Feb 9, 2012
Executives
Debbie Young – Director, Investor Relations Thomas L. Ryan – President, Chief Executive Officer Eric D.
Tanzberger – Chief Financial Officer, Senior Vice President and Treasurer
Analysts
John W. Ransom – Raymond James & Associates, Inc.
Clint D. Fendley – Davenport & Company Llc A.
J. Rice – Susquehanna Financial Group LLP Robert M.
Willoughby – Bank of America Merrill Lynch Duncan Brown – Wells Fargo Securities
Operator
Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2011 Service Corporation International Earnings Conference Call. My name is Diana and I’ll be the Operator for today.
At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session.
(Operator Instruction) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, the SCI Management.
Please proceed.
Debbie Young
Good morning. This is Debbie Young, Director of Investor Relations for SCI.
Thanks for joining us today. As usual, we’ll start with some prepared remarks from management and then we’ll take some of your questions.
But first, let me go through the Safe Harbor language. In our comments today, we will make statements that are not historical facts and are forward-looking.
These statements are based on assumptions that we believe are reasonable. However, there are many important factors that could cause our actual results in the future to differ materially from these forward-looking statements.
For more information related to these statements and other risk factors, please review our filings with the SEC that are available on our website. Also on the call today, we will use the terms normalized EPS and free cash flow.
These are non-GAAP financial terms. For reconciliation of normalized EPS to EPS calculated in accordance with GAAP, please see our press release and 8-K that were issued yesterday.
For free cash flow and free cash flow per share, we would refer you to a presentation that we posted on our website yesterday under Webcasts & Presentations that will give you the supporting calculations and reconciliations to GAAP cash flow. With that, we’ll start with comments from Tom Ryan, SCI’s President and CEO.
Thomas L. Ryan
Thank you, Debbie, and thanks everybody for being on the call today. Before I go into a more detailed review of the quarter, I’d like to step back a moment and look at our results and accomplishments that we achieved during the year 2011.
All in all we look back at 2011; we’re very pleased with our operating performance. I’d like to first thank my 21,000 teammates at SCI for making this happen, because without their contributions, we wouldn’t be able to print results like this.
Earnings per share grew a little more than 10% year-over-year, reported $0.65 in 2011 and $0.59 earnings per share in 2010. This was on the high-end of our previous guidance of $0.62 to $0.65.
As we’ve discussed previously and setting expectations for financial performance in the near-to-mid term as you think about our segments, we’ve pointed out that it’s our opinion that funeral is going to be challenging to grow. This is predominantly, because our GAAP revenues are tied to the event of death, and it’s our expectation that we’ll continue to see a challenging number of deaths in the near-term.
In addition to this, we’re going to put further pressure in the fact that we believe we should grow the preneed backlog, because the day is coming and we continue to do that. And in doing so we generate selling expenses and those selling expenses again put pressure on our margins.
Having said that, we think it’s – we’re going to generate a lot of cash in our Funeral business and that is the case for 2011. If you look at our reported results for 2011, we’ve managed our expenses very well.
We generated a significant amount of cash flow in the incremental preneed selling costs; put a little pressure on our comparable margins. But again, this was part of the plan.
We finished the year with a growth in comparable revenues of $21.7 million in the Funeral segment or 1.5%, and an increase in gross profit of $7.7 million or 2.6%. And therefore, we were able to actually raise the gross margin percentage by about 20 basis points in the Funeral segment.
Having said that when we set expectations for cemetery, we’ve always pointed out to you guys that this is the place that we can actually drive some growth. We’re able to recognize our GAAP purchases property sales and to the extent, we can grow those sales, we can grow the related margins.
So again, as we look at 2011, cemetery is our growth engine. Comparable cemetery revenues in 2011, up more than $47 million or about 7% for the year in gross profits up close to $16 million or about 12% and that is a 90 basis point improvement in the margin.
Perhaps most notable as it relates to generating cemetery growth, we achieved a 12.3% increase in preneed cemetery sales production, and therefore a 7% increase in preneed funeral sales, against a backdrop of very negative consumer environment. We’re very pleased with those results and that’s really what drove the earnings per share on the cemetery side.
And then most importantly to us, we generated roughly $280 million of free cash flow and with this free cash flow, we returned about $245 million to you, our shareholders through a combination of share repurchases, which for 2011 amounted to about 20 million shares at about $200 million and through $45 million worth of dividends. Additionally, we directed more than a $100 million to strategic acquisitions and growth projects.
Now, shifting to an overview of the quarter, we posted solid results in the fourth quarter both earnings and cash flow were at the high-end of our guidance ranges discussed back in October. Normalized earnings per share increased $0.01 to $0.19 versus $0.18 in the prior year quarter.
Free cash flow increased $7.5 million over the prior year quarter to $66 million. Our funeral profits were flat on lower than expected funeral volumes offset by better than expected average improvements and prudent cost management.
But the Cemetery segment performance was very strong. The primary driver of the cemetery profits for the quarter was increased recognized preneed property revenues associated with construction projects.
Now to an overview of the funeral operations. Funeral volumes were down more than we had originally anticipated and more than we’ve experienced in the last several quarters.
But we were able to manage our expenses well, which helped to keep the profits flat despite a decline in revenues. We also saw strong growth in the comparable average sale and an increase in general agency revenue on increased preneed funeral sales production.
For the quarter, comparable funeral revenues declined 2.3% to $350.6 million. Our same-store volumes were down 5.7% in the quarter, worse than we had originally anticipated.
Now for the full year, our same-store volumes were down 2.5%, which was generally in line with our original expectations for 2011. In the fourth quarter, our funeral average grew by 2.6%, which takes into account higher trust fund income and an unfavorable Canadian currency effect.
Excluding the currency and trust fund income impacts, we experienced a growth rate of 2.1%. This is especially impressive considering our cremation mix grew by 210 basis points to 44.7% for the fourth quarter.
From a profitability standpoint, comparable funeral profits declined less than a $1 million and the reported margins were relatively flat. We managed our operating costs well in a very soft funeral environment, particularly in the month of December.
Lastly, as I touch upon funeral, I’ll talk about preneed funeral sales production. Again, this is the key element of our long-term strategy and we continue to see impressive growth.
Our comparable preneed funeral sales production continued to impress by increasing 15% in the fourth quarter of 2011. Now shifting to the cemetery operations, our comparable cemetery revenue increased about $9 million or 4.9% quarter-over-quarter.
This was mainly attributable to higher recognized revenue associated with new construction property also our trust fund income increased $1.9 million. Our comparable preneed sales, and remember, preneed we can drive a lot more than atneed, that’s rely upon the event of death, that production grew about 1% quarter-over-quarter.
And remember, we’re comparing against a very strong fourth quarter of 2010 and so our performance for the quarter, I thought was actually very good. And when you compare the first nine months of 2011, this made a very challenging quarter-over-quarter comparison.
And I think again that the numbers we rang up, we’re very impressed by it. So for the year if you step back, our total cemetery preneed sales production was up nearly $50 million or 12.3%.
I’m really proud of the outstanding efforts of our field management and our sales organization in generating double-digit growth in today’s consumer environment. On the revenue growth, cemetery profits grew $4.5 million or 11.6% for the quarter, and our margins increased 130 basis points to 22.7%.
Now for some thoughts about 2012, as indicated in our press release, we are affirming our guidance for normalized earnings per share that we provided to you last quarter in the range of $0.66 per share to $0.74 per share. At the mid point of our 2012 earnings per share guidance, it represents about an 8% growth over 2011.
You keep in mind there were few things in 2011, which are repeatable in 2012 and therefore I think when you think about more normalized compression we’re actually growing above 10% year-over-year, a lot of favorable trends that we believe are going to happen. On some broad assumptions for 2012, we believe the funeral revenues will again be tough to grow.
This is because funeral volumes we believe will still be challenging, and we’re forecasting that to be down low-single digits for the entire year. The most effective way to compact this in the future is with growing our backlog.
And we expect to focus on that into grow preneed funeral sales in the low to mid-single digit range. We believe that our funeral average will continue to grow in the low-single digit range absent currency and trust fund impacts and this will be in the pace of increasing cremation mix, which you know make it challenging to continue to grow this number when you combine that with a current negative consumer environment.
So how we’re going to do it? We’re going to do it by – it’s going to be driven by refreshed Dignity packaging.
We’ve refreshed those packages, we’ve got new materials, new training, we allow a lot more flexibility in the products that people can select, and it’s our belief that, we’re going to be able to grow the number of packages, which will expand consumer spend. We’ve tested this in Main Street, it’s been very successful, and we’ll be rolling this out throughout the year in 2012, both in our metro markets and in our major markets.
In addition to this, we had launched a receptions and events category, if you will. And again, as we launched this, we’ve seen consumer spend putting things that are relevant in front of our consumers, and they’re buying.
And so, we expect that to again help our average revenue per case in conjunction with our inflationary pricing that we do [each year]. So, we believe that those things will have a positive effect and allow us even with a lot of these headwinds to grow the average revenue per case and be helpful to the preneed revenue line.
On the cemetery side, revenues will continue to grow led by our preneed production. And we believe that growth will be in the mid-to-high single digit range for 2012, even coming off that 12% growth from last year.
So a challenge to our team but I think we are up for it. Preneed sales growth will be driven by continued training and development, use of technology, further utilization of our lead management systems, growth in the community service sales arena, as well as the expansion of our seminar program on a national basis.
The segment margins will be impacted by increased personnel cost, salaries, and health insurance costs. Having said that, these inflationary costs will be somewhat negated by our streamlining initiatives within our supply chain group as well as leveraging technology in our cemetery administration back-office.
This concludes my prepared comments. Now, I’ll turn the call over to Eric Tanzberger our Chief Financial Officer.
Eric D. Tanzberger
Good morning, everyone. I’m going to start and talk about 2011 specifically on very favorable results, in which we produced about $280 million in free cash flow, which again landed at the high-end of our guidance range that we discussed on our last call, which was at the end of October.
This represents $1.18 of free cash flow per share and most importantly, a 13.5% growth over 2010’s free cash flow per share of $1.04. And again, these numbers are reconciled to the GAAP numbers in the presentation or website as Debbie mentioned at the beginning of the call.
This robust cash flow continues to be our strength here at SCI. And as we’ve mentioned in many times before since 2005, and again that’s when we developed our current operating platform and embarked on our growth strategy.
But since 2005 through the end of 2011, our free cash flow per share has grown at a compounded annual growth rate of about 10%. And we believe, this is the compelling story from an investment standpoint, especially in today’s top economic environment.
So through this morning, I’m going to walk you through the details of this cash flow, and also touch on the trust fund performance for the quarter and the year, and give you some color on our outlook for 2012. And I am going to also briefly discuss how we deployed this free cash flow in 2011 to grow the company and again to enhance shareholder value.
So from a cash flow, from a quarterly perspective in the fourth quarter, our cash flow from operations was just under $97 million, and this exceeded the previous guidance we gave you in October of $75 million to $95 million. It was driven by higher EBITDA and higher cash receipts, and this was partially offset by higher cash interest payments.
And the cash interest during the quarter was about $7 million higher than the fourth quarter of last year. And this is really related to timing differences as a result of the new senior notes that we issued in November of 2010.
Maintenance CapEx in our cemetery development CapEx and again we sum those together as the two components that we consider our recurring CapEx. So those two components for the quarter came in a little higher than we expected at about $30 million, a fair amount of this was related to the completion of some cemetery property projects which benefited cemetery revenues and earnings in the quarter as Tom mentioned earlier in the call.
When we deduct this recurring capital spending from cash flow from ops, we calculate our free cash flow for the fourth quarter to be about $66 million, which is a growth of nearly 13% or $7.5 million over 2010. I shift into the full year of 2011 cash flow from ops grew $33 million to about $388 million.
The recurring CapEx which you saw in our press release is about $109 million so the free cash flow again for the full year of 2011 ended at about $279 million. This compares to $260 million in 2010, and again this represents a healthy growth of over 7% primarily on higher EBITDA and earnings.
We are very proud of this growth, and then as Tom said, I want to give the credit to all of our associates out in our field operations, who really helped to make this happen. And shifting more to an outlook for 2012 in terms of cash flow, we expect to continue to generate this attractive operating cash flow and we remain comfortable with the 2012 guidance we discussed in October and that was $375 million to $425 million of cash flow from operations The recurring CapEx guidance remains unchanged as well, $95 million to $105 million, which result in anticipated free cash flow in 2012 in a range of $270 million to $330 million.
On a per share basis, this equates to about $1.20 to $1.47 for 2012, and this calculation is used in our fully diluted weighted average share count of 225 million shares, that’s what we’re modeling for 2012. At the midpoint of this guidance, which is $1.33 per share, this represents a growth of nearly 13% over our 2011 free cash flow per year.
This guidance generally reflects higher anticipated EBITDA, that will be somewhat offset by higher cash taxes, but also include less recurring CapEx as I just described to you. Speaking to cash taxes, in 2012, we’re expecting those to be in a range of $20 million to $30 million, and this compares to cash taxes of approximately $30 million thus spent in 2011.
Now when you look beyond 2012, as we continue to utilize our net operating losses, we believe our cash taxes will likely start climbing to a range of about $30 million to $40 million in 2013, and perhaps get to the point where we will become a full cash tax payer in the 2014 time period. But again, as we’ve said before, even when we are a full cash taxpayer, our cash tax rate will still be lower than our effective rate, and the cash tax rate will probably be in the range of about 25% due to temporary differences.
Keep in mind, as well, when we’re talking about taxes, that our IRS audits disclosed in our filings continue to progress. It is reasonably possible that we could reach some type of conclusion in the near-term, which could result in additional non-recurring cash tax payments, but again as we’ve said before, nothing that we would expect to affect our liquidity.
Shifting to trust funds, we benefited from the favorable trends in the financial markets in the fourth quarter as it relates to our trust fund performance as you saw in our press release. The total trust fund income that we recognized off of these funds in our income statement for the fourth quarter was just under $26 million, which compared to just over $22 million in the fourth quarter of 2010.
Our guidance for trust fund returns in 2012 remains unchanged and recall that we are assuming that our consolidated trust fund assets will realize an annual positive return in the low single-digit percentage range, and that’s what we built into our models. Now, as I’ve described at the beginning, let’s talk a little bit about the deployment of this great free cash flow that we had during the quarter.
First of all, we had no meaningful acquisitions and we didn’t do any really debt repurchases in the fourth quarter, while we continue to buyback our outstanding shares. During the fourth quarter, we repurchased just over 5 million shares for a total investment of just over $50 million.
For the full year of 2011, we bought just under 20 million shares for a total investment of $195 million, $196 million. In subsequent to the end of the year, we bought another approximately 1.7 million shares for investment just over $80 million.
This activity resulted in about $80 million left on our authorization with approximately 222 million shares outstanding as we speak. And as you probably saw, yesterday we did a press release, which announced an increase in our share repurchase capacity by about $120 million, which gives our total current authorization today of $200 million in share repurchase capacity.
It’s a great year for us in summary, for 2011. Again, we generated $280 million in free cash flow.
With this cash flow as well as the cash we have on hand, we directed close to $200 million to our share repurchases, more than $100 million to acquisitions and growth capital spending, and $45 million upon our quarterly dividend on an annual basis. Additionally, we refinanced about $45 million of our existing debt from a high – from high yielding bonds to our revolver and lower interest rates.
And again, this was while we were maintaining a 3.1 times net debt-to-EBITDA leverage ratio, which were described before as generally our leverage target. So when we enter 2012, we entered 2012 financially strong with a very solid balance sheet.
We continue to have substantial liquidity and a great debt maturity profile that positions us well to explore value-enhancing opportunities, as we really have no meaningful debt maturities until October 2014. We anticipate a 13% growth in free cash flow per share over 2011 and that again is at the midpoint of our 2012 guidance.
And also the 2012 midpoint represents 11% to 13% free cash flow yield on our current share price. We remain committed to deploy this free cash flow prudently and to pursue value-added investments that will grow earnings and most importantly cash flow, as well as return value to our shareholders.
So, Operator, that concludes our prepared remarks this morning on the quarter. And now, we’ll be happy to open it up to investor questions please.
Operator
(Operator Instructions) And the first question will come from the line of John Ransom, Raymond James. Please proceed.
John W. Ransom – Raymond James & Associates, Inc.
Hey, good morning. Just I got a couple of things, Eric.
If you look at your GAAP earnings and free cash flow, could you breakdown, just kind of refresh us on what the factors are between GAAP earnings and cash flow? I don’t know you have cash factors, cash interest and cemetery land amortization, but I just want to make sure we get all the pieces there.
Thanks. And this is for your 2012 guidance.
Eric D. Tanzberger
,
And then the difference is working capital. And again, we have a use of working capital consistent with last year of about $45 million on our cash flow statement.
And again, that gets to the use of cash as we drive preneed sales, both in the cemetery side and a preneed funeral trust sales as well. And if you do that math, that’s going to get you right around, $385 million, $390 million of cash flow from operations on the cash flow statement for the full year.
John W. Ransom – Raymond James & Associates, Inc.
Okay. Secondly, what’s – maybe this is for Tom, but any update on Neptune?
Thomas L. Ryan
Well, Neptune is progressing as we’d expected it too. I think from a revenue perspective and from a new home opening perspective from the storefronts, that’s going really, really well.
And as we anticipated, it’s going to take a little bit of time to integrate them, put them on our systems and some of the savings that are associated with that are going to be generated in 2012 and aren’t there yet. So we’re very pleased with where we are today, everything is on track and excited to have them as part of our team.
John W. Ransom – Raymond James & Associates, Inc.
Okay. Thirdly, have you noticed any change at all when you look at acquisitions, are you still able to price those in a way that’s accretive to your free cash flow per share?
Thomas L. Ryan
Absolutely. I mean I think even beyond that, because we’re looking at the internal rate of return versus our weighted average cost of capital.
So, in today’s environment, everything is pretty incremental. But we’re being very, very selective about who strategically and getting the right returns for our shareholders.
So, yeah, we would still see the pipeline pretty active out there. I think, a lot of anticipation about tax rate changes and capital gains has probably got some people thinking a little harder about where they want to be in 2013 and beyond.
So we’re out there getting in front of people and we believe that there’ll be a healthy pipeline of deals in 2012.
John W. Ransom – Raymond James & Associates, Inc.
And as I look at the business, a couple things seem like they had changed, and I’m trying to understand if this is a blip or if this is a shift. First of all, the cremation mix seems to be accelerating higher.
The mix shift seems to be happening quicker. And then secondly, obviously you’ve shifted into a higher gear with your cemetery production.
Do you think those two things are kind of tied into demographics and we were [sitting] 65 and that’s something they think about taking care of it. Is there something behind that that you would think kind of – are those related and do you think there is something kind of bigger behind the two trends that will continue?
Thomas L. Ryan
I’ll try to address, and again, these are Tom’s feelings, so take them for what they are worth. But when you think about cremation, it’s hard to not imagine that the economic – we’ve always said if you look back historically, people don’t choose cremation because of the hard economic times.
I kind of have to believe, there is a little bit of that going on because of the creep we’ve seen in the mix. And particularly as it relates to seniors, because with the low interest rate environment, it’s not necessarily the job environment, it’s the fact that my CD pays me 0.2%.
There it’s really difficult I think for people to afford the same level of things that they used to. So as you’re dealing with that, I think that’s playing a little bit in the cremation mix would be my feeling.
We’re seeing it regionally more on the Atlantic Seaboard is probably more acute and other parts of the country, just to give you some regional aspect. Shifting back to cemetery, say it yourself, with an increased cremation mix, when do you expect less people to be buying cemetery property?
I tell you that a couple of things are happening. One is we’ve got a great team and they’re generating good leads, we’ve got great sales force and I think the training and investment is paying off.
But having said that, when you think about the core customer, the average cemetery customers are in their early 60s, that’s when people tend to reach out and do transact in that category. And if you look at Baby Boomers, the oldest Baby Boomer now is in their mid-to-high 60s.
So, I think we’re getting in the sweet spot and the fact that you’ve got more people ready to hear your conversation, even though more of them are choosing cremation, and I think that’s having a positive impact on our ability to sell as well.
John W. Ransom – Raymond James & Associates, Inc.
Great and just my last one, have the funeral volume trends in the fourth quarter, have those kind of trends continued into the first quarter through the first half, and also kind of down – mid-single digits, or has it firmed up to more or what you saw for all of 2012, which should be kind of maybe down 2 to 3?
Thomas L. Ryan
I think, we still – to answer them in reverse, we still feel pretty comfortable that 2012 is going to be okay. I think, there is one important thing to point out, last year, so call it, December of 2010 and January of 2011, we saw a pretty big impact as it relates to the numbers of death.
We track back to flu and track back to (inaudible) weather and so even in the first quarter if you recall we had up volume and that’s predominantly because in January and early February. So reserve it this year and we’re seeing really almost negligible effect of any kind of flu season.
So in December alone I give an example really down about 12%. So October and November weren’t bad at all and December fell off the map.
I’d tell you that January again is the tough comparable, we’re seeing the crazy number we saw in December, but again you’re comparing against a very robust January 2011. So I think, the first quarter could be somewhat challenging, but it’s our belief that everything normalizes in 2012 and we’d expect that kind of low-single digit decline.
John W. Ransom – Raymond James & Associates, Inc.
Now when you’re a kid, did you ever think you’d be rooting for bad weather and flu, as an adult?
Thomas L. Ryan
No.
John W. Ransom – Raymond James & Associates, Inc.
Exactly, thanks a lot. That concludes my questions.
Thank you.
Operator
The next question will come from the line of Clint Fendley, Davenport.
Clint D. Fendley – Davenport & Company Llc
Thank you. Good morning, Tom and Eric.
Eric, I just wanted to make sure I heard you correctly, your EPS guidance here assumes a baseline share count of about 225 million shares. And I just was wondering, I mean that seems a little high I guess to me in light of the 1.7 million shares that you’d already purchased in January and I guess just also your track record over the past two years, any thoughts on that?
Eric D. Tanzberger
Yeah, first of all, the two numbers I gave you, you’re right. Right now we’re about 222 million shares outstanding.
The 225, Clint, is the weighted average diluted shares. And so when you’re taking options and other factors that’s what gets you to right around right now 225 million shares which we’re modeling.
And you’re correct in saying, certainly you’ve seen how we believe in share repurchases. But that’s why I’m kind of give you that insight.
The model itself, isn't necessarily selecting which free cash flow deployment has the highest return for us in 2012. Because what we really would like to do is, as we’ve been hoping is continue our acquisition program.
And our acquisition program, the types of acquisitions that we’ve been able to do such as what we did in 2011 are very accretive to free cash flow per share and a very good internal rates of return. So that would be our first priority to deploy our capital there.
Absent the timing of this acquisitions or the ability to do that in terms of then being available to us at the proper return, then we will continue to take the balanced approach and deploy capital, certainly at this free cash flow yield associated with buying back our shares itself. Now realistically, we’re big believers in the stock as you know, as we’ve proven, and at this free cash flow yield, it’s pretty attractive.
So we didn’t go out and say, let’s say half of the free cash flow goes to acquisitions or half goes to [performance]. We just chose not take that guess and have the crystal ball.
You can certainly model it how you see fit, but that’s why we gave you insight and saying that the diluted amount on the model is 225 million shares.
Clint D. Fendley – Davenport & Company Llc
Okay, got it, that makes sense. And I’ve heard you Tom, loud and clear, a lot of great color on the revenue growth, just the way you’re thinking about it for 2012, the low single-digit on the funeral.
I just wondered on the general agency line items, and I know that’s a smaller part, but I mean it’s gone up a little bit over the last couple of quarters. I’m wondered if that was due to Neptune and how should we think about that revenue run rate going forward?
Thomas L. Ryan
A lot of the G&A revenue Clint is associated with two things; one, we’re growing our preneed backlog and we’re growing it predominantly through the insurance product. Today, we probably write 80% insurance versus 20 trust, so your mix change is driving G&A.
And secondarily, we’re getting better at writing the appropriate style of insurance products, as we’re going to get a higher commission on certain types of products. And so, we’re trying to drive our sales performance around those characteristic that’s going to generate the higher G&A revenue for us.
So, higher rate relative to quality of product combined with the increased throughput as we grow preneed sales.
Clint D. Fendley – Davenport & Company Llc
Okay. And then last question here, I guess just kind of a big picture stepping back and it’s kind of follow-up to John’s question as well.
I mean, we’ve heard you kind of, you’re making a big portion 2012 on preneed, are you feel you are sort of in that the sweet spot at least demographically especially on the cemetery side. I mean just any color maybe specifically for what these families and these customers are coming to you buying?
I mean are they increasingly interested in cremation niches? I mean is that an part of the cemetery at least that you’re having success in selling or does it represent your success more just you know some of the traditional plots and traditional areas of your cemeteries?
Thomas L. Ryan
Yeah, I mean, really all the above. There is no doubt.
I think we're seeing a growth in cremation consumer buying into our commentaries year-over-year. You know the sad part is, we wish a lot of group of them would.
Because I think if you look at the statistics now a large percentage of people do that. However, year-over-year the growth is there, I think we’ve got the product, I think we do a good job of presenting that.
But historically, people have not tended to buy in great numbers into our cemeteries and cremation product. We’ve had a lot of local successes.
And so I think, if you look at every category across the country, we’re seeing a growth and that’s going to change by demographics, by ethnic tradition, by part of the country. But I’d say in every category, we’re very pleased about the growth, the number of people we’re seeing.
And again, I don’t want to belittle efforts of our folks. We’ve worked really hard.
We hired more sales people. We generated more leads.
We’ve got better lead management systems. We’ve invested a lot in training.
And so I think that too has had a major impact on our ability to execute and grow again at 12.3% on a comparable basis. I mean, when you think about that and this economic and consumer environment, and with the cremation exchange, it surely is extraordinary.
And that – I can’t say enough good things about it, and I’m pretty excited. So I think that’s going to continue and I think Cremation is going to be a big part of the way we grow.
Having said it, it’s a small piece today, so high growth rates on a low base, we’ll keep it coming.
Clint D. Fendley – Davenport & Company Llc
Got it. Thank you, guys.
Operator
The next question will come from the line of A J Rice, Susquehanna.
A. J. Rice – Susquehanna Financial Group LLP
Hello, everybody, a couple of quick questions if I could ask. First of all, and I may have missed this.
I had technical difficulties on the phone, but I wondered if you have the revenue per case trend for the Cremation business versus the traditional atneed? Is there a difference in the year-to-year trend on pricing between those two?
Thomas L. Ryan
Yeah, A J, I think generally this year in particular, if you go back five years, Cremation was growing at a higher rate within our base group. This year for the first time I’ve seen in four year our actual burial average was up higher than cremation both of them grew.
But, we’re seeing that average pop up in 2011 over 2010, a little more. I don’t think that’s something that necessarily is going to continue.
I think it was probably the cumulative effect of the last four years and now we’ve done a good job in kind of raising the average spend on the cremation side. So, I expect that to look good.
Obviously, with Neptune coming into the mix, when you throw the Neptune business into our business, that’s going to put downward pressure on the overall cremation spend. I think we’ll present that for you in a different way, because that consumer we believe is a different consumer.
So we’ll try to be a little transparent on what’s happening within those two categories, because I do view them as different segments.
A. J. Rice – Susquehanna Financial Group LLP
Okay. And then when you look at the Cemetery business, and I see obviously, preneed coming back nicely there as you talked about.
As if you look at the segments of the market sort of the high-end Mausoleums that type of thing versus more traditional preneed cemetery sales. Are you seeing or have you seen that high-end come back yet or is that still fairly sluggish?
Thomas L. Ryan
You know, I think the high-end has come back rather well. I don’t think we’re back to 2007 levels, you know when you think about what the – maybe the way that it’s moved.
Having said that, I think year-over-year we continue to see those opportunities grow. I’d say, the real bread and butter of our success though is about riding more contracts.
And we’re seeing more consumers at every level from a pricing segment perspective. So that’s the true reason for our success.
Having said that, I do think the high-end is back and there’s people out there willing to spend. And I don’t know that we ever get back to 2007, a crazy year right for a lot of reasons.
But we’re pleased about every segment, and again I’d say that the need to say the meat and potatoes of why we’re successful is, we’re hitting every segment and growing the number of people there selecting properties within our cemeteries.
A. J. Rice – Susquehanna Financial Group LLP
Okay. And then just on the capital deployment, obviously I appreciate the comments about the share repurchase.
Any update in thinking – obviously, you declared the regular dividend this quarter, but any update in thinking about the dividend?
Thomas L. Ryan
Again, I think A.J.; we’ve got some ratios that we kind of manage within. It’s our intent and belief that things go as we expect them to go, as you can expect us to grow the dividend over time.
So that’s something we definitely will look at. I think when we look at the levels our stocks trading at today, we still think that’s a more favorable deployment of capital relative to increasing the dividend substantially.
But we’re committed to growing that year-over-year, and so that’s something, I’m sure, we’ll take a look at as the year goes on in 2012.
A. J. Rice – Susquehanna Financial Group LLP
Okay. All right.
Thanks a lot.
Thomas L. Ryan
Thank you.
Operator
And the next question will come from the line of Robert Willoughby, Bank of America.
Robert M. Willoughby – Bank of America Merrill Lynch
Hey, Tom, just a quick question. You’ve kind of touched on it a bit, but I just – is there an internal view of how high the cremation rate could ultimately get, I mean we’re not talking 100% obviously, but where is the realistic level for it to kind of level out?
Thomas L. Ryan
I think when you look at other similar demographics and I think we’re somewhat unique. But if you look at the UK, if you look at Canada for that matter, if you look at Australia, what you tend to see is, because a lot of these rates have kind of plateaued.
And if you believe that trend, what you’ll see in the major cities approaching somewhere, close to 70%. So when you take into account the more rural markets, probably a blended 60% as you look at those economies.
And they’ve been trading that way for some period of time. I said, the one difference, that we’ve got is, like somebody said, if you think the U.S.
is bad, we’re not stopping anybody from leaving the country, but we stop coming in. There is still a migration to the United States and a favorable migration when you look at necessity and religion.
So I think, those factors, could have a dampening effect on our ability to get to those types of levels. But ultimately I think you got to believe you get there just a matter of how fast is that going to be accomplished, but that’s probably our internal belief.
And as we’ve discussed Bob, as you know, we still view cremation as such a tremendous opportunity.
Robert M. Willoughby – Bank of America Merrill Lynch
Right.
Thomas L. Ryan
Because the gap in spend between cremation and burial in this country is unlike any other we’ve seen anywhere else. You did not see $4,000 spend differences in these other economies I just mentioned too.
So I think there is a real opportunity to put relevant products and services in front of these cremation consumers and really drive the average spend in this category as time goes on. It’s not going to be burial spend, but if you can take 40% to 50% of your consumers, and grow that revenue per case at a higher clip, that’s going to have a positive impact on what we can do financially.
Robert M. Willoughby – Bank of America Merrill Lynch
Okay. And maybe with that in mind, is there any change as your anniversary the Neptune investments, would that ultimately find its way into some kind of funeral comp from a volume perspective or just continue to be in the G&A side of things from a revenue standpoint?
Thomas L. Ryan
No, you’re going to have, because Neptune really has two components of the revenue. They’ve got atneed revenue, which is really the service, the removal upon death and the cremation, which is a smaller piece.
And a lot of what they’re driving today is on the preneed side, and that’s selling and delivery of the product and services ahead of time. And so I think the growth that you’re seeing today on the profit side is really going to be driven by that sales activity.
Having said that, from a volume perspective, they’ve got a huge backlog and we’d expect the numbers of deaths that come out of Neptune to grow pretty rapidly over the next few years. Because again the way that they've grown their backlog is very quickly and a lot of it just hasn’t began to rollout yet.
Robert M. Willoughby – Bank of America Merrill Lynch
But that will show up.
Thomas L. Ryan
Yeah that will show up in our numbers, and again we’ll talk more about that as that becomes more relevant.
Robert M. Willoughby – Bank of America Merrill Lynch
Okay. But it’s like a funeral, funeral atneed revenue would reflect increasingly some dilution from Neptune flowing through or would that be continued to be separated?
I think maybe more just from a disclosure standpoint.
Thomas L. Ryan
I think from a disclosure standpoint, again I can’t speak to 10-K, because I’m not versed in it. But I think as we communicate with you guys, we’re going to talk more about that because at the end of the day those funerals, if you will, once we actually perform them, are going to be $600 million to $700 million revenue events, and we’re not going to make a bunch of margin on it, most of the margins made on the selling side.
Having said that, that’ll be profitable and we’ll make money. But I think it’s important to probably segregate this for you and let you know what’s happing in that arena as it relates to our traditional core business.
Robert M. Willoughby – Bank of America Merrill Lynch
Perfect, perfect. And just the last question, I guess, to A.J's point on the dividend, if you meet my share repurchase targets, which you appear well en route to the dividend payout itself as it currently stands – stays about flat year-over-year.
I guess to your point, it is reasonable to expect that dividend payout continue to move higher year-over-year?
Thomas L. Ryan
Yeah, I think we do, Bob. Again it depends on what happens I'd say in 2012, but it’s something we’ll address later on the year at the board level.
And again, we think it’s important to pay a reasonable dividend, particularly in today’s environment, so we’ll do that. Again from an – a perspective of enhancing the value of the company that’s probably not something that is first on our list, but we also recognize in today’s lower interest rate environment, yields are important.
And we think it’s a good idea to return some cash to shareholders. So, yeah we’ll consider that later in the year.
Robert M. Willoughby – Bank of America Merrill Lynch
Perfect, thank you.
Thomas L. Ryan
Okay, thanks Bob.
Operator
The next question will come from the line of Duncan Brown, Wells Fargo Securities.
Duncan Brown – Wells Fargo Securities
Hey, good morning.
Thomas L. Ryan
Hi Duncan.
Duncan Brown – Wells Fargo Securities
On the funeral side, you talked about managing, doing a good job of managing the operating cost in a difficult volume environment, anything that you can highlight in particular?
Thomas L. Ryan
As it relates to the expense side?
Duncan Brown – Wells Fargo Securities
That’s right.
Thomas L. Ryan
Yeah I think you know the number one category that we can manage about, I forget the percentage I think it’s 28% of our cost are people cost. And what we’ve done over time Duncan is try to convert more and more of our high fixed cost nature of the way we operate of our business into a variable cost environment.
And it is an ongoing effort and continuous process improvement for us, because we’ve given tools to our field management to better utilize these resources. So, I’d just tell you over time, we’ve gotten better and better of it, and we're better at anticipating when we know the funeral volumes are not there, we’re utilizing our staffing more effectively.
We utilize a lot of part time folks that don’t have to come to work if there is not enough work to be done, and when you go further and think about the fleet and you think about the central preparations and some of the other things that go on within our business, we can manage those cost down. In addition, I’d say we’ve done a really good job on the supply chain side in driving down costs, bidding out a wider variety of things that go into our businesses, and that have an effect.
So I just think we’ve gotten better of doing it and you're seeing the success in the fourth quarter.
Duncan Brown – Wells Fargo Securities
Okay that’s helpful thanks. On the Neptune, I was wondering if you could quantify the revenue impact in the quarter?
I think, you said last quarter was around $14 million?
Thomas L. Ryan
Yeah, I think it’s pretty consistent maybe slightly higher it was what Neptune generated.
Duncan Brown – Wells Fargo Securities
So in that general range.
Thomas L. Ryan
Yes.
Duncan Brown – Wells Fargo Securities
And then just last one for me. Is there a revolver still drawn?
Thomas L. Ryan
The revolver has $65 million drawn on it right now. And it is the $500 million facility due in March of 2016.
Duncan Brown – Wells Fargo Securities
Got it, thank you.
Thomas L. Ryan
Yep.
Operator
This concludes the question-and-answer portion for today’s conference. I would now like to turn the call back to SCI management team for closing remarks.
Thomas L. Ryan
Well thank you everybody for participating today. We look forward to be talking to you again in late April with our first quarter results.
Have a great day.
Operator
And ladies and gentlemen this does conclude today’s conference. Thank you once again for participating.
You may now disconnect and have a great day.