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STEWART ENTERPRISES, INC. Reports Operating Results (10-K)

December 15, 2011 | About:
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10qk

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STEWART ENTERPRISES, INC. (STEI) filed Annual Report for the period ended 2011-10-31.

Stewart Enterprises Inc. has a market cap of $514.3 million; its shares were traded at around $5.44 with a P/E ratio of 16.4 and P/S ratio of 1.1. The dividend yield of Stewart Enterprises Inc. stocks is 2.5%.

Highlight of Business Operations:

Declines in earnings in our preneed trusts can cause a decline in our reported future revenues, earnings and cash flows. With respect to these trusts, we defer recognition and generally withdrawal of dividends, interest income and realized gains until the underlying product or service is delivered. Realized gains and losses generally have no immediate impact on our revenues, margins, earnings or cash flow, except to the extent there are tax consequences as described later in these risk factors. Dividends, interest income and realized gains and losses are allocated to the underlying contracts and will affect the amount of future revenue recognized, and cash withdrawn, at the time the specific contract is performed. In our preneed trusts, at October 31, 2011, the fair market value of the investments in the trusts of $565.0 million was $101.1 million lower than our cost basis of $666.1 million. In most of our trusts, unrealized gains and losses are not allocated to individual contracts, in accordance with our trust agreements; however, as gains and losses are realized, they are allocated to the underlying contracts and will affect the amount of earnings we recognize and cash we withdraw at the time the contracts are ultimately performed. Thus, significant unrealized losses in these trusts, if they do not recover over time, can limit future earnings available to us. Although we have significant unrealized and unallocated losses in our trust portfolio, as of October 31, 2011, we also had $179.0 million in earnings that have been realized and allocated to contracts that we will recognize in the future when the underlying contracts are performed. For fiscal years 2007 through 2011, funeral trust earnings included in our reported revenue amounted to $12.5 million, $13.2 million, $11.3 million, $11.3 million and $11.4 million, respectively, and cemetery merchandise and service trust earnings amounted to $4.6 million, $4.2 million, $3.2 million, $2.6 million and $2.9 million, respectively.

Total revenue increased $12.8 million, or 2.6 percent, to $512.7 million for fiscal year 2011, compared to $499.9 million in total revenue for fiscal year 2010. Funeral revenue increased $7.8 million, or 2.8 percent, to $283.7 million for fiscal year 2011. Our same-store funeral operations experienced a 1.6 percent increase in average revenue per traditional funeral service and a 3.3 percent increase in average revenue per cremation service. These increases were partially offset by a shift-in-mix to lower-priced cremation services resulting in an overall increase of 1.2 percent in same-store average revenue per funeral service. Same-store funeral services increased 0.6 percent, or 302 events. For the year ended October 31, 2011 we had a 1.8 percent increase in net preneed funeral sales. Preneed funeral sales are deferred until the underlying contracts are performed and have no impact on current revenue. Cemetery revenue increased $5.0 million, or 2.2 percent, to $229.0 million for fiscal year 2011. This improvement is primarily due to a $7.3 million, or 7.6 percent, increase in cemetery property sales, coupled with a $1.9 million improvement in revenue related to trust activities. These increases were partially offset by a $1.2 million reduction in finance charges as a result of reduced interest rates in this low interest rate environment and a $0.9 million decrease in merchandise delivered.

Corporate general and administrative expenses decreased $0.3 million to $28.0 million for fiscal year 2011, compared to $28.3 million for the same period 2010. During fiscal year 2010, we experienced increased litigation costs primarily related to the settlement of litigation. During fiscal year 2011, we realized cost savings from our continuous improvement initiatives. The savings from the continuous improvement initiative were used to fund $2.0 million of expenses related to spending on e-commerce and third-party growth initiatives, which we expect to produce new revenue for us in the future. For additional information on our e-commerce and third-party growth initiatives see Item 1. Business-Operations. Interest expense decreased $1.7 million to $22.7 million for fiscal year 2011 primarily due to the significant repurchases of a portion of our senior convertible notes in the open market that occurred through fiscal year 2010.

We generate revenue related to the trusts from investment management fees earned by our subsidiary, ITI. During fiscal years 2007 through 2011, these fees amounted to $11.2 million, $10.0 million, $8.0 million, $9.4 million and $10.0 million, respectively. These fees are based on the fair market value of the investments in the preneed trust portfolio and the cemetery perpetual care trusts. Significant changes in the fair market value of the portfolio impact the fees earned by the Company.

Our investing activities resulted in a net cash outflow of $32.5 million for the year ended October 31, 2011, compared to a net cash outflow of $24.6 million for the comparable period in 2010. The change is primarily due to a $13.1 million net change related to purchases and sales of certificates of deposits, marketable securities and restricted cash equivalents. In fiscal year 2011, we replaced a letter of credit by posting cash to satisfy collateral requirements with insurance carriers and invested the cash collateral in a money market fund. Both methods of posting collateral are available to us in the future at any time. We also purchased two funeral/cemetery combinations in fiscal year 2011 resulting in a net cash outflow of $9.1 million. For the year ended October 31, 2011, capital expenditures amounted to $27.0 million, which included $17.6 million for maintenance capital

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