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

December 17, 2012 | About:
Barel Karsan

10qk

18 followers
STEWART ENTERPRISES, INC. (STEI) filed Annual Report for the period ended 2012-10-31.

Stewart Enterprises, Inc. has a market cap of $636.1 million; its shares were traded at around $7.53 with a P/E ratio of 17.3 and P/S ratio of 1.2. The dividend yield of Stewart Enterprises, Inc. stocks is 2.2%. Stewart Enterprises, Inc. had an annual average earning growth of 1.2% over the past 5 years.

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and losses are allocated to the underlying contracts and will affect the amount of future revenue recognized, and cash withdrawn, at the time the specific contract is performed.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, 2012, the fair market value of the investments in the trusts of $593.5 million was $68.5 million lower than our cost basis of $662.0 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, 2012, we also had $187.1 million in earnings that have been previously realized and allocated to contracts that we will recognize in the future as the underlying contracts are performed. For fiscal years 2008 through 2012, funeral trust earnings included in our reported revenue amounted to $13.2 million, $11.3 million, $11.3 million, $11.4 million and $9.9 million, respectively, and cemetery merchandise and service trust earnings amounted to $4.2 million, $3.2 million, $2.6 million, $2.9 million and $3.3 million, respectively.

Cemetery revenue improved $4.1 million, or 1.8 percent, to $233.1 million for the year ended October 31, 2012. Cemetery property sales improved $2.4 million, or 2.3 percent, compared to fiscal year 2011. In addition, revenue related to trust activities increased by $2.4 million and merchandise delivered and services performed increased by $1.3 million. These improvements were partially offset by a $2.1 million decline in finance charges as a result of reduced interest rates in this low interest rate environment and a $1.6 million decrease in revenue recognized for cemetery property sales for which the property was not yet constructed or the down payment required for revenue recognition was not yet received. We generated $283.0 million in funeral revenue during fiscal year 2012, a $0.7 million decline from fiscal year 2011. The decrease is primarily due to a 0.9 percent decline in same-store funeral services performed, which we believe is consistent with industry-wide data in our markets. The decline in funeral services was partially offset by a 0.3 percent improvement in same-store average revenue per funeral service. Our net preneed funeral sales increased 10.0 percent during fiscal year 2012 compared to fiscal year 2011. Preneed funeral sales are deferred until a future period and have no impact on current revenue.

Cash and cash equivalents increased $2.5 million from October 31, 2011 to October 31, 2012 primarily due to cash provided by operations, offset by $27.4 million in purchases made under our stock repurchase program, $20.8 million in additions to property, plant and equipment, $13.3 million of dividends paid and a $9.8 million net increase in marketable securities. Current and long-term receivables increased $3.3 million and $4.6 million, respectively, from October 31, 2011 to October 31, 2012 primarily due to an increase in sales. Goodwill increased $2.5 million from October 31, 2011 to October 31, 2012 primarily due to an acquisition made in the second quarter of 2012. Cemetery property increased $5.7 million from October 31, 2011 to October 31, 2012 primarily due to the continued investments in numerous construction inventory development projects. Long-term deferred taxes decreased $17.7 million from October 31, 2011 to October 31, 2012 resulting primarily from the tax accounting change approved in the fourth quarter of fiscal year 2012. Preneed funeral receivables and trust investments, preneed cemetery receivables and trust investments, cemetery perpetual care trust investments, deferred preneed funeral and cemetery receipts held in trust and perpetual care trusts corpus were all positively impacted by the improvement in the market value of our trust assets during the year ended October 31, 2012. For additional information, see Notes 4, 5 and 6 to our consolidated financial statements included in Item 8.

Our investing activities resulted in a net cash outflow of $36.1 million for the year ended October 31, 2012, compared to a net cash outflow of $32.5 million for fiscal year 2011. The change is primarily due to a $12.8 million net change related to purchases and sales of certificates of deposits, marketable securities and restricted cash equivalents offset by declines in capital expenditures and acquisition spending. For the year ended October 31, 2012, capital expenditures amounted to $20.8 million, which included $15.1 million for maintenance capital expenditures, $2.2 million for the construction of new funeral homes, $1.7 million related to the implementation of new business systems and $1.8 million related to the purchase of land and a new building for an existing business. For the year ended October 31, 2011, capital expenditures were $27.0 million, which included $17.6 million for maintenance capital expenditures, $3.5 million for the construction of new funeral homes, $1.3 million related to the

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 year ended October 31, 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 expenditures, $3.5 million for the construction of two new funeral homes, $1.3 million related to the implementation of new business systems and $4.6 million related to the purchase of a funeral home building that we previously leased. For the year ended October 31, 2010, capital expenditures were $16.5 million, which included $12.7 million for maintenance capital expenditures, $3.0 million for the construction of new funeral homes and $0.8 million related to the implementation of new business systems. The increase in maintenance capital expenditures is primarily due to several large building improvement projects undertaken in fiscal year 2011 as well as increased vehicle and equipment purchases as we assess lease versus purchase decisions for our fleet.

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