Service Corporation International (SCI) 2010 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter 2010 Service Corporation International earnings conference call. My name is Lisa and I'll be your coordinator for today. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to SCI management. Please proceed.

Good morning, everyone. This is Debbie Young, the Director of Investor Relations for SCI. I want to welcome you to our call this morning to discuss our second-quarter results.

Our call today will include some forward-looking statements that involve risks and uncertainties that could cause our results to differ materially from management's current expectations. We encourage you to review the Safe Harbor statement contained in our earnings release published yesterday, as well as our most recent SEC filings for a more complete description.

Additionally, on the call today Tom and Eric may use terms like normalized EPS and normalized operating cash flows. These are non-GAAP financial terms. Please see our press release and 8-K that was filed yesterday where we have provided a detailed reconciliation of these measures to the appropriate GAAP terms. Now I'll turn the call over to President and CEO, Tom Ryan.

Thank you, Debbie, and thanks, everybody, for being on the call today. As usual, we're going to have kind of a quick overview of the quarter, go through funeral operations, cemetery operations. Eric will have some comments on the financial side of the house and then some concluding comments.

So for the overview of the quarter, the second quarter again we delivered consistent positive performance. If you look at earnings per share, our normalized earnings per share were $0.15 versus a $0.12 prior year quarter, which is again normalized for both quarters. So when you think about year-over-year improvement, it's really driven three things contributed, one being the largest.

The first thing that's really driving our results is the acquisitions that occurred early in this year and late in last year, so both Keystone and Palm Mortuaries were big contributors to our improvement. And they predominantly benefit the funeral segment as you'll notice as we go through those.

And why they're so accretive as well is essentially we funded these predominantly with cash. So when you think about the alternatives of earning money on your cash, the alternative is with these very accretive acquisitions it shows up in EPS pretty well.

Secondarily, we continue to see solid cemetery sales production. We've been doing this for some time now and the comps are going to get harder and harder. But again, we delivered positive growth in that arena.

And lastly, we continue to manage our expenses very prudently at every level of the organization. At the G&A line, the overhead line that allocates in the field, as well as in the field expenses. And so I want to congratulate everybody in the Company for continuing to do that.

Now as you compare EPS to our internal expectations, because obviously we had improvement over the prior year, we had a good quarter as well. This succeeded I think external expectations, the analyst consensus, as well as our own internal expectations.

When you think about our internal expectations, even our comparable funeral revenues helped offset some lower recognition rates on cemeteries. So when you think about year-over-year, we expected cemetery to be better. We expected funeral to really be challenged. And I'd say funeral is actually performing a little ahead of probably where we would expect it to be.

Other key positives to take away from this quarter, again I think the big headline things -- number one, the acquisitions were very accretive and contribute meaningfully to the quarter. Keystone and Palm combined contributed $37 million of revenue, $10 million of gross profit in the second quarter.

Also very pleased to announce that at the end of this quarter we completed the sale the Federal Trade Commission required properties from the Keystone acquisition. Those were 22 funeral homes and five cemeteries and it generated about $35 million in proceeds. So these proceeds, along with our strong cash flow, enabled us to return to you more than $103 million year-to-date in the form of share repurchases and the dividends that we've paid out.

And I'm actually including the dividend that's going to be paid tomorrow, so forgive me for predicting something. But that's over $100 million back to you guys. So I think what this all says as you look at the accretive acquisitions we were able to complete, as you look at what we've given back to the shareholders, it really reiterates our confidence and our optimism for the long-term future of SCI.

Now I'm going to move to funeral operations and talk a bit there. We talked already really about Keystone, so I'm going to talk about comparable funeral operations. They generally reflect compared to the prior year. But as I said before, they performed well relative to our expectations that we had anticipated. We continue to struggle with the top line as lower case volume and a struggling economy keep downward pressure on our revenue line.

Comparable funeral revenues in the quarter increased 1.4% to $344 million. When you break it down, let's talk first about volume. Same-store volumes were down 2.2% for the quarter and I never thought I'd say this, but we're kind of encouraged by that when you think about the sequential moderation of the rate decline over the last four to six quarters.

We'd like to see comparable growth, but I think there are two things that are putting a lot of pressure on that. One, the advantages advances in medicine or what we call access to health care within the markets that we operate.

And secondarily, the silent generation and kind of the lack of births that occurred that are impacting us, as well as the GI generation where we saw a lot of deaths occurring. That's going to trend downward just because of the age of the GI generation. So that's putting pressure on volume that we expected and therefore again we're probably a little better than we had anticipated.

On the funeral average side, we saw the average growth 3.1% despite a 70 basis point increase in our cremation [room]. The 3.1% increase takes into account the higher trust fund income that we're getting on the pre-need going [at-need] and positive currency effects from our Canadian operations. If you exclude both these favorable impacts, the at-need average without currency experienced growth of 0.9%.

I'll first say that, again, this is within our expectation. We had modeled kind of low single-digit around 1%, 1.5% for the year. And what's causing this? There are two things that are putting pressure on the comparable number.

Number one, the economy's impact on consumer sentiment. You've got a consumer that is a little more concerned and probably a little more discerning as it relates to what they're going to spend. Secondarily, remember, you're comparing back to 2009; it experienced some very favorable growth rates because of the Dignity display impact. We rolled out new Dignity displays, they had a big impact in year one. They continue to have a positive impact, just not as big an impact.

But I'll leave you one positive thought on average, because these two things aren't going to go away, consumer sentiment is probably going to be tough for some time. But here's some good news. Remember, what we're putting into the backlog is about $5,400 average contracts just as a higher cremation rate, and what we're pulling out of the backlog is about $4,950. So there's a $450 difference that is going to begin to trend that way and impact some one-third of our go-forward business. So that's a trend that will be a positive wind at our back.

The last piece of revenue I'll talk about is a $2.3 million increase in G&A revenues and this was driven by our huge success and increase in the insurance-funded pre-need production. So we're very, very pleased to see that because we're putting positive things in our backlog, which bode well -- very well for our future.

So if you drop down from revenue to talk about comparable funeral profits, they declined $1.7 million in the quarter and this really is an example of what a good job we're doing at managing our variable expenses in a declining volume environment. However, the one item that we saw an increase in selling costs that just really accounts for the entire decline in profits is the increase of pre-need production result in higher selling costs.

Remember, the costs when we sell a pre-need funeral get recognized immediately in the period that they're incurred and the revenue gets deferred until delivery. So if you back those out, our profits actually are flat to prior year on a comparable basis. So that leads us to the pre-need front and the good news about this.

On the pre-need funeral front we had an outstanding quarter. Pre-need funeral sales grew 23% or roughly $27 million for the quarter. And the numbers for the year-to-date are I think 17% as well. So we're excited about that.

One caveat I just want to alert everybody to about the results for the quarter. The majority of the increase in total pre-need funeral sales in the quarter came from our locations in Canada, particularly in the provinces of Ontario and British Columbia. In Canada, the changes in the tax code basically incentive consumers to prearrange prior to July 1 to be exempt from additional sales tax of about 7% or 8%.

So again, that was utilized to generate sales in the quarter and probably move some quarters out of the back half of the year, I should say some sales productivity, into the second quarter. So we're excited about it, the growth, but again not a level that we'd expect to continue in the future.

As we've stated in previous quarters, we're very, very pleased with our progress in pre-need funeral arrangements. The selling environment in which we operate is much more challenging today when you roll back the clock five or 10 years. But we are far better equipped to compete. We have better leads, better systems, enhanced training, combined with the operating structure that we recently put in place that added such things as embedded sales leadership. And this allows our sales force to deliver the results that they do.

Now I'm going to turn to cemetery operations. Comparable cemetery revenue increased about 3% quarter over quarter. At-need was about flat and our GAAP pre-need was up about 5%. When you back off what GAAP is -- again remember, when we sell a lot of things get deferred -- our true comparable pre-need sales production grew $4.7 million in the quarter or about 4.6%. And again, the change in the tax code mentioned earlier that benefited our Canadian cemetery operation also benefited to a lesser extent our cemetery sales as well.

Keep in mind that after a 7% growth rate in pre-need cemetery sales in 2009, the accelerated production from Canada written in Q2 and the fact that we're up 9.6% in pre-need selling year to day, we had modeled low single-digit increases for the entire 2010 year. That would lead you to believe that the back half of the year is going to be challenging on a comparable basis, but we believe very successful on an achievement basis. So just keep in mind we have some tough comps coming up.

Cemetery trust fund income was basically flat for the quarter and in-line with our expectations. So drop all the way down, comparable cemetery profits were basically flat on increased revenue, slightly higher. And the real reason for not dropping it all the way to the bottom line is higher selling cost. And a large part of this is attributable to selling costs that are recognized in association with an increase in deferred pre-need cemetery revenue.

So you've got less -- you've got sales costs that you're recognizing today and the revenues are being deferred. So we expect this to turn around and these profits to be recognized in future quarters. I don't think it's something to get overly concerned about.

So in conclusion, we're very pleased with our performance in the quarter and the first half of the year with increases in revenues, earnings per share, and free cash flow. For the balance of the year, we continue to expect the economic environment will probably remain challenging.

Our thoughts are that leverage levels with consumers continue to remain high; leverage levels in government, both city, state, and nationally, probably mean that future tax increases are out there. And when you think about housing, rising mortgages defaults and not just in the subprime arena, you've got a lot of option ARMs that are going to reset over the next few months.

When you think about all these things, it's hard for us to envision US consumer sentiment being very positive. And therefore probably not going to have a big impact on jobs. So we know all that's out there. Those are macro things we can't do a lot about. But we know one thing; we feel confident about our ability to continue to deliver solid performance. This concludes my prepared comments. Now I'll turn it over to Eric.

Thanks, Tom. I'm going to pick up the conversation talking about cash flow and trust fund performance for the quarter, and then we'll talk a little bit about expectations in that cash balance, in cash flow and our liquidity expectations as well. And then I'll comment a little bit about our capital deployment that occurred during the second quarter.

To start in for cash flow, cash flow for operations for the quarter was just under $79 million. That's excluding $1.5 million of one-time transition costs that related to our acquisition of Keystone. This represents an increase of about $9 million from last year and is also about the same amount higher than our internal expectations.

Now to understand this increase, I really need to mention to specific items. First, recall on our last conference call that on March 31 we partially funded our April 2 payroll this year, which created a positive variance in this quarter of about $16 million. Secondly, in the second quarter of last year, we received $15 million of proceeds from cash surrender value of certain life insurance assets.

So when we compare cash flow quarter over quarter, these two unique items basically offset each other and we still had an increase of roughly $8 million. So that increase really can be attributed to the higher pretax income that is shown in the quarter and we really had some improvement in our collections of receivables that are really a result of our associates' hard work and focus on our field operations. And this was both partially offset by higher payments for trade payables as well which is really just a timing difference.

Total CapEx for the quarter was about $23 million and what we call recurring CapEx, meaning maintenance and cemetery development was $22 of this $23 million. Year-to-date, the recurring CapEx was about $40 million. We still expect this maintenance and cemetery development CapEx to approximate $85 million to $95 million for full year in 2010, which means that in the second half of this year we estimate that we'll spend about $50 million.

When you deduct these recurring capital spending items from the cash flow from ops, we calculate our free cash flow for the quarter to be about $56 million. This is an increase of just under $2 million from last year and it's also just slightly ahead of our internal expectations. And within that $56 million, we had cash interest and cash tax payments during the quarter of $59.4 million and $7.5 million respectively.

Now turning to an outlook of cash flow, and as we indicated in the press release, we are increasing our cash flow from operations outlook for the full year to $330 million to $360 million. The previous guidance was $300 million to $350 million. So this represents an increase of roughly $20 million at the midpoint of these ranges.

The primary reason for the increase really relates to better working capital. We've had good success in 2010 with various working capital initiatives that have contributed cash flow, particularly, as I just mentioned, relating to receivable collection efforts within our field operations. And I mentioned earlier that our guidance for maintenance and cemetery development CapEx remains unchanged.

So therefore with the increased cash flow assumption, flat CapEx, the free cash flow is now expected to range between $235 million and $275 million. And again, this is a great story. This represents a 12% to 14% yield at the current share price yesterday of about $7.80. So strong cash flow continues to be the positive story here at SCI.

As our increase in cash flow expectation is limited to the working capital component generally of our cash flow, our estimates for earnings per share of $0.48 to $0.56 remain unchanged. However, based on where we are today and as we mentioned in the release, we believe it is likely that we'll end up the year in the middle to the upper end of the EPS range.

Now let me shift to trust funds as well. The combined trust fund assets are about $3.1 billion and that decreased about 4.3% in the second quarter. So not a great quarter for performance, but better than the market as the S&P 500, for example, was down 11.4% for the quarter. Year-to-date though the trusts are generally flat. They're down about 0.6%.

Our guidance ranges for the rest of the year that we mentioned earlier assume that the trust fund performance is generally flat in our models for the remainder of the year. In total, trust fund income recognized in our income statement in the quarter was $20.1 million, which was up from $17.6 million in the second quarter of 2009 and this $20 million of trust fund income was in line generally with our expectations.

Now shifting to liquidity, subsequent to the quarter, we had share repurchases in the month of July totaling about $18 million. We also had positive cash flow in July that offset that. So the cash balance at the end of the quarter was about $152 million and we continue to have about $150 million of cash on hand as we speak today. We currently have $210 million available on our $400 million bank credit facility, which again is long-term and matures in November 2013.

We currently use this facility to support just under $45 million of letters of credit and we've drawn about $145 million on it, and that really hasn't changed since the last we spoke on the last conference call. Total debt was about $1.86 billion at June 30. That again has not meaningfully changed either. And again, we have no meaningful maturities until November 2013, which again is merely the main credit facility.

So talking specifically within the quarter, the capital deployment. During the second quarter and in the month of July, as I mentioned, we purchased about 8.6 million shares for a total cost of about $72 million. We currently have just over $50 million then remaining on our existing share repurchase authorization.

Also in the second quarter, we also spent about $23 million in buying back our bonds, our shorter dated bonds in the open market. Our current leverage ratio on a net debt basis at the end of the quarter, and again, this includes the full-year pro forma EBITDA for Keystone according to our bank credit facility definition, was about 3.25, so about three and a quarter, generally is where we want to be as we believe the appropriate capital structure for us is having a net debt to EBITDA leverage ratio between 3 and 3.5 times.

In terms of capital deployment going forward, our emphasis will be on strategic acquisitions at the appropriate returns, returning cash to shareholders, which would be in a form of share repurchases and dividends, and reducing liquidity risk and managing our debt maturity profile as well.

So in conclusion, we're pleased with our successes as we look through the first half of 2010. Our current financial position is very strong, as I've mentioned to you, it's $150 million of cash, great liquidity, a favorable debt maturity profile, and very attractive free cash flow. So that concludes my remarks, but before we go to questions, I'm going to turn the call back over to Tom for some final thoughts.

Thanks, Eric. I really wanted to kind of level set with you guys -- it's mid-year and talk about -- we provide annual guidance. We've had some discussions about what we believe kind of the near-term future is in this business. And so I thought what I'd do is take a minute and tie it back to, again, why own SCI? I thought what I'd do is use the year-to-date results to kind of help tell the story that we've been telling or better define the story.

So let's take the funeral side of the business first of all. What we've said over and over, our belief over the next few years is that this will be a vehicle where we have strong, consistent cash flows. We believe that it will be flat to modest profit growth as we'll struggle with the top line through volumes that are challenging and through averages that will be challenging in a tough consumer sentiment market. So let's stop there for a second.

What's happened so far? And I'll throw in there that we're going to manage our costs very diligently and therefore be able to provide this consistent flat to modest profit growth. So let's take a step back and look at the first six months.

The first six months of this year on the funeral side, we earned $155.5 million. That's down $3.2 million when you compare to the first six months of 2009. If you look at the revenue line item and you take out Canadian currency movements and G&A revenues, because I want to talk about that separately, our revenues are down some $8 million or about 1%, the case volume is down 2.8%, the average is up 1.5% if you take out that currency. But we've managed our costs diligently.

If you look at costs, excluding currency impact and excluding selling costs, we've actually reduced overall costs $6.6 billion or 1.3%. So when you look at the entire profit, downward pressure on profit was $3.2 million for the six months, that can all be explained by the fact that our selling costs in excess of G&A revenues are up $3.2 million. So flat line, but guess what, what we've always said? Generates a lot of cash.

We also said we'd grow pre-need backlog with a minimal capital investment. Well, year-to-date our pre-need funeral production is $266.8 million. It's up $38.7 million over the prior six months or about 17%. So we're seeing some real success in the arena with thought -- we told you we would. And what we said was that long-term our market share growth, we believe, was an increasing number of deaths.

So as we approach larger pools of consumers that should die, we're going to have a larger market share as we're filling up that backlog. So I'd tell you we're on pace to do the things that we told you we'd do and we can tie it back to six month numbers.

Now let's shift over to cemetery. What we've always said about cemetery is there's more volatility tied to both consumer sentiment because it's so reliant upon sales and in the financial markets. It's more volatile as it relates to them just because of the trust fund impact on that earnings stream. We always said the pre-need property can grow by growing sales. It's not tied -- it's the only piece of our revenue stream that's not tied to an event of death.

So we felt like by applying resources, this is one area of the Company that could begin to move the needle. So let's look at it. Cemetery pre-need production first six months is $201.3 million. It's up $17.6 million in the prior year or about 9.6%. I'll be the first to admit we're comparing back against a pretty easy comp on first half of 2009. Having said that, there's some real improvements going on that I think are going to continue into the future.

The second piece we said on cemeteries, we're going to introduce more technology and manage costs very diligently. Cemetery maintenance piece is on a run rate to deliver $12 million in savings over the 2008 levels of what we spent. So we carved those costs out -- you're obviously going to have inflationary costs going forward that are going to add back some, but we're able to execute that and they're in place and on a run rate to do so.

The second project that we've mentioned before is cemetery administration. We call it our next gen HMIS internally, and we believe this too will deliver $10 million to $12 billion of savings and those are going to show up in 2011 and 2012.

So we feel like on the cemetery side because of the opportunities of technology, because of our ability to grow cemetery property sales, there's a real opportunity to move EBITDA and operating earnings modestly on this side of the business. And sure enough through six months our cemetery profits are up $11.1 million or 23.7%. We delivered I think it's $57.8 million in cemetery profit for the six months.

The challenges, there's no doubt; cremation is a bigger hurdle on the cemetery side. But they're not making any more cemeteries generally across the United States and the baby boomers have reached their early 60s and are really poised to begin to have these discussions with us. So we feel confident there will be adequate sales opportunities to grow above and beyond what's happening in inflation.

So this side of the business we believe we can grow modestly particularly on the cemetery side, generate a lot of cash. The most important thing we can do for you to enhance shareholder value is how we deploy our capital. And we've really done three different things that I want to look back upon today.

The strong cash flows with the modest organic growth allows us to do -- number one, to grow through strategic acquisitions. So if you think about it, since June 30 of last year, we've acquired Keystone, we've acquired Palm Mortuaries for a net price of about $300 million. That's after we divest of the things that we were required to divest of. This, as you can see in the quarter, is highly accretive to our results.

We got $10 million of income in Q2 alone when you look at it on an unlevered basis. And the funding from this, as I mentioned before, was predominately through cash flow. We've added about $100 million to our debt balance since June 30 of last year, but again we paid $300 million for this business on a net basis.

So second bullet point -- we returned cash to shareholders. So if you think about -- through share repurchase and dividends. Over the last 12 months since June 30 of last year we've returned $72 million through buybacks, we've returned $41 million through quarterly dividends. So there's another $113 million being put to good use on behalf of our shareholders.

The last thing that we try to do is manage liquidity in our debt maturity profile. So think about it, over the last 12 months we've done something with $400 million, either given it back to you or put it on accretive acquisitions. And all along we've reduced our net debt to EBITDA ratio from 3.63 down to about 3.25 today. We issued -- we paid down some $50 million in short-term debt and in November of last year we did a 12-year note in about $150 million.

So we've got a lot more EBITDA, we've got $100 million more in debt, $150 million pushed out and $50 million short-term taken in. We've got $150 million of cash on the balance sheet and we've got the $210 million Eric referenced on the credit facility.

So I hope you can see as you think about the investment opportunity of SCI, we're following the model that we've tried to describe to you guys and working very hard to be good stewards of your capital and we believe enhancing the value of SCI's shares. We'll continue to strive to create value and minimize risk as we position the Company to be the very best at leading the funeral and cemetery industry. So, thank you for your time and now I'm going to turn it over to questions.

(Operator Instructions). AJ Rice, Susquehanna.

Hi, everybody. A couple questions if I might ask. First of all on the Keystone deal, is there any updated expectation on synergies? And how much of the original synergies did you realize in the current quarter and how much are still in front of you?

AJ, I think the original synergies we talked about were $8 million to $10 million. And I would tell you on a run rate basis, we're very, very comfortable with the high end of that range. And I think we're -- I almost want to move away from talking about synergies, because what you get into is we got the ones that we identified for you guys. But I'll give you an example.

As we move forward in and we can do things let's say on the cemetery side of the business for Keystone, if we can put more salespeople in place and generate higher sales, that's going to generate more profit. I wouldn't call that a synergy any more, it's hard to kind of refer back to it. So I guess the way I would describe it is synergies at the high end and we continue to see opportunities to grow the profit for the business.

Okay, that's good. On the divestitures, I know you said you got $35 million in proceeds. Roughly how much in revenues went out the door with those divestitures?

I don't have the revenues in front me, but generally they were sold at about a 7 times EBITDA multiple.

Okay. You've mentioned a couple times strategic acquisitions and being open to that, looking for that. Is there any -- could you just maybe give us an update on the pipeline and what's -- what you're seeing out there? Is there more activity now than there was six to 12 months ago?

I would say surely more than 12 months ago. We're seeing activity -- we're seeking opportunities. We're just trying to ensure that, again, we're getting the right deals that fit our strategy at prices that are going to be very accretive and good returns for our shareholders. But yes, we see the pipeline more active and particularly in some of the businesses that we're interested in, which makes us very excited.

Okay. And just the last thing I'll ask about. On the at-need case volumes, obviously down 2.2% is still negative, but relative to where you've been I guess the last four or five quarters, that's an improvement. I know you guys have been trying to look at this from a lot of different ways, had outside people looking at it. Any new perspectives on what's happening with the at-need death rate that you would be willing to share with us?

I think -- I know you're referring back to some of the studies we've done as it relates to that Harvard study and I'd tell you that it is completed. The preponderance of that study was for internal use and I do think there will be some things that we'll be able to share with you guys, but at the same time I think it's really built for specific markets and how we operate within them.

I'd tell you this observation because it confirmed a lot of things we knew. It confirmed, number one, that medical advancements have had a more dramatic impact than we thought. The lack of smoking is the way I would describe it, has a bigger impact than anybody thought.

If you think about -- I always tell the story my grandfather who I believe loved me very much used to ride in the car with them and blew smoke in my face. Maybe that's what's wrong with me. But today you can't smoke in a bar. You can't smoke in a restaurant, anywhere, particularly in major cities. So that's had a big impact.

The silent generation is what we thought it was and probably the thing we learned was the real downward trend in the GI generation (inaudible). That's been supporting the number of deaths for some time and, again, a lot of those people have died and you're seeing less and less.

So I would tell you that the study confirmed a lot of things we knew, probably gave us some insights into others and would lead me to believe that we're competing very effectively within the markets that we operate. And probably gave us a little more confidence that we're holding in there pretty good.

Okay, all right. Thanks a lot.

Clint Fendley, Davenport.

Thank you. Good money, guys. I was wondering how much of Q1's growth in pre-need production might have been attribute to the Canadian demand pull forward.

I don't think Q1 had a lot, because we wouldn't expect much at all from that as it relates to pre-need funerals. It's really something that we kind of marketed even late in the second quarter as we have defined it, Clint.

Okay. And what was the split roughly between the trust funded and insurance funded of the Canadian pre-need?

I don't have that in front of me. Dan, what do you say?

I think it's mostly insurance.

It's mostly insurance, Dan is saying. And again, I'd say if you look historically, we sold a lot more trust and we shifted a lot more into insurance recently. So a lot of that is going to go into insurance backlog.

Okay, okay. And a modeling question here, but just on depreciation and amortization, I guess I would've expected maybe a slightly bigger increase given the acquisitions.

Well, I think at the end of the day, Clint, it probably added both acquisitions somewhere in the range of $10 million to $12 million of D&A per year. And I don't think it was anything unusual more or less than what we were truly expecting. So if you look at the prior-year D&A, which is somewhere in the low 60s -- 160s, excuse me, I think you should probably expect somewhere in the low to mid 170s. Does that help you?

It does.

That's a full-year number now when I say that, okay?

Okay, okay. And then last question, but just on the priorities and uses of cash, Eric, I guess in your prepared statement you talked about acquisitions, share repurchases obviously in reducing liquidity risk. I mean, am I reading too much into it that acquisitions were listed first? Is your pipeline maybe improving relative to a few months ago?

It was purposely listed first.

Are you seeing any kind of incentives maybe with regard to tax planning and people motivated to sell before the end of the year?

No, I think that's a lot of background reasons. But I'd say those aren't the hard and fast. I just think it's time for a lot of people -- they reach a point and I think what's happening is somebody that let's say maybe at a decision point over the next three to five years, I would tell you that fear of taxes, fear of economy and those types of things will push them to move a little bit early. But I don't think it's somebody saying, oh my God, I've got to get out of here because of taxes. It's just one of those kinds of background music that makes people go, let's look at this because the landscape is going to change.

Great. Thanks, guys. Nice quarter.

Robert Willoughby, Bank of America-Merrill Lynch.

Are the Keystone facilities as well as Palm, are they on board now with your pricing practices, kind of bundled packages approach or were they pretty much there already with some type of similar offering?

Well, Palm now has packages, the Dignity packages in place. We've had a longer time. I think I mentioned this before, Bob, but Keystone had a very successful package program themselves, so there's nothing new as it relates to the package process for them. What we're going through now is looking at some of the things in their package and some of the things in ours and beginning to kind of meld those two together and put them in place.

But I don't think it's our expectation that that's going to have a huge impact let's say on those businesses, as you would expect it at Palm and from what we're seeing at Palm. So yes, I think a lot of that impact is in the numbers. We will kind of meld those two things together and we believe will result in a positive event, just probably not the pop you saw at Alderwoods and the pop you hopefully see in Palm.

Okay. And is your success in Canada in the second quarter here -- I mean, does that turnaround on you here in the third and fourth quarters maybe with some lower bookings or how do you guys think about that?

People would like to say that, but I don't think Mike Webb is going to let them. No, I think the reality is there's no doubt two things kind of happened in the quarter. One is Ching Ming, which has a huge impact particularly on the cemetery side of the business, that falls late March early April type of impact. And I think this year we got more of it in April when you compare back to 2009, so that's a little bit in the quarter.

Then you've got this tax change. I think it's two things. No doubt that I'm sure the second quarter robs some sales from Q3 and Q4, but I don't want to paint a picture of we're done selling. Because I can tell you, in looking at July results so far, they continue to trend looking very, very good. And again, these are people that are going to be paying the extra tax. So we don't think it's going to kill us by any means. Did it rob some sales? Absolutely.

Maybe a question for Eric. Should we just leave some nominal amounts going forward on a quarterly basis in share repurchases? I don't think your guidance is predicated on that, but realistically some effort will continue in the third and fourth quarters.

Yes, it obviously is a value play relative to other opportunities, right? So if we have strategic acquisitions that have the proper return and we've proven that that's what we execute on, the proper return, then I think that would go before share repurchases. So it's hard to predict. There are things in the pipeline, as Tom mentioned.

If they are in the pipeline, then you could probably assume based on our past track record that they have very good returns, that would be better relatively to share repurchases.

But even if we think about $10 million or $15 million events which wouldn't tax your cash flow so materially, that does take out a meaningful amount of stock.

Yes. I agree, Robert.

And is that a realistic expectation -- with all the other opportunities that small amounts such as that can continue to happen?

Yes, it's realistic that that could happen, yes.

Okay. And I guess I joined the call a bit late. I'm on about six other calls at the moment. But obviously the numbers look pretty good. What was the concern that -- I guess you've moved the expectation up to the upper end of the range, but is it a capital markets situation or a pre-need cemetery demand issue that prevents you from raising your numbers here at this point?

I think what we've done is when we provide guidance obviously we had models that said we're at the midpoint of the range. We guided you toward the back half of the range and I'd tell you this, we -- I think Eric said it in his comments -- we modeled a flat stock market performance, I should say trust fund performance over the next six months.

And so, if you want to be a believer that the markets are going to rocket back after the year, then when you could get that surprise, we just weren't -- we're not predicting the stock market. We just thought we'd take that position. And then I think on the cemetery side, we haven't changed our opinion. We just know the comps get tougher and so that's why we guided you towards the higher end of the range, Bob.

So Robert, when you look at it, the increase in the cash flow guidance is really related to working capital. And so that's really why there's a little bit of differentiation between raising cash flow guidance and keeping the same EPS guidance, although we did comment on the middle to the upper end of the EPS range.

Working capital counts, too, in my world. Thanks.

Mine too.

(Operator Instructions). Nicholas Jansen, Raymond James & Associates.

Just a quick question on the suburban division, the rural suburban division that you guys were going to develop once you kept Steve Tidwell on board. Can you just give your progress on that? Any interesting insights with him leading that segment?

Well, I'm going to say something and he's actually here. I'm going to (multiple speakers) make a comment as well. But I'd tell you we're very, very pleased to have Steve because he can't say that about himself. But that is in place. Steve's got his team working very hard. He's been on the road, a road warrior in getting out and seeing the facilities and meeting with folks and understanding the opportunities. So we're very, very pleased it's off and running and I'll let Steve make a few comments about where we are.

Well, I think that getting to know many of the SCI legacy businesses has been educational and helpful and we're bringing together the best practices of two very important parts of the Company. Pleased with our progress to date and look forward to big things ahead.

Great. And then just lastly, Eric, when does the Board meet again that you could potentially address your current share price -- share repurchase authorization?

The Board meets quarterly. The next Board meeting is mid-August. But as I said in my conference call remarks, we have over $50 million of authorization that's left.

All right, that's all for me. Thanks, guys.

There are no additional questions at this time. I would now like to turn the presentation back over to SCI management for final remarks.

I want to thank everybody for being on the call today, look forward to talking to you guys again at the third-quarter conference call which should occur I believe late October. Thanks and have a great week and weekend.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.