Carriage Services Inc (CSV) 2008 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Carriage Services fourth quarter earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions) This conference is being recorded today, Friday, February 27, 2009.

I would now like to turn the conference over to Ken Dennard with DRG&E. Please go ahead, sir.

Thank you, operator, good morning, everyone.

We appreciate you joining us for Carriage Services conference call to discuss fourth quarter and full year 2008 results. Before I turn the call over to management, I have the normal housekeeping details to run through, if you'd like to be on the e-mail distribution list for Carriage Services releases or if you have technical difficulties and did not receive your copy of the release yesterday afternoon please call our offices at DRG&E. That number is 713-529-6600.

Carriage has posted supplemental financial tables and information on its website. And that can be found by going to www.carriageservices.com regarding this recent financial results, the Company also encourages to review that information at your convenience.

If you'd like to listen to a replay of today's call, one will be available via webcast by going to the Carriage Services website. Additionally, there will be a telephonic instant replay of this call. It will be available 24 hours a day for the next 7 days and the replay number and access code can be found in the news release that was distributed yesterday afternoon.

Please note that information reported on this call speaks only as of today February 27, 2009. February 27, 2009, therefore, you were advised that any time sensitive information may not be accurate as of the time of any replay listing. Also, as you know, certain statements made today on this conference call or elsewhere by or on behalf of the Company that are not historical facts are intended to be forward looking statements within the meaning of section 27-A of the Securities Act of 1933 as amended and section 23-21E of the Securities Act of 1934 as amended. Statements made today on this call by management are based upon assumptions that the Company believes are reasonable. However, many factors that are discussed under forward looking statements and cautionary statements of the Company's annual report on Form 10-K for the year ended December 31, 2007, and all subsequent SEC filings could cause the Company results in the future to differ materially from the forward looking statements made today or in other documents or oral presentations made by or on behalf of the Company. The copy of the Company's Forms 10-K and 10-Qs, news releases and other information are available free on the Carriage Services website. With that now I'd like to turn the call over to Mel Payne Carriage's Chairman and Chief Executive Officer. Mel.

Thank you, Ken, and good morning, everyone. As an organization Carriage made a lot of progress during 2008. Yet the short term GAAP financial results did not reflect these positive events. That is why our five-year annual trend reports are a much better way to judge how we are doing overtime, and I encourage you to go to our website and look at our Company and investment profile.

In terms of 2008, at the field level, our Funeral Home Operations continued the trend of producing strong and consistent earnings and cash flow. We were especially gratified that for the first time in my memory, our full year same store funeral contracts increased over the prior year. Which we believe validates the effectiveness of our standards, operating model that was initiated at the beginning of 2004. I would like to take this opportunity publicly to thank all of our funeral home managing partners for this amazing achievement. And what was generally believed to be a weak death rate environment for most of 2008 after the first quarter.

Our same store cemetery performance was down, substantially to a five-year low. Against a backdrop of major sales leadership changes during the year, a weakening economy in which consumers deferred purchases of property on a preneed basis, and the collapse of the financial markets, which caused a temporary decline in our preneed trust earnings in the last half of 2008. We are and have been for the last two months adjusting our costs and expenses in all levels of the Company. To maximize our earnings and free cash flow. In the most challenging revenue environment that we've seen in our careers.

In the corporate office, the promotion of Terry Sanford to CFO and Jay Dodds to Chief Operating Officer in the latter part of 2008 put in place experienced financial and operational leadership that will enable me to focus on growth strategy, and to exploit any opportunities that arise in the current crisis environment. I'll be working on growth opportunities with Brad Green our General Counsel who has assumed the additional responsibility of Corporate Development and execution of our strategic portfolio acquisition model. Finally, I would like to thank Joe Davis and Gary Forbes for their service on Carriage as Board of Directors as they recently elected to focus their time and energy on other priorities, given the current environment. And I am delighted to welcome Richard Scott and Bill Heiligbrodt to our Board. As they have a long history of success as business leaders including death care operations and finance which will be invaluable to me and our Board. We are honored to have them affiliated with Carriage, and I personally look forward to working with them to create shareholder value over the next few years. Which in my view will be a period of tremendous opportunity for our Company.

At this point I'd like to turn the call over to Terry Sanford our CFO, then to Jay Dodds our COO to provide details on our financial results and give a little more color about our operations and what we're seeing in the markets. Terry?

Thank you, Mel and good morning. As I discuss the financial results for the fourth quarter and full year 2008, and comparable periods please note that my comments refer to continuing operations. GAAP loss per share was $0.09 in the fourth quarter of 2008 compared to diluted earnings per share of $0.09 in the fourth quarter of 2007. Adjusted diluted earnings per share in the fourth quarter of '08 was $0.04 which excludes the one-time $3.5 million pretax charge related to a tentative class action settlement and $0.5 million revision to our effective tax rate. For the fourth quarter of 2008 we reported revenues of $43.8 million compared to revenues of $43 million in the fourth quarter of 2007. An overall increase of 2%.

Comparing the fourth quarter of 2008 to the fourth quarter of 2007, same store funeral contracts declined 2.9%, approximately in line with the decline of the number of deaths nationally as reported by the Center of Disease Control. Our total funeral contract volume increased 0.9% due to the increase in funeral contracts from the group of companies that we acquired principally in 2007. Same store funeral operations revenue increased 1.2% on the strength of a 4.1% increase in the average revenue per contract. One of our focus areas is to increase the average revenue for our cremation contracts because cremation customers are becoming an increasingly larger percentage of the industry's business. The average revenue per cremation contract increased 4.5% compared to the fourth quarter of 2007 and 3.4% compared to the third quarter of 2008. So a nice sequential bump.

The Company's overall cremation rate was 39.2% for the fourth quarter and 39.8% for the year 2008. Jay Dodds will discuss this in more detail later. On the cemetery side same store cemetery revenue decreased $500,000 in the fourth quarter versus the prior year fourth quarter, primarily because of a decline in cemetery financial revenues, cemetery financial revenues consist of three components, interest income collected on installment contracts. Two, accumulated earnings on preneed trust funds at the time the merchandise and services are delivered. And third, current earnings from the perpetual care trust funds.

We experienced the significant decline in cemetery financial revenue due to market conditions and active repositioning of our portfolio for the current environment. Carriage employs a third party investment manager. In the fourth quarter, we recognize losses on investments within our cemetery trust funds, in particular in order to reinvest the proceeds into high quality income oriented investments that are and will continue to yield us much higher returns. For example, as of June 30, 2008, our trust funds, funeral and cemetery combined were generating approximately $3.8 million in annual income in the form of interest and dividends. As of January 30, 2009, the trust funds were generating $6.3 million in similar forms of annual income. We believe the portfolio repositioning provides greater earnings stability and a higher level of income that should improve the earnings of Carriage. However, should the economy worsen, financial revenue can be negatively affected if customers can't make their payments or companies default on their bond payments.

Total same store field EBITDA was $12.8 million in the quarter, compared to $14.5 million in the fourth quarter of last year. Total same store field EBITDA margin was 33.8% in the 2008 fourth quarter versus 38.4% in the same period of 2007. Excluding the $800,000 decline in cemetery financial earnings, we experienced an increase in expenses of $900,000 in the fourth quarter of 2008 relative to the previous year's fourth quarter. The increase in expenses was primarily due to year-over-year increases in labor costs that reflect normal annual pay increases and higher salaries for upgraded positions and due to the active hiring efforts employed particularly during the latter half of the year. We feel that as a percentage of revenue, our labor expense category is higher than we would like, and we began implementing several expense management initiatives in the fourth quarter that Jay will discuss shortly.

Total overhead excluding special charges in the fourth quarter of 2008 was $5.8 million versus $5.4 million in the same quarter of 2007. Higher salaries and wages associated with upgrading our regional leadership contributed to the higher total overhead. Special charges in the fourth quarter include a one time charge of $3.3 million for a tentative class action settlement, and $200,000 in related legal fees. While we will have some additional variable legal expense in the first half of 2009 associated with the settlement, we expect a significant decrease in variable (inaudible) once this settlement is finalized.

Consolidated EBITDA was $5.3 million in the fourth quarter of '08 compared to $10.2 million in the fourth quarter of '07, consolidated EBITDA margins fell to 12.1% compared to 23.8% in the same period in 2007. Excluding the special charges, adjusted consolidated EBITDA was $8.9 million and adjusted consolidated EBITDA as a percentage of revenue was 20.2%, adjusted consolidated EBITDA and the adjusted consolidated EBITDA margin was lower in this year's fourth quarter due to the $800,000 reduction in cemetery financial revenue and higher expenses that we just discussed.

Property depreciation and amortization increased to$2.6 million to $2.3 million in the fourth quarter and was largely associated with the acquisitions made during last year's fourth quarter, and the $6.9 million spent in growth CapEx during 2008. Net interest expense was up slightly due to our lower investable cash balance in the fourth quarter of '08 compared to the same period last year, and higher loan fees in the current period. Free cash flow was $5.6 million in the fourth quarter versus $8 million in the same quarter '07. The majority of the decline was due to the $1.5 million decline in field EBITDA. On December 31, 2008, Carriage had $5 million in cash and cash equivalents. In addition we do not have any debt that needs to be refinanced. Our $35 million credit facility matures in 2010. And our 7 7/8 senior notes mature in 2015.

Our capital structure additionally includes $94 million of 7% coupon convertible preferred securities maturing in 2029. Which taken together with our free cash flow, provides ample financial liquidity and flexibility both to operate our business on a day to day basis and to pursue strategic capital initiatives in the current capital and credit constrained environment. At year end there was nothing drawn on our revolving line of credit and typically we generate ample cash flow from our operations so that even during seasonal periods of time we have no reason to draw on our credit facility.

Now turning to the annual results, total revenues for the full year 2008 increased $10 million to $176.9 million, a 6% increase. Our total same store revenue was flat. Our acquisition revenue increased $10 million. $8 million from funeral homes and $2 million from cemetaries. On the funeral side, same store funeral contracts increased .7%. More impressive is that our same store funeral contracts increased 0.7% but more impressive is that our same store at need contracts increased 3.1%. So people in our communities are choosing to use our businesses more so. Our same store funeral revenue in total increased 2.1% and the average same store revenue for funeral contract in 2008 was $5,408 an increase of 1.1%. Overall, our funeral business is very strong.

Turning to cemetaries, same store cemetery revenue declined about $2.4 million or 6.1% for the year 2008 to $36.4 million. Within that category, cemetery financial revenue declined the $800,000 we previously discussed due to the portfolio repositioning. The remainder of the decline in revenue is largely attributable to the lower level of preneed revenues resulting both from a weakened economy and vacancies in our sales force during parts of 2008. Total field EBITDA declined $2 million or 3.2% in 2008 to $59.3 million from $61.3 million. Total field EBITDA as a percentage of revenue was 33.5 in 2008 compared to 36.7 in 2007. Overhead expenses for 2008 excluding special charges increased $200,000 or 1% to $20.1 million for the year 2008. Special charges included the charges of $3.3 million related to the tentative class action settlement, related legal fees and charges earlier in the year related to the departure of the former CFO.

Property depreciation and amortization expense was $10.4 million in 2008 compared to $9.5 million the previous year. Again, the increase associated with the acquisitions completed in '07 and our 2008 capital projects. Net interest expense was $18.1 million in 2008 compared to $17.2 million in 2007 and again the increase in higher net interest expense related to Carriage holding a lesser amount of investable cash in '08 relative to '07 and higher bank loan fees in '08. GAAP diluted earnings per share from continuing operations for 2008 was $0.09 as compared to $0.38 in 2007. Adjusted diluted earnings per share which excludes those special charges was $0.26. For the full year '08 Carriage generated $13.5 million in free cash flow.

Regarding our rolling fourth quarter outlook as discussed in our earnings release, our outlook has been reduced slightly. Further our long term outlook remains stable and relatively unchanged. For some additional color into the near term expectations, we do expect our first quarter of 2009 results -- excuse me, we do not expect our first quarter 2009 results to be as robust as the first quarter of 2008, as you may recall, the first quarter of '08 was a home run quarter for us, and we do not expect those market dynamics to repeat itself in this year. However, we do still expect to produce solid results in this year's first quarter and in addition, we believe the second and third quarters of 2009 will be superior to our second and third quarters of '08.

We believe Carriage continues to take the right steps to get its financial results back to higher sustainable levels. We continue to experience incremental progress on our initiatives and believe our progress will have a meaningful positive impact on our earnings, while challenging economic conditions have impacted our business, we believe we can manage our business well through the current challenging economic conditions and we remain confident that our operational and strategic models position us well to grow our business going-forward. Now I'd like to turn the call over to Jay Dodds our Chief Operating Officer to provide additional color on our business and our focus areas.

Thanks, Terry. On our third quarter call, we highlighted three areas of specific focus that we believe would result in improved financial and informational performance, those three areas are expense management, cremation service execution, and cemetery operations. I'd like to update you on the progress of these three areas since our last conference call.

As Terry discussed in his prepared remarks, our salary and benefits have grown more than we would like. We have taken several steps to better manage this expense, including the implementation of a wage freeze that was put in place in December. In addition, we developed specific criteria to evaluate which businesses were properly managing the costs in relation to their revenues. For those businesses that failed our criteria targets, we removed a certain amount of decentralized operating autonomy from the managing partner until the time when those operating targets are achieved. As part of the loss of decentralization, certain expenses and all discounts at these businesses will now need to be approved by members of the regional operating teams. These steps are having a favorable impact on our margins as we challenge our managing partners to think and justify their expenditures, we have made improvements, but we are not yet where we want to be and will continue to work to that end.

On the cremation side, as mentioned on our third quarter call, in August of 2008 we rolled out a cremation service program across our Company to better educate and train our service counselors on cremation options that are available for families to memorialize and celebrate the life of their loved one when using cremation. In conjunction with the service program, we're developing a cremation merchandising system to help assist our service counselors with the merchandise aspect of cremation. Our cremation rate in the fourth quarter of 2008 was 39.2%, and for the full year was 39.8% up from our cremation rate of 35.8% in '07. As you probably are aware, cremation rates have been and are expected to continue rising, so it is important for us to make sure that our people are well trained on all cremation options to best service our client families that choose cremation.

In addition, we have made the increase of cremation average sale a more significant piece of our standards operating model and related incentive program. By tying the improvement of cremation mix which is the number of families that choose service and cremate to the standards model. We expect to continue to see improvements in our cremation averages, our cremation averages were up 5.6% in the fourth quarter of '08 on a same store basis.

The cemetery performance -- or the performance of our cemetary operations has been inconsistent and disappointing in 2008. Part of the problem was not having the right leadership in both business management and sales at several of our key cemetaries. We believe the managing partners and sales managers that we have hired have the ability to perform and we are seeing improvement in our cemetery operations as a result of their improved leadership. We know there is still more work to be be done. As mentioned on our previous call, our goal is to hire approximately 75 new cemetery sales people, because we feel that we need more boots on the ground to better execute our preneed cemetery sales. As of today, we are about 90% towards achieving our hiring goal and expect to be fully staffed by the end of the first quarter.

We have added criteria to our cemetary standards model related to the ongoing improvement and proper staffing level of our sales personnel. This change will increase the attention of our managing partners to this important part of the sales function which we believe will have a favorable impact on cemetery operations performance this year. While all three of these areas require ongoing work, continued evaluation, improvement and new steps implemented as needed, we are seeing better managed costs and sales activities so far. I look forward to updating you on your next call -- on our next call regarding how the steps we are taking are impacting our performance. With that, I'd like to turn the call back over to Ken.

Thanks. We'll go to Q&A now, please.

Thank you, sir. We'll now begin the question-and-answer session. (Operator Instructions)

Our first question comes from the line of Clint Fendley with Davenport & Company. Please go ahead.

I wondered if you guys first of all could speak maybe to your revenue growth outlook and how you guys might go about achieving that target given the overall low volume market that we're in today, and what's widely expected to be a lower volume Q1 given lighter flu season and any commentary that you might have with regard to the success you've had with your pricing would also be appreciated?

Yes. That's a good question, Clint. Quite frankly I've been surprised with respect to what we're seeing so far in 2009. A lot of the changes that Jay and the operations group have been executing on for the last six months are really starting to have an impact. Quite frankly, I thought we would probably enter 2009 with flat or maybe slightly declining averages. But they're up pretty strong, quite frankly. What we don't expect in the first quarter are a repeat of the volumes that we had in the first quarter of 2008 because there was a fairly strong -- like you said, a fairly strong flu season last year. I don't think that's going to prevent us from meeting the numbers that we have to the extent that we have that decline in the volumes a little bit. We'll pick it up in the average from all appearances.

Well, and Clint the first quarter as compared to last year, last year was huge, and then the second and third quarters, the volume kind of caught up to get back to where it normally is, and you take a look over a trend over year over year and we tend to end up being pretty close on a call volume level throughout the year. So my anticipation is if we're off a little bit in the first quarter, then we'll pick that up in the second and third quarter, because when you look at it over long term, we have very limited businesses that are losing market share. So it's not that people stopped dying, we'll continue to see that as we move forward.

This is Mel, Clint. I mean, we like all the rest of the companies in this industry don't have a crystal ball about 2009, so we entered it tentatively thinking revenue outlook is -- we need to be cautious. I've been very pleasantly surprised so far in the first two months. January, for example. I mean, we've -- we had very strong volumes last year January and February and March on the funeral side. Even though we've been down, we've more than made up for the decline in volume with our averages. So we'll actually be through January ahead and we have seen as Jay mentioned earlier, some improvement in cemetery property sales. Through January. Whether that continues we don't know. But we're very encouraged that our people are working really hard to produce revenue and control their expenses. So the outlook we put out was pretty positive, I think, given the overall economic environment and we intend to achieve it.

Jay, could you remind us on the new cemetery sales people that you talked about are they salaried or are they commissioned?

Well, they're both, the family service counselors make an hour rate and then have a commission on top of that. And then the community service which is the outside sales counselors are commissioned only.

Final question here, housekeeping, Terry, could you help us out on the share count for both the quarter end also the year?

The diluted share count for the fourth quarter was $18.160 million for the year it's $19.3 million.

Okay. Great. Thanks, guys, appreciate it.

Thanks.

Sure.

Thank you. Our next question comes from the line of Alan Weber with Robotti & Co., please go ahead.

Good morning. Just a quick follow-up. How many shares are there currently outstand something.

There's approximately 17.8 million.

Okay. And then when you talk about on the cremation side the improvements in the fourth quarter for revenues for cremation, can you talk about how far along you are in that process? Do you expect to be able to continue to increase revenues there, and just kind of the thought process there?

I think the cremation average where we are now is a floor, I think it was our initial push when we started to shine a light on cremation, and I think it's just the beginning, so I would say we're probably in the first quarter of where we want to go with our cremation averages.

And can you just go through again a few of the -- what you're doing there to increase the revenues there?

Well, one of the things that we've done is, shown a light on it by putting into our managers -- into the standards operating model, and the manager's incentive plan, that 25% of our immediate cremations must be converted into some type of service, as a goal. So as our training is focused on that point, right now we have way too high of a percentage of families coming in and just choosing an immediate cremation. Which is a cremation with no services. We're spending a lot of time with our arrangers in how to convert those families into using what we do, and that's offer services.

Alan, this is Mel. One of the key elements here is, to grow the markets here. We have a belief, and it's a strong belief and it's a strong belief that we don't want to be in the commodity business, and direct cremations are a commodity business, we're just processing bodies. What we are is a high value service Company, so it actually is our own people that have been historically the biggest impediment to becoming a great service Company, in their mind-set. So Jay and his team and our training team are doing a wonderful job, we're in the early innings, of training our people to think about cremation families in a different way. When you do offer them something and they choose it, a service that celebrates or remembers a life, it has great value and then you're not in the commodity business and you're going to build heritage. We believe the customer satisfaction levels are way up for these families, it's not just a matter of the revenue, it's a matter of building the business and we're looking forward to more success.

Okay. Great. And then just a financial question, when you give the rolling fourth quarter outlook, what is the assumption for? Because then you have a free cash flow number, what is your assumption for CapEx, the maintenance CapEx versus the actual CapEx you expect to spend?

Maintenance CapEx is approximately $6.5 million.

I believe the free cash flow is in there 13 million, $15 million.

Right. And that's after what you would call maintenance CapEx?

Yes.

What do you expect actual CapEx to be?

Currently we're looking at approximately 9 million to $9.5 million in CapEx, total CapEx. We have some completions of mausoleums that will take place actually early in the year, where we'll use most of that.

And then in the 1 or 2 cemetaries where you do have -- I guess you changed managements, you had lower results, what can be in dollar terms, what can be the swing of magnitude of EBITDA like the Rolling Hill facility?

Well, it can be be substantial -- the swing in EBITDA Rolling Hills because we did change out the sales manager, and then recruited a new sales manager who's been recruiting new sales counselors, the swing vis-a-vis 2007 was probably $1.8 million EBITDA or equal to $0.06 a share. So whether we can swing back to that degree this year or not in this climate I doubt it. But that's the magnitude of the swing. The Rolling Hills had on the Company.

Thank you. (Operator Instructions) Our next question comes from the line of Chris Cook with Zazove Associates, please go ahead.

I just wanted to understand your guys view of your capital structure given that your straight debt trades hit about a 15% yield to maturity and your preferred trades at a substantial current yield. Would you consider using free cash flow to address the debt, the leverage in your Company or are you just going to buy back stock?

We believe we've got a good Company. We have no debt maturities until 2015, and we don't owe our banks anything. If we wanted to make an acquisition, we could actually borrow money from our banks, they've offered to do that. But our stocks have been selling below $2 at a pre cash flow equity yield that is so crazy, if people continue to sell stock at this price, we would be private in less than two years. We think the best value for our Company is to continue to buy shares so that the performance of our Company over the next few years is owned by fewer shareholders. We are very happy with our debt structure, all of our debt is fixed rate, long term and we think this balance sheet is made for this environment.

But with all due respect your free cash flow is not growing organically, in fact, it's declining.

I don't think our free cash flow is declining.

Why don't you think that?

Because I see the cash flow.

You think the organic free cash flow is expanding?

Well, this year we're showing about equal to last year. But I guaranty you we'll expand in 2010, put it in the bank. We're not going to buy back our debt.

Even though it trades at significant returns?

If you're a debt holder I could understand your point of view. I'm a shareholder, I want to own more of the Company.

Understood. I just don't want to see you guys drive this thing off a cliff.

It's not going to be driven off a cliff. We're the only Company that's been able to show same store volume increase in this industry. Show me another one. This is a high fixed cost volume driven business. If you can grow the business, the market share with better talent, you can pay the debt off.

Thank you. Our next question comes from the line of [Chris Sims] with Jacobs Capital. Please go ahead.

Hi, guys, good morning.

Good morning, Chris.

I notice the maintenance CapEx you guys have in here for '08 was about $6 million. I just wanted to get your thoughts on where you expect that to go in 2009 if you can get obviously in this uncertain environment, if you plan to stay closer to that maintenance level?

Yes, we tried to address that a while ago, maybe it wasn't clear, but we do expect maintenance CapEx for 2009 and quite frankly on a normal recurring basis to be in that range of 6 million, $6.5 million. Total CapEx including some growth projects we have at some of our cemetaries and way of building particularly mausoleum inventory will be approximately 9 million to $9.5 million for 2009. We are watching our capital dollars very closely.

And if you could just -- I see for the performance you guys have been -- putting up from what you're saying in January and February is pretty solid, but I'm wondering, your competitors, put out their guidance for 2009 and it's pretty dismal, and just curious if you can give kind of a -- I'm just -- it's tough to see how you guys are projecting in this environment flat to growing EBITDA while others are cutting like 20%.

Yes, Chris, that's a good question. And quite frankly, we really can't reconcile their outlook with ours. All I can do is talk about what we have done, particularly in the last six months, and what we're seeing on a day-to-day basis. Now, I guess as a little backdrop to this, I mean, we have a very talented IT group in carriage and we have realtime access to the events that are occurring in the transactions that are taking place in our field locations. We also have the ability to produce our financial results very quickly after the end of each month. I was actually just looking at the January results on our funeral side as Mel was talking a while ago, and our average per funeral contract in January of 2009 compared to January 2008 was up 6.4%. And, I've got to take my hat off to the guys in operations and the execution that they are carrying out in way of being able to convert cremation contracts to direct cremation contracts to services. These guys are hustling in their community. The fact that we were able to grow our at need number of contracts in 2008 by 3.1% means that our guys are having an impact in their community and bringing that walk in business to our facilities. Now, I also listened to the conference call of one of our principle competitors yesterday, and that didn't seem to be the same experiences that they were seeing. Again, I'm not sure how to reconcile that, but I know what our numbers are, and quite frankly, like we said, we don't expect it to be quite as robust as it was in the first quarter of '08, but we do expect to produce solid results, especially on the funeral side of the business in '09.

This is Mel. And I share that view. We have a lot of good talent. Some of its been in place a long time, new talent the last couple years. On the cemetery side it's much newer, so we were more uncertain about it, especially because a lot of that talent got put in place during '08 especially in the last half of '08, but looking at January, I'm particularly encouraged on the cemetery side, even though we're having to reserve quite a bit against losses in our portfolio, our preneed sales are up substantially in January. So we stand by the forecast we put out, and I can't comment or understand anybody else's business, because I don't know much about it.

Where do you see it tracking? Compared to Q4 performance, I mean, I know it's a little different given the seasonality of the business, but just from what you've seen from Q4 to Q1, can you give a magnitude of difference?

Well, based on where we're sitting here today and, of course, things can change between now and the end of the first quarter, our performance is actually quite a bit stronger compared to where we were this time in the fourth quarter both on the funeral as well as the cemetery side. We entered the fourth quarter of 2008, the fourth quarter, November -- excuse me, October and November in particular were very weak months from a volume standpoint as far as death rates in our markets and -- as well as I understand nationally. And we were down 2.9% I believe in volumes in the fourth quarter, most of that occurring in those first 2 months as January and February started off, they are much stronger though from a pricing perspective, product mix perspective, and revenue perspective.

Where we still have a lot of work to do, and Jay and his operations people are working real hard is on the cemetery side to bring our complement of sales counselors along and working on cost management issues to bring our costs more in line with what we expect to be overall probably for the year 2009 a difficult year for consumers in buying preneed. Now, Jay talked about bringing, and one of our initiatives is to have more just, frankly, more boots on the ground, more sales counselors to help make up for the number of people that will be inclined to buy or the number of people that we could have reached that would be inclined to buy preneed before. That's where our challenges are, it's really I don't see anything related to our funeral or pricing perspective.

All right. Thanks for taking my questions, guys, have a good weekend.

Thank you very much.

Thank you.

Thank you, our next question is a follow-up question from Alan Weber with Robotti & Co. Please go ahead.

Hi, so when you talk about the free cash flow of 13 million to $15 million, and I guess it would be a little bit lower than that, because then have you growth CapEx in there, maybe it's 10 million or $9 million? At this point is it buying back stock acquisitions? What's the priority?

This is Mel. We've done the analysis of how to add value, how to maximize shareholder creation dividends, stock repurchase, acquisitions at a knockdown multiple level, buying in debt or the tides. There's not a close comparison, buying in stock at this level is by far the best way to create shareholder value. That's what we will continue to do.

And is that -- so does that mean that again, if you looked at just from the announcement in November, I think it said you bought back 1 million -- no, 500,000 shares I think it said.

We bought 1.3 million something the first 5 million and we bought -- well, another 600,000 or so since then, and we've been buying ever since.

Okay. So that would be, basically at this kind of level, that's great. That's the clear priority, great, thank you.

Yes.

Thank you, and there are no further questions at this time. I'd like to turn the call back over to management for any closing remarks.

Thank you. I appreciate those questions and all of those who have called in. But I want to end this call by talking to our people. I know many of them are listening to this call, and many of them will listen to the replay. We have maneuvered as a Company through many trials and tribulations over the last 18 years. But against all odds, we're still around. And the good news is that we're getting better at what we do, at an accelerating rate.

My strongly held conviction is that every enterprise that wants to make the leap from good to great to truly become the very best at their business often reaches a turning point where opportunity is calling but is difficult to reach. The message I have for you today, our managing partners, sales managers and employees is that opportunity is calling, and now is your moment to shine to execute against our high sales and service performance standards, one family at a time. I always knew that there would be a time when Carriage would have an opportunity to differentiate itself within would have an opportunity to differentiate itself within our sector. This is that time and this is that moment. And by the way, it's just the beginning of what I personally believe will be Carriage's time in the sun as a respected industry player and not just as a consolidation Company, but as a great operating Company. I have complete confidence in each of you, and what I would say now is put your leadership skills in gear and just do it. That ends the call. Thank you very much.

Thank you, ladies and gentlemen, this concludes the Carriage Services fourth quarter earnings conference call. If you'd like to listen to a replay of today's conference, please dial 303-590-3000. Followed by pass code 11126225. ACT would like to thank you for your participation, you may now disconnect.