it a capital market situation or a preneed cemetery demand issue that prevents you from raising your numbers here at this point.
Eric Tanzberger
I think what we've done is we provide guidance obviously we had to modeled the mid point of the range. We guided you toward the back half of the range and I will tell you this I think add to these comments, we modeled a flat (stunted) market performance which is a trust fund performance over the next six months.
And so if you want to be a leader then the markets are going to rock the back half of the year when you could get that surprise. We just want, we are not predicting the stock market.
We just thought we take that position. And then I think on the cemetery side we have changed our opinion.
We just know the comps get tougher and so that's why we got toward the higher end of the range Bob. But rather when you look at it, the increase in the cash flow guidance is really related to working capital and so that's really why there's a little bit of differentiation between raising cash flow guidance and keeping the same EPS guidance although we did comment on the middle to the upper end of the EPS range.
Robert Willoughby, Bank of America Merrill Lynch
Working capital counts too in my world. Thanks.
Eric Tanzberger
Mine too.
Operator
(Operator Instructions) Your next question comes from the line of Nicholas Jansen with Raymond James & Associates. Please proceed.
Nicholas Jansen - Raymond James & Associates
Just a quick question on the suburban division, the rural suburban division that you guys were going to develop once you got Steve Tidwell on board. Can you just give your progress on that, any interesting insights with him leading that segment?
Eric Tanzberger
I am going to say something, he is actually here.
Nicholas Jansen - Raymond James & Associates
Okay great.
Eric Tanzberger
So I am going to take down as a blow but I would say we are very, very pleased to have Steve if he can tell us about it himself but that is in place. Steve got his team working very hard.
He’s been a road warrior in getting out and Steve is meeting the folks and understanding the opportunities. So we are very, very pleased he’s up and running and I will let Steve make a few comments about where we are.
Steve Tidwell
Well, I think that's getting to know many of the SCI (inaudible) this has been educational and helpful and we are raising together the best practices with two varying parts of the company and believe that our progress today with a couple of quarters is a big thing to hit.
Nicholas Jansen - Raymond James & Associates
Lastly Eric, once the board meets again you could potentially address your share current share price, share repurchase authorization.
Eric Tanzberger
The board meets quarterly. The next board meeting is mid-August but as I said in my conference call remarks, we have over $50 million of authorization that's left.
Operator
We have no additional questions at this time. I would now like to turn the presentation back over to SCI management for final remarks.
Eric Tanzberger
Well thanks everybody for being on the call today. We look forward to talking to you guys again at the third quarter conference call which should occur I believe in mid-October.
Thanks and have a great weekend.
Operator
Thank you for your participation in today's conference. This concludes the presentation.
You may now disconnect. Good day.