As indicated by the typical company data, the upward trend in comparable revenue of companies in this sector, probably as a result of industry concentration, in the past several years may continue as increasing operation costs fuel consolidation activities in the sector.

Sector’s Current, Trend, Causes behind trend, and Future

Current and Trend

1. Generally, demand for cemetery products/service and funeral products/service seems to be steady and growing in the past several years as indicated by the continuing growth in same store revenue of some of typical companies. The growth in demand for cemetery product and service seems to have increased faster than that in funeral sector.

2. We have seen, in the past several years, a universal increase in operation expenses all across sector, which was faster than the increase in revenue of those companies and may be the major reason for the shrinking margins among those companies.

3. The impacts from rising operation costs seem to be larger on smaller companies than bigger companies in terms of pressure on price and profitability.

4. Companies seem to have focused on acquisition to grab market shares and one of strategies is to increase marketing and selling expending in pre-need products and services.

Causes behind the trend

1. Demand for cemetery and funeral products and service in long run will be obviously related to number of deaths and burial/cremation rate, which are determined by demographic, cultural, and economic factors of US market.

2. The number of deaths in US is supposed to grow as a result of increasing aging population. Burial rate is supposed to decrease but cremation rate is rising.

3. Rising operation costs in the sector may be a result of economy recovery in which companies need to pay more in finding talent and for service provided.

4. While heritage usually weigh a lot in marketing and selling activities, bigger companies with business scale may have an advantage in controlling costs and competing for price.

Industry Future

1. Cost management has been the key for companies in this sector and it seems the companies with larger scales will be on a better position in competing with small and local companies in price and quality of service.

2. Industry concentration will continue driven by market competition and consolidation

General Financial Performance of Companies In the Sector

It seems that demand for cemetery product and service of companies in this sector, according to the typical company data, has been steadily growing in the past several years as indicated by the continuingly increased average comparable revenue (both charge and number of services) of some of companies. And it seems that demand for funeral home products and service has been relatively weak since 2014.

However, while the demand has been steady the intensive competition and increasing operation costs have been challenges for some smaller companies that have more difficulties in controlling costs and improving operation efficiency due to limit of scales. Therefore, we have seen shrinking margins among small companies in the past several years.

The typical gross margin (including overhead and selling) seems to be decreasing (down from about 25% in 2014 to 21% in 2017). While companies seem to be successful in controlling G&A spending (G&A as percentage of sales down to about 9% from 10%),  their operating margin has gone down to about 12% in 2017.

The typical average stock Price/cash flow ratio is: 22. (Interest/EBI ratio of 38%).

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