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The New Order

      
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“24/7 Wall Street” posted a piece on January 13 entitled “The Ten Companies that Control the Death Industry.”  http://247wallst.com/2011/01/13/the-ten-companies-that-control-the-death... The first surprise was that Wal-Mart, Amazon and 800-Flowers were all in the top 10 influencers….Discounters that wouldn’t even have been on the radar screen a decade ago. The rest of the article was same ‘ol,  same’ol at first blush.  The order that they were listed was kind of random.  The interesting stuff comes if you re-order them by industry sector.

They posted revenues and earnings for each.    All companies listed were publically traded. I left Wal-Mart, 1-800 Flowers and Amazon.com out as irrelevant for this comparison---death related revenue is such a small fraction of their revenue.   Net Income as a percent of revenue (Return on Revenue- below listed as ROR) provides a fair benchmark for comparisons of the 7 remaining true industry players.  So here are the results when you “Sector” order them:

Sector:   Manufacturing                                                                 ROR

        Rock of Ages (Granite Memorials)                                            13.9%
        Hillenbrand (Batesville Casket)                                                  9.4%
        Matthews (Bronze Memorials)                                                    8.0%

Interesting that three of the top four Return on Revenues are suppliers.   They always complain about skinny margins at the wholesale level and talk about how much better the margins are at the retail level, but manufacturing leads the way.

Rock of Ages has always enjoyed this snobby culture that was all about only providing the finest quality granite for a 50% premium. They refuse to compete on the low end.  Seems to be working for them, huh?

Sector:    Consolidators – Funeral Home and Cemetery

        StoneMor Partners: (Mostly cemetery and some combos)            8.8%
        Stewart Enterprises: (Cemeteries and combos)                          7.2%
        Carriage Services: (Funeral homes and some cemeteries)          3.9%
        Service Corporation International: (Mature consolidator –
            Mostly funeral homes)                                                         2.4%

It appears that the oldest and largest (SCI) of the consolidators with the highest percentages of funeral homes achieves the lowest return. The newest of the consolidators (StoneMor) are exclusively cemetery and combo with only a handful of free standing funeral homes.  It is the highest achiever.

Stewart is middle-aged (as opposed to mature) and prospers from their formula of mostly large cemeteries, with large combination funeral homes on their properties and few free-standing funeral homes. Carriage is mostly free-standing funeral homes and middle-aged as well.

Point Being: Top two are cemetery dominated. Bottom two are funeral home dominated.

Conclusion:

The 1990’s is often called the decade of consolidation, and funeral home companies were high flying in terms of returns, multiples and purchase prices, with cemeteries and suppliers just trying to stay alive.  What a difference a decade makes, huh?   The Tortoise seems to have beaten the Hare.