Feb 12, 2014
Executives
Debbie Young - Director of Investor Relations Tom Ryan - President and CEO Eric Tanzberger - SVP, CFO and Treasurer
Analysts
Chris Rigg - Susquehanna John Ransom - Raymond James Duncan Brown - Wells Fargo Bob Willoughby - Bank of America
Operator
Welcome to the Fourth Quarter 2013 Service Corporation International Earnings Conference Call. My name is Christine and I will be the operator for today’s call.
At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session.
Please note that this conference is being recorded. I will now turn the call over to SCI management.
You may begin.
Debbie Young
Hi and good morning. This is Debbie Young, Director of Investor Relations at SCI.
Welcome to our call today. As we discussed our fourth quarter and year-end results as well as our outlook for 2014.
Before I turn the call over to Tom, let me remind you that the comments made by our management team today will include statements that are not historical and are forward looking. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections.
These risks and uncertainties include, but are not limited to, those factors identified in our press release and in our filings with the SEC that are available on our website. In today’s comments we may also refer to certain non-GAAP measurements such as normalized EPS, adjusted operating cash flow and free cash flow.
Reconciliations of these measurements to the appropriate measures calculated in accordance with GAAP is provided on our website and in our press release and 8-K that were filed yesterday. With that out of the way, I’d like to now turn the call over to Tom Ryan, SCI’s President and CEO.
Tom Ryan
Thanks, Debbie, and good morning everybody. I’m going to begin my comments today by giving you an update on our Stewart acquisition and some high level perspective on the 2013 year then I’ll get into the details of the quarter and give you some color on our outlook for 2014.
Now for an update on Stewart. First and foremost, we’re very pleased to report that we closed the Stewart transaction on December 23rd and we’re in the midst of a successful integration.
We couldn’t be any more tried it. The Stewart acquisition generated the meaningful internal rate of return on capital deployed for our shareholders.
Through this transaction we’re expanding our footprint with premier properties to complement our existing network as well as welcoming very talented and committed people from Stewart into our SCI family. As part of the federal trade commission approval the level of required divestitures was a little more than we anticipated.
While we’re disappointed to leave these businesses, we do not believe it will meaningfully affect our internal rates of return based on the anticipated sales proceeds. However, it will have a slightly negative effect to earnings per share compared to our previous expectations.
Speaking of the divestiture process is going very well and we’re on track to complete all sales we believe by mid 2014. We like to remind you that we’re divesting of businesses that we’re both legacy SCI and Stewart facilities.
These businesses generated EBITDA of approximately 25% of the historical field level EBITDA of Stewart on a standalone basis. Shifting to integration, the back office and systems integration processes are progressing and we’re confident we can deliver our initial cost synergy estimate.
As we begin our operational and sales integration, we believe this could lead to identification of additional synergies. Now let me move on to give you some perspective on the year 2013.
We couldn’t be proud of our 2013 performance. We delivered $0.92 of normalized earnings per share which is an improvement of $0.12 or about 15% over 2012.
Additionally we generated $440 million of adjusted cash flow from operations in 2013 which is an increase of $60 million or about 16% over the prior year. Let me walk you through few of the key factors driving this success.
First our people none of these results would have been possible without the caring professionalism that each and every team member of SCI possess each and everyday with the families we are so privilege to serve. To our SCI family I want to thank you for all your hard work and focus.
The second key to success preneed sales. 2013 was a tremendous sales year period.
we elevated our game in preneed funeral sales production, growing our comparable sales more than 11% which has a minimal impact on current earnings per share and cash flow but is a key strategy for our future growth. Meanwhile our preneed cemetery production continued on its annual tare growing comparable sales an additional 11% having a meaningful impact on our current financial results.
You will recall beginning in 2009, we began to invest in developing the key infrastructure to delivering superior sales production. Our success from 2010 through 2012 was almost exclusively generated through enhanced sales force productivity accomplished through lead management, improved systems, sales manager and counselor training.
Surprising to us our sales force size remains relatively constant. So more recently in 2013 and really looking again into 2014 we’re investing in recruiters, trainers and sales managers to support an effort to sell through an expanded sales force to be achieved to better hiring, training and retention.
During 2013, we added over 250 or about 7% to our sales counselor team. And remember, traditionally people purchased cemetery property in early 60s, so with the baby-boomers turning a range from 50 to the age of 68 this year are best days remained ahead of us as we continue for sometime.
The third and final key, I will discuss is SCI Direct. Starting in 2014, we have established a new division which will manage our direct cremation brands such as Neptune, National Cremation Society and Trident.
We continue to see strong growth in businesses that focus on direct cremation. Our recognized preneed revenues from these businesses increased over $15 million which is just about 30% growth over 2012.
Finally as we put 2013 behind us, I would remind you that the financial successes I just mentioned including a healthy growth and earnings per share and free cash flow was achieved in an environment where we precluded from the pulling capital strategically for the benefit of our shareholders. With the Stewart funding and closing now behind us, we look forward to 2014 with an ability to again return capital to our shareholders like we had historically.
Now let’s shift to an overview of the fourth quarter. We posted outstanding results with earnings and cash flow exceeding the high end of our guidance ranges we discussed in October.
Normalized earnings per share increased $0.05 or 23% to $0.27. This was 3 pennies higher than the top end of our guidance range.
The increase in earnings was primarily generated by continued growth in preneed cemetery sales during the fourth quarter and higher cemetery property construction revenues. We also experienced lower general and administrative expense.
Recall last year that we absorbed some unusual legal costs and settlements as well as higher incentive based compensation expense. These positive operating results more than overcame the effect of lower core funeral profits and other inflationary cost increases.
Now for an overview of the funeral operations in the quarter. On a comparable or same-store basis, our fourth quarter revenues declined by $3 million.
The decline of $11 in core funeral revenue and recall these are funeral services performed and merchandise delivered after death occurred, this $11 million core revenue decline was partially offset by a $4 million increase in recognized pre-need revenue for SCI Direct. And an additional $4 million increase in general agency revenue, as a result of our robust double-digit growth in our preneed funeral sales production.
Core funeral revenues declined as a result of 4.3%, funeral services performed. This was anticipated as we experienced the beginning of an exceptionally strong flu season in the fourth quarter of 2012.
On a comparable basis, funeral profits decreased $10 million and our adjusted funeral margin percentage dropped by 230 basis points. There were two primary reasons for the funeral profit decline.
First, keep in mind that the base fixed costs are growing with inflation, driving incremental cost of approximately $7 million for quarter. Second, core revenues carry the highest incremental variable margin.
So, on a decline of $11 million in core revenues that I just mentioned we'd estimate this impact to profit by an approximate $7 million if you assume a 60% incremental margin, so those two loans would [bounce] back $14 million. Partially offsetting these decreases was the contribution from recognized preneed revenue from SCI direct.
Recognized preneed revenues grew $4 million or about 30%, but remember this business is a lower margin probably about 20% compared to SCI’s core revenue. Finally, we would not have a negative impact on funeral gross profit dollars.
Growth in preneed funeral sales production generates general agency revenue, which is generally offset by selling cost. This has the effect of reducing gross margin percentage especially when we experienced preneed production growth as we did in the fourth quarter of this year.
Despite the pressure on our margin percentage, we believe this is a good problem to have as our strategy is to focus on our preneed sales program, which adds to an already impressive $9 billion backlog of preneed contracts in future revenue. Now for an overview of cemetery operations in the quarter, comparable cemetery revenues exceeded our expectations by increasing $24.4 million or 11.5% quarter-over-quarter.
In addition to higher than expected cemetery property construction revenues during the quarter, our sales team continued to outperform. Comparable preneed sales production grew a strong 16% in the quarter, which was well above certain expectations, not necessarily mine.
Stepping back and looking at the full year for a moment, preneed cemetery sales production grew a little over 11% in 2013, which is just great execution and more than what we expected following two consecutive years of double-digit growth, a big thank you to our sales and operations teams and our market leadership for continuing to deliver exceptional results. Driven by the cemetery revenue growth, adjusted cemetery profit grew $9.3 million or about 16% for the quarter and adjusted margins increased by 120 basis points to 27.9%.
Similar to our funeral segment, incremental revenue growth results in healthy incremental margins due to our high fixed cost structure. On the operating revenue growth of $24 million, we would have anticipated incremental profit of approximately $14 million versus the actual $9.3 million that we reported.
There were two primary reasons again for the $5 million profit difference. First, keep in mind that the basics costs are growing with inflation, which in the cemetery segment would increase expenses some $4 million per quarter.
And second, our sales production success continues to outpace our ability to construct and recognize revenue. This quarter we deferred approximately $5 million in revenue on a net basis, which would cause us to recognize an additional selling expense of $1 million in the quarter associated with production that will get recognized in future periods.
Now I’ll shift to our 2014 outlook. We continue to be enthusiastic about the profitable growth that the Stewart acquisition will contribute in 2014 and again in 2015 as the full way of the synergies is realized.
As we disclosed in our press release, we’re pleased to reiterate our 2014 normalized earnings per share guidance range of $1 to $1.10 per share. Since we first disclosed this guidance range last October we’ve had several items that negatively impacted the guidance range, including a higher level of divestitures, additional non-cash impact from continuing to refine our purchase price allocation for Stewart and higher healthcare cost than originally anticipated.
However, there also have been some positive changes affecting the guidance. First, as we now have greater visibility in the SCI’s expenditures from our newly upgraded purchasing systems, we’ve identified additional opportunities to leverage scale and purchasing power that we think can be achieved in 2014.
Second, we believe we will be able to continue to grow our preneed cemetery sales at similar percentages even with the over performance we experienced in the fourth quarter of 2013. And finally, we are now modeling higher cemetery constructions revenues than we had originally forecasted though 2013 will be a tough act to follow.
At the midpoint of our 2014 normalized earnings per share guidance, it represents a 14% growth over 2013. It will continue to be challenging to grow same-store funeral revenues until such time as we see a movement in comparable funeral volume as revenue recognition is largely dependent as you guys know on the event of death.
Until then we should continue to see steady, predictable cash flows and flat to slightly increasing profits. We will also continue to focus on growing our preneed backlog to increase market share overtime.
And we are modeling preneed sales growth in the mid to high single-digit percentage range. On the cemetery side same-store revenues will continue to grow led by strong preneed sales production.
The double-digit growth we have achieved in the last three years has been outstanding, but this is getting harder and harder to replicate as we grow the base production each year. Our models for 2014 therefore suggest growth in the mid to high single-digit percentage range.
And as I mentioned we remained confident in our ability to deliver the $60 million in synergies related to the Stewart acquisition that we have previously identified. While we continue to believe in the potential for additional synergies, it’s too early in the game for us to quantify anything at this point.
Finally in conclusion, with the Stewart acquisition complete, we believe we now have an enhanced platform for growth. Our strategy remains the same.
Demographics dictate that our industry will experience a natural growth trajectory and our improved and expanded footprint position us well for the future. We believe we will capture more than our fair share of this growth as we expand our network to continued specific market acquisitions and more importantly by continuing to grow our preneed backlog.
In 2013 our aggregate funeral and cemetery preneed sales production exceeded $1.3 billion and we will grow it from there with the addition of Stewart in 2014. We recognize this level of activity is unparallel in our industry and gives us a tremendous competitive advantage.
Our preneed backlog today with the addition of Stewart stands at approximately $9 billion, which bodes very well for future earnings and cash flow. In the meantime, we expect to continue to generate strong cash flow and that along with anticipated divestiture proceeds in the first half of this year will support a quick deleveraging and allow us to return our focus to future capital allocations designed to enhance shareholder value.
This concludes my prepared comments. And now I’ll turn the call over to Eric.
Eric Tanzberger
Good morning, everybody. I am going to start this morning with my comments described in our cash flow results for the full year 2013 and then I'm going to talk a little bit about the fourth quarter as well.
Then after this I'd like to discuss some forward-looking comments related to our cash flow outlook for 2014, our current financial position. And then I'm going to end with some of our thoughts on our capital deployment plans as we look forward in 2014.
So, as you've seen, we finished 2013 on a really high [hope], delivering strong earnings and cash flow results, which exceeded our expectations. For the full year, free cash flow generated in 2013 grew $65 million to $236 million and exceeded the high-end of our guidance range for normalized free cash flow, which was $305 million to $320 million.
This represents a tremendous growth of 24% over 2012 levels, despite a $10 million increase in cash taxes year-over-year. This increase is primarily the result of higher earnings associated with increased cemetery profits and higher cash receipts associated with preneed funeral and cemetery sets.
So on the fourth quarter, our operating cash flow grew 15% to $106 million compared to $92 million in the prior year quarter and exceeded the high-end of our guidance range given to you in October, which was $80 million to $95 million. Similar to the full year story, the increase in operating cash flow in the fourth quarter is predominantly associated with higher than anticipated earnings driven by our cemetery segment results and higher preneed cash receipt on the very strong preneed sales production numbers that Tom just highlighted.
Additionally, we benefited by about $5 million with lower cash interest payments in the quarter as we refinanced our 7.375% debt with 4.5% debt and we did that late in the fourth quarter of 2012. Due to payroll funding dates this year, we also partially funded a January 2014 payroll in December of 2013, and that was approximately $18 million.
This is just a timing issue and we’ll see the benefit from this next quarter. Excluding this expected payment, our operating cash flow would have grown $32 million during the quarter.
So after we deduct our maintenance CapEx and cemetery development CapEx, which was approximately $31 million and this was in line with our expectations, we calculate our free cash flow for the fourth quarter to be right at about $75 million. This is about $16 million or 28% increase over the prior quarter.
So now let’s talk about the cash flow looking forward to 2014. We expect to continue to generate attractive operating cash flow even with the downward pressure from higher cash taxes and higher cash interest from incremental debt related to the Stewart acquisition.
As disclosed in the press release, the guidance we gave you back in October remains unchanged, at $430 million to $480 million for adjusted cash flow from operations. This cash flow guidance for 2014 at the mid-point implies growth of about $15 million or 3.5% over 2013.
As we have previously said, we anticipate the underlying cash flows of our business to grow in addition to the contribution from the Stewart acquisition. However, this growth will be moderated by an increase in cash taxes as SCI’s remaining net operating losses are anticipated to be fully utilized during the early part of 2014.
So, as a reminder related to cash taxes, in October, we stated that we expect cash tax payments in 2014 to be approximately $70 million and this guidance remains unchanged. This is an approximately $45 million increase over cash taxes paid in 2013 which is right around $25 million.
Neutralizing the impact of this cash tax headwind for us in 2014, our expected operating cash flow is growing at about 13.5% as opposed to the 3.5% that I just mentioned before. This $70 million of anticipated cash tax payments represent our expectation of a cash tax rate for 2014 in the high teens to the low 20% range.
Next year in 2015, we’ll be a cash tax payer for the full year and I will anticipate our cash tax rate to be in the low to mid 30% range. Our guidance for our income statement provision tax provision remains unchanged with an expected effective tax rate of 37% to 38% in 2014.
Lastly, consistent with the guidance we provided to you in October, our cash interest payments are estimated to range from a $170 million to $180 million. This represents an approximately $15 million increase over 2013 levels.
Our recurring CapEx guidance remains unchanged at $135 million to $145 million which results in anticipated free cash flow in 2014 to range from $285 million to $345 million. On a per share basis, this equates to $1.32 to $1.59 and that’s using a fully diluted weighted average share count of about 216 million shares.
Now, I want to talk about our financial position and then our capital deployment as we look forward to 2014. So after closing and funding the Stewart acquisition, we continue to be confident with the strength and flexibility of our financial position and our liquidity affords us.
At December 31st, we had a $145 million of cash on hand and about $420 million of availability on our credit facility. We believe this liquidity is very robust especially considering that the numbers I just gave you is after closing the Stewart acquisition.
Now subsequent to year end, we funded $110 million additionally with our revolver and also used some cash on hand to retire all of the Stewart’s convertible notes which were right at about $132 million. At December 31st, our leverage on net debt to EBITDA basis as calculated in accordance with our credit facility was just over four times after the close of the acquisition.
And as we stated, we will generally target to run the company with the leverage ratio in the mid threes. From a capital and liquidity standpoint in 2014, we are also expecting a significant amount of proceeds from divestitures related to the Stewart acquisition.
In fact, we are anticipating pre-tax divestiture proceeds to range from $415 million to $430 million in mid 2014. I do want to note however that the assets being divested are older in nature and therefore have a lower tax basis.
As such, these sales would generate a large gain that will be taxed closer to our ordinary statutory corporate tax rate of about 35%. We are currently evaluating various opportunities to reduce cash taxes on these associated gains from divestitures.
But our current estimate for cash taxes is between $90 million to $100 million, yielding net proceeds from the divestitures of $315 million to $340 million. We expect the cash taxes associated with these divestitures to be paid over the next three months to nine months as the divestiture proceeds are realized.
And again just to be crystal clear, I want to highlight that these cash taxes will be paid out of the divestiture proceeds and are independent from our guidance of recurring cash taxes of $70 million in 2014 associated with our ongoing business that I mentioned earlier in the call. So in terms of capital deployment going forward, first is stipulated in our bank credit agreement, we will use the first $200 million of after tax divestiture proceeds to pay down our $600 million term loan.
And also note that we also have to pay the required amortization of the term loan in 2014 which is an additional approximately $30 million. As we have consistently discussed before, we plan now to take a balanced approach to deploying our capital after reducing leverage to under four times to get that down to our targeted roughly 3.5 leverage range that I expect we will achieve by the end of 2014.
In addition to further debt reduction, we'll also consider specific market acquisitions at the appropriate returns and then return cash to our shareholders, through our dividend with any excess capital going to share repurchases, assuming the valuations remain favorable. Currently to remind you, we have a $190 million authorized under our share repurchase program.
So, in conclusion again, I also want to say to welcome all of the Stewart associates and thank the SCI and Stewart associates in advance for their dedication and professionalism during this integration period. The integration process is on track and is going very well.
And 2014 will be a milestone year for us as we enjoy the growth from the Stewart acquisition. Together as we look to the future by focusing on growing our base business, improving customer satisfaction and deploying capital responsibly, we believe that we can continue to create value for our shareholders in 2014.
So with that operator, that concludes our prepared remarks. And at this point in time, we'll open the call up to questions.
Operator
Thank you. We will now begin the question-and-answer session.
(Operator Instructions). Our first question comes from A.J.
Rice from UBS. Please go ahead.
Unidentified Analyst
Hi this is [Brandon Bager] for A.J. Just maybe a little more color on the acceleration versus last couple of quarters seems kind of double-digit growth in the preneed funeral side.
What's been driving that, is there any sort of internal sales force changes or just the market growth getting better? And then also, as you think about it, sort of big picture here at the backlog, helps you or doesn’t to help your earnings that much in the current quarter on the funeral side, when you think you get to point where some of the success you’ve got a last decade growing that backlog, maybe that starts to more than offset what we would see in a current quarter and on a given quarter, what you get you put in to the preneed backlog if you will?
Tom Ryan
Okay. First part of your question Bran I think is as it relate to our success, again I think it’s the primary reason that I would put on the most recent acceleration has to do with what I was talking about before.
We have seen productivity enhancements over the last few years to drive sales and what you are seeing for the first time in the last four, five years is an expanded sales force. We grew the sales force by an additional 7%, we've never done that.
And we are putting people on that are very productive. So I think probably the primary differential over previous quarters is that we really have more people out there interacting with baby boomers, which is driving production.
The second question, I wish I could answer for you unfortunately, if I knew that I would tell you. So it’s very, very hard to predict.
What I would tell you is we've experienced kind of accelerated preneed production now for four years. And so my gut would tell me that within the next two to three to four to five years, we should begin to at least see some of that falling into your revenue, but again very, very hard to predict within the accuracy.
So we’ll continue to monitor it, but I can’t give anymore guidance than that.
Unidentified Analyst
Got you. Thank you.
Operator
Thank you. Our next question comes from Chris Rigg from Susquehanna.
Please go ahead.
Chris Rigg - Susquehanna
Good morning guys. And I got in a couple of minutes late here, so I apologize if you comment on this.
But with regard to the guidance, is your synergy target unchanged at this point?
Tom Ryan
Yes. The synergy target that we have is unchanged.
I think what I said Chris if you missed it was we feel like there could be more we’re not in a position yet to quantify what that might be. But that has not unchanged and I kind of gave three factors that we’re kind of negatively impacting our ability to execute ‘14 and then three that overcome it which gets us back to maintaining our range.
Chris Rigg - Susquehanna
Okay, okay. And then when I look at the direct selling prices, the average revenue per contract sold, it looks like that pricing firmed quite a bit relative to other recent periods, is there anything notable there?
Tom Ryan
I think a lot of it has to do with smaller discounting that we’re doing a better job of explaining. You’re talking about within direct cremation sales…
Chris Rigg - Susquehanna
Yes, when I look at the average it looks like it was up 11% to 12% and have been sort of mid to upper single-digits prior to this quarter?
Tom Ryan
Yes. I think we’ve used a lot of kind of discounting and coupon strategically and we’ve done some testing to see if people found value without that and we realized some success in utilizing some of those techniques and that’s been probably the biggest driver of the increase year-over-year is just less discounting as they percentage their products and services.
Chris Rigg - Susquehanna
Okay, okay. And then one of the headwinds that you talked about was the way you allocated the purchase price.
I am assuming that’s falling into amortization somehow. Can you give us a sense for how much of that -- what’s the incremental headwind that wasn’t in your initial 2014 guidance?
Eric Tanzberger
What I’d Chris is it wasn’t a reallocation, it was just a fact that when we gave October guidance, we hadn’t close the transaction, we were still in the middle of really pulling together what we thought the anticipated purchase price allocation and now obviously is more refined as we closed in and as of December 31st that you will see in our 10-K. But the answer of your question is in terms of the original $1.05 to today it was probably about $0.02 to $0.03 differential that it put pressure on EPS.
Didn’t necessarily pressure on cash, which means you are correct in your assumption that it’s more of non-cash amortization type item that put that pressure on.
Chris Rigg - Susquehanna
Okay, great. Thanks a lot.
Operator
Thank you. Our next comes from John Ransom from Raymond James.
Please go ahead.
John Ransom - Raymond James
Hey good morning. Three things; in your funeral backlog is the mix of dignity still higher that had need and is that have an effect on your ASP as the dignity matures?
Tom Ryan
Yes, we are seeing a higher mix of selling packages into the backlog and the things that are rolling out are going to have that impact, exactly John. I don’t have the numbers in front of me, but that’s the general trend that we are experiencing and that we would project overtime.
We feel better about the preneed going at need average that should continue to grow overtime because of the type of business we are putting in the backlog.
John Ransom - Raymond James
Tom, do you have an approximate number for the maturing preneed compared to your overall ASP, what’s the difference there? So, in other words if you are generating $500,000 on average for dignity’s maturity as the backlog is maturing at $7,000 or something like that?
Tom Ryan
I think it’s about a $200 differential amount, John. So, it’s something to that affect.
And keep in mind, probably that backlog has a higher instance of cremation as it relates to. So, you are dealing with the higher mix and still generating the type of revenues that we are.
John Ransom - Raymond James
Okay. Secondly, I know you do a lot of work I mean early days to minimize the cash flow track from selling preneed because you pick the cash in the short time; you have to pay your sales person.
Could you remind us kind of currently how that stands when you sell funeral preneed into the truck into the third party interest. What the kind of first year cash flow looks like from that activity?
Tom Ryan
Yes I think, I mean at synergy if you just look to the selling cost and G&A, if we sell an insurance funded product, call it a -- we are going to get a 20% of base value just around the purposes that’s the G&A revenue and cash that will get upfront. We will pay about 15% or 16% in selling cost in order to obtain that.
The difference if we sold all insurance, it be actually slightly cash flow positive. The differences in certain states and in certain instances we sold trust.
When we sell trust, we mainly get retainage of 10% and our selling costs continue to be 16. So, when you blend the two, essentially the G&A revenues and retention are going to offset the selling cost.
And so, one of the things we keep talking about is the margin percentage is negatively impacted. It’s not really a cash flow drag in a pure sense, it just brings down the percentage margin because you are grossing up the revenues and then you’re turning around and giving away all the profit below.
Cemetery side, I'm sorry.
John Ransom - Raymond James
Go ahead, I'm sorry.
Tom Ryan
What I was going to say on the cemetery side, the trusting loss are less punitive, we don't sell insurance to start with, but generally we're not having to trust nearly the amount we do on the funeral side. So, as we grow cemetery generally the cash flow is going to more than offset again depending on how much you collect down payment.
But regardless of that, it's very cash flow beneficial and as you know to the extent we sell property, the profit gets recognized upon sales as long as it's been constructed. So, very cash flow positive on the cemetery side.
But there is a day prior 10, 15 years ago where our selling cost that I'm telling you now 16, 18 on the cemetery side, it's pretty closer to 20, we're in the 30% range. And so, there is a time when preneed was very cash flow negative and now what I'd tell you is that on the funeral side it's cash flow neutral and on the cemetery side it's cash flow positive.
John Ransom - Raymond James
Right. And as you have [blended] next now that you are accounting for the divestitures in the Stewart deal, do you still think you'll be on the funeral side in that 2 to 1 range of insurance funded versus trust funded preneed on the funeral side?
Tom Ryan
Yes, I don't see no reason why we wouldn't continue with the trend we're at.
John Ransom - Raymond James
Okay. And then finally could you just remind us as you do cremation funeral versus a casket funeral, just to be approximate gross profit dollars difference in those two transactions?
Tom Ryan
I mean, I'd be approximating John, because I don't have anything in front of me. But probably the way you think about it is you're going to spend on average about $4,000 less.
So, revenue would be impacted by that much. I would tell you that more than likely on a profit side it's probably closer to 2, because you're not going to have the cost of a casket, you're not going to have some other ancillary costs, so I’d say on a gross dollar percentage, it’s probably around two and I would tell you on a gross margin percentage, not gross dollar that actually, it would be higher on a incremental basis.
John Ransom - Raymond James
Right. Okay, thanks a lot.
Great job.
Tom Ryan
Thanks.
Operator
Thank you. Our next question comes from Duncan Brown from Wells Fargo.
Please go ahead.
Duncan Brown - Wells Fargo
Hey, good morning. I think going back to the last call, asked about your guidance thoughts for legacy SCI and Stewart and you made basically similar assumptions for both volume and pricing for both legacy assets but that you thought there might be some more opportunity on the Stewart side, particularly on the funeral portion; any update on that?
Tom Ryan
You are talking specifically about sales, Duncan?
Duncan Brown - Wells Fargo
That's right, sorry.
Tom Ryan
Yes. I think again, it’s really too early to tell.
We’re just integrating the Stewart businesses; we got some great people, some great properties. We are little bit difficult to transition completely because of systems that needed to be integrated.
We would anticipate by the end of May that we would all be on similar systems and therefore to go to similar sales structure and sales payment type programs, which I think should generate some accelerated growth particularly in the back half of the year. But I’d say we are still in a position of analyzing and trying to understand exactly what we think we can do.
But we feel very good about the businesses and the people. And so, I’d look for our ability to grow those very similarly to what we grow SCI business.
Duncan Brown - Wells Fargo
Okay. That's fair; I appreciate it, still early stages.
I guess for the assets you need to sell, is there anything that you can tell us about them, are they -- I think in the press release you said, there was 91 locations, are most of them combos, is it heavily weighted to funerals or cemeteries anything you can parse out there?
Tom Ryan
Well I think on a location basis, you’re going to see more funeral homes, but I think on an EBITDA basis, a lot of it’s driven on a cemetery side. There is some really profitable cemeteries that unfortunately we’re going to have to divest of.
But the good news is a lot of people are interested in them and they’re going to command good prices. So, I would say the mix of profits more tilted towards cemetery and the mix of actual numbers of 91 is going to be probably 65% on the funeral.
That’s -- I am speaking without anything in front of me, so forgive me if I’m a little off.
Duncan Brown - Wells Fargo
No that’s fair, I appreciate. And maybe if I could, one numbers question.
In press release you highlighted $25.7 million of cost related to Stewart and G&A line. How should we think about that, is all of that one-time in connection with the transaction or some of that ongoing?
Eric Tanzberger
That’s a one-time cost in terms of what we’re calling out and added back in non-recurring. That all relates to fees and such related to the closing of the transaction in the fourth quarter.
Duncan Brown - Wells Fargo
Great, thanks a lot.
Eric Tanzberger
Thank you.
Operator
Thank you. We have time for one more caller.
Our caller is Bob Willoughby from Bank of America. Please go ahead.
Bob Willoughby - Bank of America
Hey, Tom and Eric. I apologize I jumped on late, if you mentioned this already.
But can you give us any comments on the performance of Stewart since their last financial report, we haven’t seen much from them of late, is there anything anecdotal about their experience?
Eric Tanzberger
I think that again just to reiterate what Tom mentioned about not only the quality of the assets, is the quality of the people and those people that are running the funeral homes and cemeteries for the Stewart and they are going to be integrated into our network are doing a great job. And we really haven’t seen a lot of degradation in their performance and in their properties.
We are very pleased again with the assets and we are very pleased with the management and the people that are just doing a tremendous job and we look forward to integrating them into our company.
Bob Willoughby - Bank of America
Were the pre-lease efforts in line with the view…
Tom Ryan
Yes, I think Bob we probably saw a little bit of and I think it’s just hesitation in trying to understand where you are going. Funeral volumes are going to be down a little bit like we experienced because you had a tough.
And I would say on the selling side, it was tough to drive sales in that interim period. But I think what Eric is trying to point out is we think that was a temporary blip and we believe now that within our systems and within our structure, they are great people, great properties; we are going to get them back.
But you are right, I mean I think waiting for the Federal Trade Commission over seven months period, it’s hard to drive sales if you are Stewart management in that time period. So it was down a bit but nothing shocking by any stretch.
Bob Willoughby - Bank of America
Okay. And did you offer any update Tom, just the timing of the divestiture program, can you get it done in the first half that quickly?
Tom Ryan
We do. I said in the comments Bob that we believe as of right now that it will all get done by mid-year.
So we feel pretty good about that. And again on the integration side, everything is going really well and we are very confident about our ability to deliver synergies.
Bob Willoughby - Bank of America
That’s perfect. Thank you very much.
Tom Ryan
Thanks Bob.
Operator
Thank you. I will now turn the call back to SCI management for closing remarks.
Tom Ryan
We want to thank everybody for participating today and we look forward to talking to you at our first quarter earnings call which will be sometime in late April. So until then, have a great 2014.
Operator
Thank you. Ladies and gentlemen, this concludes today’s conference.
Thank you for participating. You may now disconnect.