Service Corporation International (SCI) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2009 Service Corporation International earnings conference call. My name is Deanna, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will facilitate a question and answer session toward the end of this conference. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

At this time, I would like to turn the call over to your host for today's call, the management team of Service Corporation International. Please proceed.

Good morning, this is Debbie Young, Director of Investor Relations for SCI. Thanks for joining us today as we discuss our first quarter results.

During our call today, we will make statements that are not historical facts and are forward-looking. These statements are based on assumptions that we believe are reasonable. However, there are many important factors that could cause our actual results in the future to differ materially from these forward-looking statements. For more information related to these statements and other important risk factors, please review our periodic filings with the SEC, that are available on our website at SCI-CORP.com.

In addition, during the call today, we will probably use the term normalized EPS, normalized operating cash flow, or free cash flow. Those are all non-GAAP financial terms. These see our press release and 8-K that we issued yesterday, where we have provided a detailed reconciliation of each of these measures to the appropriate GAAP term.

With that, we will begin with remarks from President and CEO, Tom Ryan.

Thanks Debbie. I would like to welcome everybody to the call today. As typical, I am going to to have some comments to give you an overview of the quarter, briefly take you through funeral operations, and then cemetery operations, and then have some concluding comments before I turn it over to Eric. For the first quarter 2009, we reported normalized earnings per share of $0.12, versus a $0.20 quarter in the prior 2008 first quarter. While these aren't great numbers as compared to our strong first quarter 2008, they were in-line with our own internal expectations.

I would like to first personally thank each and every one of the talented and dedicated teammates of mine, all 20,000, for their diligent efforts in the very difficult business environment that we operate in today. First I am going to talk to a few negative trends that are impacting our business, before I close on the positive momentum.

The first two I am going to touch upon, the negative trends that we experienced from the quarter that we fully anticipated. The first one is lower funeral and cemetery trust fund income, due to the dramatic declines in the equity and fixed income markets, particularly in the fourth quarter, and experienced again in the first quarter of 2009.

In addition, another negative trend that we expected, is lower preneed cemetery property sales production, due to a reluctant discretionary consumer. There was one last negative trend that we surely didn't anticipate, at least by it's magnitude, and that was the lower atneed funeral and cemetery case volumes that we experienced, in a way that many of us have never seen in our business careers.

Now for the positives. The positive momentum created by our team's execution of our operational initiatives, allowed us to overcome the negative trends, and achieve target earnings per share, and at the higher end of our target free cash flow. These items include, number one, continued strong increases in funeral average revenue per case, adjusted for currency and trust fund income, and this was accomplished through our strategic pricing and dignity showroom efforts.

Number two, by prudently managing our cost structure and our capital spending. The third time, we had a better than expected effective tax rate. We also had very solid performance on our preneed funeral sales production. And lastly, we deleveraged our balance sheet, while optimizing our debt maturity profile.

Now I would like to talk a minute about our funeral operations in particular. Our comparable revenues for the quarter were down over $41 million, and over 10%, this was primarily from a comparable volume decline of 11.2%, or almost 8,600 cases. Now again, we have never experienced anything like it, and obviously we look at a lot of different metrics to try to determine what we think the causes are.

I will tell you this, that our cemetery interment, which I think are very reflective in the market place of what is happening with deaths in the market, were down approximately 10%. Our preneed contracts that converted to atneed in the quarter, again these are people that prebought, so they are going to show up, assuming that someone is deceased, those were down 9%, and again, we talk to a variety of competitors and vendors and the like, and I will tell you each and every one of them, were seeing declines in the 9 to 12% range. So while there are always issues to deal with, we believe we are generally reflective of the deaths that are occurring in the market place today.

On the good news front, our comparable revenue per funeral service was up almost 1% compared to the prior year. That is a little deceiving, because first of all, trust income, the negative impact of that, had a downward pressure of 110 basis points on our funeral average. In addition, the dramatic swing in Canadian currency is down about 20% year-over-year, had a 230 basis point impact on our funeral average. So when you adjust for those two items, our average revenue per case was up 4.1%.

And keep in mind that 4.1% increase, includes our absorption of the 190 basis point swing or increase in the cremation rate business, this was accomplished primarily again, through our strategic pricing efforts, by managing discounts, and an increase in our Dignity package take-up rates, were the primary drivers. As far as funeral profits go, the profits were down $22.7 million, and down about 320 basis points year-over-year. While we managed variable and personnel costs very well, it is obviously not enough to offset the over 10% decline in our funeral revenues.

On the preneed funeral front, we had some very positive news. In the face of a very difficult retail environment, we are very pleased to report that our sales of $108.4 million for the quarter, this was 1.2 million above the prior year levels, or up about 1.2%. The average contract written continues to approximate $5,600, and again, and again, looking at where we are writing business today, this bodies very well for our future revenue base, as those preneeds convert to atneed.

On the cemetery front, you will recall, this naturally is a more volatile business, due to the discretionary consumer impact, as well as a higher exposure to trust fund income. Our comparable cemetery revenues decreased $23.4 million, or 14%, and this was primarily due to two things. First of all, cemetery property sales production, and again, a very discretionary purchase, was lowered by some $13.2 million, or approximately 16%. While we improved on a sequential quarter basis, and reduced the comparable quarter percentage decline, we continue to encounter a more hesitant consumer.

Second item that impacted cemetery revenues, was in the Other revenue category, and it was off some $6.2 million, and it is all due to reduced trust fund income, predominantly from the MST trust, the Merchandise Services Trust, which has a higher equity exposure. So when you boil it all down, cemetery profits were down about $13.8 million, reducing the gross margin percentage to 10.7%.

If you apply a 70% gross margin to reduced preneed property production, and a 100% margin to the trust fund income shortfall, and an additional 2 million of lost profits from merchandise and services that became atneed, these variances account for about a $17.5 million reduction in profit. So through the very diligent efforts of our operating folks, we reduced fixed costs by about $3.5 million, which allowed us to perform slightly above our own internal expectations.

So in conclusion, we continue to see a very difficult economic environment for the consumer. We continue to believe we are going to experience uncertain financial markets, and coupled with the fact that we have continued to experience slower funeral activity in the month of April, we think it is going to be a difficult environment to navigate.

Fortunately, we believe we can continue to maintain a strong balance sheet, by diligently reducing the level, and managing the maturity schedule of our debt. We are going to maintain very ample liquidity, and generate a healthy stream of excess cash flow over the coming quarters, even in the face of these challenges. It is our belief that our business model is very sound, and when the economy does begin to go forward again, your Company will be in a position of strength, with a stronger more dynamic sales pipeline, facing an aging baby boomer clientele.

This concludes my prepared statement, and I would now like to turn the call over to Eric.

Good morning. I am going to really touch on four topics. I am going to talk about if our cash flows, our trust funds, our liquidity profile, and then I will end with our capital allocations as we go forward. So let's start with the cash flow analysis.

As Tom mentioned, the earnings were strong this quarter compared to our internal expectations. A strong sales average, when you take into account the currency and the trust fund income, and the lower effective tax rate, and lower expenses offset weaker funeral volumes. These earnings helped to generate the solid cash flows.

Our cash flow from operations was about $141 million during the quarter, which is consistent with about 140 million in the prior year, after we adjust for the $90 million Federal tax payment, if you remember, that we made in the first quarter of 2008. This level of cash flow from operations is in-line with our internal expectations. So let me talk about four items that I believe helped generate the strong cash flow from operations for the quarter.

First, positive working capital is usually expected in the first quarter, because very little cash interest is paid. In fact, we only paid about $6 million in cash interest in the first quarter of '09. Our current quarter, the second quarter, of '09 is quite different, with about $50 million of cash interest expected to be paid, including over $40 million already paid on April 1st of this year.

Second reason is outside of the limited incentive payments in our field operations, we did not take any incentive compensation during the first quarter of 2009. This resulted in about a $25 million positive effect to working capital in the first quarter of '09 versus the first quarter of '08. Third, prudent managing of expenses as Tom mentioned in detail, and very limited wage increases, also contributed to positive working capital in the first quarter.

And, fourth, while lower than the prior year levels, we also had customer cash collections that were in-line with our expectations during the quarter, both on the preneed and atneed side of our businesses. All four of those items helped to generate cash flows that you have seen, which are pretty solid in the first quarter of '09 versus our expectations, as well as versus prior year levels.

In addition to managing working capital, we are also diligently managing our CapEx in this difficult environment. Total CapEx was about $23.5 million for the quarter, with the maintenance and cemetery development portion of that was about 18 million of this amount. And I want to emphasize that the 18 million of maintenance and cemetery development CapEx in the first quarter of '09 is down by just over 25% from the first quarter '08 levels. Therefore, we calculate our free cash flow for the quarter to be about $123 million, which is slightly better than the prior year and our expectations.

And the second topic I want to talk to you about are our trust funds, and you have seen this in our press release, that our combined trust fund assets decreased by about 4% in the first quarter of '09. The diversification of our assets helped this performance as we have mentioned in the past. As the S&P 500 was down about 12% during this period, and our trust funds are just down about 4%.

Now, let me update this performance, in the month of April our combined trust funds have generated strong performance, increasing by about 6.5%. The April performance results and our combined trust fund performance now being up a little over 2% for the four months ended through April 2009. Our trust fund income that is recognized in our income statement for the first quarter of '09, was just over $13 million. While this is well below the $25 million in trust fund income that we recognized in the first quarter of '08, the trust fund income amount in the first quarter of '09 was in-line with our expectations.

Third, I want to talk about our liquid profile. As noted in our press release, our cash balance at the end of the quarter was very strong, in the amount of $215 million, which is up about $85 million from the end of 2008. This $85 million increase was really due to the 123 million of free cash flow that I mentioned already in the first quarter, less about 40 million in financing activities, related to normal capital lease payments, debt payments, and a dividend payment that we made in January of this year.

To update you, today we have about $140 million of cash. So the cash was reduced in April by really four major items. First of all, the cash interest that we paid of about $42 million. April 15th, we paid bonds that were due in the amount of about $29 million. We also made open market debt repurchases in the amount of $24 million, and we also paid another dividend at the end of April in the amount of $10 million. Those sum to about $105 million of cash outflow.

But we had good cash receipts, and we continued to have positive working capital management in the month of April, which helped to build our cash balance back up to about $140 million today, after these $105 million of cash outflows that I just detailed for you. From a liquidity perspective, we also continue to have a significant amount of availability under our long-term bank credit facility through November 2011. The availability under this credit facility is currently just under $250 million.

Now lastly, to talk about capital allocations. As noted in our press release, our total debt was about $1.85 billion at the end of the quarter. As I mentioned, we reduced debt by about $53 million in the month of April, subsequent to the quarter, through the cash repayment of $29 million of bonds, and as I mentioned, $24 million of open market repurchases of bonds in the month of April. We now do not have any significant debt maturities for the next 2.5 years, until November 201.

From a capital allocations standpoint, we will continue for the rest of 2009 doing what we have begun in the first quarter, which is prudently manage capital expenditures, and deleveraging the Company through additional debt repurchases, and other actions. Despite the difficult environment right now, we believe our cash balance and our strong free cash flow, will allow us to continue our deleveraging activities for the remainder of 2009.

Deanna, that concludes our prepared remarks. Now I think we will go ahead and take questions from the investor group.

Ladies and gentlemen, (Operator Instructions). The first question will come from the line of Robert Willoughby, Bank of America Merrill Lynch. Please proceed.

Thanks, Tom and Eric, I guess if I look at the profit profile in the quarter, I could conclude this would have been a vastly better experience, even a blow-out, if the atneed demand had been there in the quarter. Did you defer any spending on anything material in the quarter, or is this really just true fixed costs coming down, and should stay down on any pick-up going forward in revenues?

Yes, Bob, no big deferrals, just people really managing the cash well, prioritizing projects, and clearly we have got most aspects of the Company, where again we are in a salary freeze mode, so that has allowed us to manage expenses pretty diligently through this period.

And you did mention some open market purchases of the debt. Have you removed any of the debt that had the restrictive covenants? I think you had the 150 million in notes out there, sitting out there. Is that what you have attacked?

No, it really hasn't at this point. The November 2011 debt related to the private placements that you are referring to, is still 150 million, and those private placement notes have the same covenants at the bank credit facility. The open market purchases were really based on the yield perspective, the best value for us, and it was primarily the 2013, the reduction of 55 million balances that was out there for the 2013s, that we were able to repurchase in the month of April.

Okay. So no plans here to jump start a share repurchase program any time soon then, is that the safe assumption?

Not any time soon, Bob, no.

Okay. And just lastly, D&A did trend lower than I had thought, is that a good run rate for you going forward?

Yes it is.

Okay. Thank you.

The next question will come from line of Clint Fendley, Davenport. Please proceed.

Good morning, Tom and Eric. Wondered if you guys could comment on how you are thinking about your guidance at this juncture, given the strong start that we have had here with Q1?

Yes, Clint, I will address that. As you know, we have given annual guidance, and we have not given, at least for a long time, any kind of quarterly guidance. So as I look at this, really, this quarter was about where we expected to land. And I know a lot of the external guidance was probably a little bit lower, and therefore this is viewed as more favorably, I think in some of you guys' eyes, but for us, this about where we thought it would be.

So we feel very good about being able to report this number, with comparable volumes down 11%, and all of the other things going on around us, but we are in no position yet, I think to believe anything, that our annual guidance is still something that we are very comfortable with.

And could you comment on just I mean with the trust funds now up a little over 2% through April, how has that changed from the original assumptions that you had back earlier in the year?

Well, Clint, we ran a bunch of different models, and I don't have the specifics in front of me, but we have generally assumed that our trust funds would perform negatively this year. We had a range of negative performance that we assumed, so to your point, if the markets were to stay where they are, and I would love to believe that was true, and if you can guarantee me that, I would like to buy it, then I think we do a little bit better, but we have still got our helmet on, and believing that the roller coaster isn't over yet, at this point in time we wouldn't project anything, other than continued volatility, and we are going to work hard to manage our costs and use our cash wisely.

And I guess finally here then, on your cash flow guidance that you had given, any thoughts there maybe on tightening the range, or high end of the range, given the strong start that we have had here?

I think that this is a strong start, and so I think when you compare cash flow to earnings, I feel a lot better about our cash flow in the first quarter, based on where we are. But again, we still think we are within our range of guidance, and because it is only three months, we hesitate to project anything for the 9, but I will tell you we are very, very pleased, working capital management was very good, and I think we feel very confident about our ability to manage the capital side, as well.

All right. Great. Thanks, guys. Nice job in a tough environment.

Next question will come from the line of AJ Rice, Soleil Securities. Please proceed.

Hi everybody. A couple of questions, if I could ask them. Eric, you mentioned the 23.5 million on CapEx. Is that a good quarterly run rate for you going forward, do you think?

Yes, it obviously contains a little bit of growth CapEx in there. 18 million was the maintenance and cemetery development, and that is how I described kind of a good run rate, related to that 18 million. The growth CapEx, as you know, would be a little choppy, based on the construction projects.

All right. And I appreciate the bounce back in the trust funds in April, but just to think about it for the year, the 110 basis points impact on the averages from the hit you took last year, if we were to flatline out the market from here, is that sort of a normal run rate, or is there a reason to think it would get worse as you get through the rest of the year, or even better, if the market sort of stayed steady?

Yes, I think it would get a little bit better, obviously. The other thing to keep in mind, AJ, is the allocation of income has a lag to it, probably around 45 days on average, depending on the trust, so when you think about a good April, that is probably not going to impact your average, until some of your contracts mature in June. So just keep that in mind, that it isn't immediately allocated to contracts, the way the trust income is allocated.

Okay. And on the open market purchases, or the debt, are you buying those at a discount, or are you buying then at face value?

At a discount.

Is there a general level of threshold that you are looking to get, in terms of a return on the debt when you purchase it, that you would care to share with us?

Are you selling some debt, AJ? I mean it is obviously market conditions. I mean, we would love to buy it. We are obviously looking for the highest-yielding debt to go ahead and take out. This was, to answer your question, is probably in the mid-90s is where we pay for it.

Okay. All right. Interesting. I guess then the last big picture question is, when volumes are fluctuating 1, 2, 3%, I don't think any of us really, I think that is just the normal ebb and flow of the business. I mean this one, I can't remember ever seeing a double-digit decline like this before. What is your thought? Are you getting any analysis that can give any explanation for why we saw something like that? And you are saying, I guess, April well, maybe not down 11%, but you don't have the leap year, and you don't have the flu variation year-to-year, but in April, it sounds like you are still down high single digits or something. Any thoughts a bout that?

Yes. First of all, AJ, just to make you feel better, because you and I are so young, I am sitting next to Bob, and he has been around a little bit longer, and he said he had never seen anything like it since he has been doing this, so it is highly unusual. I will tell you, we are doing a lot of analysis, and it us very difficult to get great real-time analysis, but we know that the milder flu season has had an impact. We think it is probably about 100 to 150 basis points, not something dramatic. There also was an extra day here, so that is probably another 1%. So the mother lode has nothing to do with those two things.

And the three things that again come to mind, and it is just very, very hard to pinpoint at any one point in time, is medical advancements, and access to healthcare, heart disease, cancer, and stroke, are the top three killers. All three trending down, and if you look at statistics, even from 2000, is trending down pretty dramatically. And the other item is the decline in the number of births. In the late '20s and early '30s, there is a pretty dramatic dip in the number of births that have occurred. I realize there is immigration that has occurred during this time, but we believe that has a decent impact.

And then lastly, I think we would be crazy not to believe that in this difficult economic environment, that you are going to have a fringe consumer, that is going to make changes in how they choose to remember, and so you probably are going see a pick up in direct cremation. We don't think that is dramatic, but I think it contributing to a decline. So we don't have any great answers, but we have some ideas about some of the things that are driving this. We would expect that the back half of the year would get better. It really shouldn't be like this for an entire year.

Okay. All right. Good. Thanks.

Okay.

And the next question will come from the line of John Ransom, Raymond James. Please proceed.

Good morning. Could you remind me of what the key governing covenant that you have, is it the debt to EBITDA covenant?

The debt to EBITDA is a net debt calculation, John. It has a trailing 12-month EBITDA, obviously, it is 4.25 right now, and next time that it ratchets down would be March 2010, that would ratchet down to 3.75 times.

So you have got to operate under the 4.25 for the next year, you have got a year.

That is correct.

And at the end of the quarter, where did you sit with that calculation?

At the end of the quarter, going back 12 months, it is around 3.6 to 3.65, right in that area.

And based on your guidance, Eric, where do you think you end up? Assuming your guidance hasn't changed, but factoring in the go-forward EBITDA numbers, does that calculation change under your definition materially for the balance of the year?

Well, we have certainly run a lot of models from low to high.

Okay.

It just depends on where the volume really takes us, and where we land for the rest of the year. If you take the guidance that we have given you, and you go from the low to the high, it could put you anywhere, from around where you are need, to just north of about 4 times. So it is a situation that we may have to work with, with the relationship we have with our banks. But right now, it is a little bit premature, because so it so hard to predict the rest of these three quarters, in this unusual down volume environment.

And in the current environment, is there any net deleveraging transaction, that you could execute in short order should you need to?

Well, I mean, I think we are open to anything really, but the right idea is I think you have to do chipping away at the debt, especially at a discount, because it is a net debt calculation, and of course, you have got to work on EBITDA, that is the easiest way to correct the ratio, is to increase EBITDA through the initiatives, and the operating initiatives that we are doing, driving revenues,, as well as prudently managing our cost structure.

And I am sorry to keep drip drilling down on this, but does the facility that governs this mature in '11, or is there another debt instrument that stays out longer, that would have the same covenant?

It is November 2011 that governs these covenants.

So in theory, you would have to a chance to recut this covenant upon maturity, if nothing else?

That is correct.

And I am sure they would be interested in a higher rate than what you are paying, even though you have nothing outstanding, is that right?

We have nothing outstanding on the bank credit facility, but again, as I told Robert earlier, the 150 million of private placement notes are linked to that, and have the same covenants as the bank credit facility.

Well, that is what I was getting to, when do those mature?

They mature in November 2011.

Oh, okay, so it is the same.

It is the same, they were both wrapped up in the Alderwoods transaction, John.

All right. So you would have a chance to recut that, so again, kind of deleveraging mode for the time being, until you get a little more cushion under the covenants?

That is correct.

Yes. And just jumping to a couple of other things. Have you seen any change in I guess I would call it cancellation rate, people that have previously decided to prefund their funeral, and then they have an economic emergency and they need to get the cash back out? Have you seen much of that?

No, we have not. We have not seen any kind of material adverse trends that are popping out. We are obviously monitoring it very closely, but everything including the cash receipts, have really held up according to our expectations.

Okay. And I assume that might have been a little bit of a surprise to you?

Yes, I would say so.

Okay. And is the trend still holding, the funerals that you are selling into the backlog, you mentioned that was what, about $5600? I was just wanting to clarify that number?

That is right, John, $5600, and I begin, we are not seeing deterioration, and we see an increasing number probably that we sell on the cremation side, are selling at a lower average, so when you look, again, cremation contract versus cremation contract, people are still spending good money on preneed funerals, so we believe again if we can get through some of these volume issues, kind of what Bob is saying, we have got the right infrastructure to begin to really run, if we can get a little bit of help from the economy, the markets, and the volume starts to pick up.

So I mean, Tom, if we blend all all of this together, the better trust fund, the backlog sales, the cremation mix, what you are doing atneed, where should we think about revenue per funeral for the balance of the year? Is it going to be much different than the first quarter, other than the trust fund increase?

I think it all goes back to the biggest swings are going to be, trust fund income and what happens to Canadian currency, because again, it doesn't sound like a lot, but if you assume about 10% of our revenues are Canadian currency, and then you assume that currency is devalued by 20% year-over-year, that has a pretty pronounced effect on our average. The good news is that the expenses have the same conversion feature, so it doesn't drop to the bottom, but I think if the currency stays where it is, and trust fund where it is, I would expect us to be at, or slightly above the levels we are seeing today.

Okay. And on the cost side, to use the baseball analogy, what inning are you in, from a structural cost perspective? I know you did a really good job after Alderwoods on the G&A side, and you have started to look at some field opportunities. Is there another wave of opportunities, or are we getting pretty close to the end of some of the structural cost reductions?

That is a trick question, because I am a T-ball coach, and we only get about two innings in, but I think we definitely have more fields to get through. I think we have talked about before, on the cemetery side of the business, we have got some projects of introducing technology, and again better processes that we are just in the midst of, and beginning to get there. So I like to believe that we have done a lot, but there is still more to do, so probably back to your nine-inning game, we are probably in 5 or 6, something like that.

Okay, thank you.

(Operator Instructions). The next question will come from the line of Henry Reukauf, Deutsche Bank. Please proceed.

Just a couple of quick questions, first one on the trust fund income, is there a metric, I don't know if you have ever given it, that 1% change in your trust fund income year-over-year is going to change the income that you guys report? And I know you said there was a lag with that.

Yes, Henry, we did give that on a guidance call last quarter, and it was about for every 1% decline in the combined trust funds, was worth about $1.5 million of EBITDA to the Company. But again, we put some caveats around that, saying that is a pretty roughly calculation, because your mix on who is coming out of the backlog, in terms of the deaths that are coming out of the backlog, if the ages change, or how old the contracts change, if that mix changes, then that could move that criteria materially, but as a general statement, that is the statement that we have made.

Okay. Some just a question on the debt. I guess it has rallied a little bit since the mid-'90s. Are you still interested at the better levels in repurchasing debt, as being one way to bring down your debt balance?

Well, I think we are going to prudently look at it, but do I think that there is still some available at a discount, and again, you take a value approach where you approach it from the perspective of what is the highest yielding debt that you could take out, and that would include paying a discount, and you are right, it has obviously rallied, but I still think there are some prudent purchases out there.

Okay. Thanks very much.

And the next question will come from the line of Dana Walker, Kalmar Investments, please proceed.

Good morning, your cemetery property sales seem to be firmer, that is not down as much as we saw late last year. Would you remind us where that number was in Q4, and your general sense of whether Q1 was a belier, or an indication of firmer results?

Yes, I think if you go back, and again there is seasonality to cemetery sales, if you go back to the fourth quarter, we were down just over 30%, in my recollection, like 31%. Now included in that comparison, we had, if you recall, some highly unusual large sales that occurred in the fourth quarter of '07. So if you took those out, we still were down, call it 22 or 23% fourth quarter to fourth quarter. This time we went from 23 to about 16%.

And if you look at it from a sequential perspective, first quarter had more sales than the fourth quarter. I will also tell you, looking at it by month, and talking to the one who really knows, Dan Garrison, consumer sentiment has gotten a lot better as the quarter went on. We saw a more willing consumer in March versus February, and I would tell you a more willing consumer in April, so we feel good. We are still going to have a real tough time comparing to the prior year, but to your point, I think if things continue like they are, and confidence builds a little more, we feel good about the back half of the year.

One other reminder, your assumption made in your guidance for cemetery property sales was what?

For cemetery property sales, and I am speaking from memory, so forgive me, my recollection is that preneed property sales were going to be down high-single digit, to basically low teens, in that type of range. And I think the way we are thinking about it, Dana, was the first half of the year is going to be a lot worse, because things were good in the first half of '08 for us, and when you get to the fourth quarter, you have got a much easier comparison, so I would tell you that the first quarter result was within our expectation of where we thought we would be, and so now it is just back to, what happens with the consumer sentiment throughout the rest of 2009.

From the steps you have to take, and the step is environment standpoint, would you say you are stressing your field organization by the cost stringencies that you are having to apply?

I am sure if you asked some of them, they would say yes, but I think generally, no. I think and of the things that we really try to do, are we are making efficiencies by better process. A lot of the things that we are doing in the field, get back to enhanced processes, that allow us to do, not only save money, but free up time to do things better.

I will give you an example. As we are looking at the model we want to do for cemetery maintenance, we are going to a model that is going to outsource basically, mowing the grass, and doing those types of things within the cemetery, which I believe is going to allow our folks to free up time to do things, such as better customer service, insuring that we are doing things right, everything around it.

So not only are we going to save money, we are going to do the important thing a lot better for the Company. So those process changes, I think are going to be beneficial in the long run. I will tell you that we have deferred some things, I think everybody in the Company has gone back and looked at priorities, and said what do I need to do this year, and maybe there are some want-tos that we are not going to get to, and so I think that is the general sentiment. Between 20,000 people, I am sure there are a couple that are stressed. Eric looks stressed across the table.

(laughter). You mentioned in your cash flow analysis that there was an incentive comp amount that was not paid this year to the field. I presume, is that also an earnings absence, or that is an expense not taken?

What I said, Dana, is that we did make limited payments to the field operations, but inside, other than the field operations, there was no incentive compensation, which includes all of the corporate office employees.

Yes, Dana, from a P&L perspective, it is pretty consistent. What this is, is in the first quarter of 2008, we paid annual bonuses to everybody, from officers to field personnel, we also had an accrual related to a long-term incentive plan for certain senior officers, that relates to stock price. It is a three-year accrual that gets paid out in cash. And as you will recall, I like to dream back to 2007, I think the stock hit 14 at the end of the year, and everything looked great, so we had big payouts on bonuses. We had big payouts on that particular incentive plan.

And so that got paid in 2008, it had nothing to do with earnings. In 2009, there was a great absence of both, as the stock price went down, we didn't have any payments as it relates to that incentive plan, and we had very, very limited bonus payments, again, sparingly in the field. There weren't any corporate bonus payments at all. So that has created a big working capital change, but not a big P&L differential.

Thank you very much.

You are welcome.

The next question will come from the line of Emily Shank with Barclays Capital. Please proceed.

Good morning. This is Jason Trujillo in for Emily. Just first, regarding a debt pay down, what is your current capacity for further bond repurchases?

Well, I think it really depends on the free cash flow, and does it continue to perform the way it has performing, but do I think that we have excess capacity right now in the 20 to 30 million, 40 million range probably, but again, there are a lot of assumptions on what happens the rest of the year, in terms of the free cash flow.

Again I think I need to stress to everybody, that we are going to be opportunistic with this, we are looking for discounts, and we are looking for open market purchases in that light, and so it is not just focused primarily on doing a transaction that doesn't ultimately make sense. We are going to be opportunistic about it. There have just been so many questions today about that, I just wanted to stress that.

All right. That is very helpful. And then not to beat a dead horse, but can you give us on color on what the actual magnitude you think might be going forward here to year end on debt repurchases, or can you not comment on that?

I can't comment like now. It depends on what I just said, we are going to be opportunistic, we are going to manage our leverage ratio, which is a net debt ratio, so if you build cash, you are doing just as well, but if you can do something opportunistically at a discount, you are going to help your ratio, but again, as I said, EBITDA, growing EBITDA through the revenue initiatives and the cost reduction initiatives, are the primary thing that has the most leverage in that ratio.

All right. Great. And then just lastly, with the 24 million of repurchases in April, you mentioned that was primarily the 2013s. Were any other notes bought back in April?

There was one small one for a couple of million dollars. I don't even think it was a publicly traded bond. In terms of the publicly traded debt out there, it was just the 2013s.

All right. Great. Thank you very much. That it very helpful.

And there are no more questions at this time. I would like to turn the call back over to the management team of Service Corporation International for a closing statement.

We want to thank everybody for being on the call today, and we will be talking to you on our second quarter earnings call in about three months. Everybody have a great day.

Thank you for your participation in today's conference. This concludes the presentation, and you may now disconnect. Have a good day.