Stewart Enterprises' CEO Discusses Q1 2011 Results - Earnings Call Transcript

Mar.10.11 | About: Stewart Enterprises, (STEI)

Stewart Enterprises (NASDAQ:STEI)

Q1 2011 Earnings Call

March 10, 2011 11:00 am ET

Executives

Thomas Kitchen - Chief Financial Officer, Senior Executive Vice President, Director and Member of Investment Committee

Scott Eckstein - Director of Account Services

Thomas Crawford - Chief Executive Officer, President and Director

Analysts

Nicholas Jansen - Raymond James

Clint Fendley - Davenport & Company, LLC

James Clement - Sidoti & Company, LLC

Albert Rice - Susquehanna Financial Group, LLLP

Ellen White

Robert Willoughby

Dick Innes

Operator

Good day, everyone, and welcome to today's Stewart Enterprises, Inc. First Quarter 2011 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. Scott Eckstein. Please go ahead, sir.

Scott Eckstein

Thank you, operator. Good morning. On behalf of Stewart Enterprises, I'd like to welcome, everyone. By now, you should have all received a copy of the press release. If not, please visit Stewart's website at www.stewartenterprises.com for a copy.

Management will provide an overview of the first quarter, and then we'll open the call to your questions.

Before I turn the call over to management, please be advised that the information contained in this call is current only as of the time of this call. And the company assumes no obligation to update any statements, including forward-looking statements made during this call. Statements made by the company that are not historical facts are forward-looking statements. Examples of forward-looking statements include projections of revenue earnings, growth rates, free cash flow, debt levels, tax benefits and other financial items, statements regarding plans and objectives of the company or its management, statements regarding industry trends, competitive trends and their effect on future performance and assumptions underlying the forward-looking statements regarding the company and its business. The company's actual results could differ materially from any forward-looking statement due to several important factors, which are described in the company's Form 10-K for the year ended October 31, 2010.

The company uses adjusted earnings, adjusted EPS, EBITDA, net debt and free cash flow as financial measures. These financial measures are not in accordance with accounting principles generally accepted in the United States of America, or GAAP, and are intended to supplement rather than replace or supersede any information presented in accordance with GAAP. Reconciliation and the most directly comparable GAAP financial measures can be found on the company's website, at www.stewartenterprises.com under Investor Information Reconciliation of Non-GAAP Financial Measures and can also be found on the company's press release dated March 9, 2011.

With that said, I'd like to introduce the management of Stewart Enterprises. On the line, we have Tom Crawford, President and Chief Executive Officer; and Tom Kitchen, Senior Executive Vice President and Chief Financial Officer.

At this time, I'd like to turn the call over to Tom Crawford. Please go ahead, sir.

Thomas Crawford

Scott, thank you very much. Good morning to everyone. On behalf of all of us at Stewart Enterprises, we welcome you and thank you for joining us on the call this morning.

Let me simply say that we are pleased and encouraged with the progress our company has made over the longer-time horizon, and the strong results of the quarter further reinforced that point. We believe the strength of the quarter is found in the adjusted earnings, where we better evaluate performance on an apples-to-apples basis against the previous period.

For the quarter, adjusted earnings grew by 27% and earnings per share by 33% period-to-period or to $0.12. While Tom will provide more of the details, let me summarize by saying that we're encouraged and pleased with the performance and major drivers of our business that contributed to our strong results.

Funeral volume increased by 1.1%, which by all the indicators we evaluate, is better than the conditions in our specific markets. Our average revenue per event increased for both traditional burial and cremation services by 1.4% and 4.8%, respectively. Our cemetery property sales generated growth of 10%. Our preneed funeral sales grew by nearly 3%. And we continued to emphasize cost management and productivity in the field, as well as the home office, resulting in the expansion of our Funeral and Cemetery margins by 70 and 290 basis points, respectively.

It's our stated intent to manage the business where low single-digit improvement in the top line yield double-digit growth to the bottom line. We achieved that desired outcome, as we did throughout 2010, with the results of the first quarter.

Overall, revenue grew by 4%. With our improved systems, controls and better management of costs, we generated a 12% growth in gross profit. Throughout last fiscal year, we continued to repurchase debt at favorable prices, which allowed us to further lower first quarter interest expense by 12%. The reduction of interest expense and the continued emphasis on managing our costs contributed to a 32% increase in pretax income. While we don't expect that rate of progression to be that steep in the future, we will continue to manage the business to generate double-digit growth from single-digit increases in the top line.

We are encouraged with our strong performance in both the Cemetery and Funeral segments for the quarter. Cemetery revenue grew by 6%, largely due, as I mentioned earlier, to a 10% growth in cemetery property sales. A leverage of that revenue growth with the continued emphasis on controlling costs, generated an increasing gross profit of 33%. And gross margins improved by 290 basis points compared to the first quarter of 2010.

Our Funeral segment generated nearly $74 million in revenue and more than $20 million gross profit, which incidentally is the highest quarterly funeral revenue and gross profit generated in nearly three years. As previously stated, Funeral revenues were positively impacted by increases in average revenue for both funeral and cremation services, as well as our increase in case volume.

We continue to make advances in our efforts to better serve cremation families, and view cremation as an opportunity to better grow our revenues and profitability. Our mindset is that every family deserves the best efforts from us in satisfying their needs and desires, regardless of the disposition of remains, with the best and most complete offerings and services in our funeral homes and memorialization offerings in our cemeteries.

Last quarter, we unveiled our major new concept in better serving our families with the opening of our first cremation garden in Orlando, Florida. We turned less than a half acre of land into a stunning cremation memorialization center, in which families will want to inurn loved ones and visit often.

We are extremely pleased with the early results. Over the next few years, we are planning to develop the cremation gardens and other cremation projects in our cemeteries. We currently have seven projects under construction and 12 more under a feasibility review. We're working to complete a number of these projects in fiscal 2011 and expect to spend up to $5 million during the year as part of our ongoing inventory development program.

With that overview, I'm now going to turn the time over to Tom Kitchen for a more detailed review of our results and progress.

Thomas Kitchen

Thanks, Tom. Today, I'd like to discuss a few points related to our financial performance for the quarter and additionally, will address several of the topics of interest.

I'm pleased to report that during the first quarter, on adjusted basis, we reported a 27% increase in earnings and a 33% increase in earnings per share to $10.7 million or $0.12 per share. The company's reported EPS for the first quarter was $0.09 per share or a 13% increase in the same period in the prior year.

The most significant adjustment to our reported earnings related to a non-cash tax adjustment for our Puerto Rican operations. In January, Puerto Rico passed new tax legislation that decreased the top corporate tax rate for businesses from 39% to 30%. As a result, we revalued our previously recorded Puerto Rican deferred tax asset.

While the company will benefit from lower cash taxes in the future, a tax rate change resulted in a onetime $2.9 million net non-cash charge to reduce the deferred tax asset related to the Puerto Rican businesses. It's important to emphasize, however, that notwithstanding this tax adjustment of $2.9 million, reported earnings grew by 8% and earnings per share by 13% over the first quarter of 2010.

Our Cemetery segment continued to improve in the first quarter with a $3 million or 6% increase in revenue, primarily driven by a $2 million increase in cemetery property sales. Revenue increase, coupled with effective management of our cemetery expenses, generated a $2 million or 33% increase in gross profit and an expansion of our cemetery gross margin by nearly 300 basis points.

In our Funeral segment, we increased our average revenue per traditional funeral and cremation service and increased our same-store funeral services, resulting in a $2 million increase in revenue, a $1 million increase in gross profit and an improvement in our Funeral gross margins.

As Tom mentioned earlier, the overall improvement in earnings demonstrates the power of leverage in our business by translating single-digit growth in our top line into double-digit growth in the bottom line.

Our EBITDA for the first quarter increased some $3 million or 13% to $28.8 million from $25.4 million for the comparable period of last year. The increase is principally due to the improved performance in both our Funeral and Cemetery segments.

For the first quarter of 2011, we generated the highest first quarter operating in free cash flow in the past four years, in large part due to an improvement in our top line and our efforts to manage our cost.

We generated $15 million and $11 million in operating cash flow and free cash flow, respectively, during the first quarter of 2011, and we returned $2.7 million to our shareholders through the payment of dividends.

Our continued emphasis on generating positive cash flow has enabled us to take actions in the first quarter to further improve our capital structure. During the first quarter, we've purchased 1.3 million shares of our common stock for $8.1 million under our share repurchase program. We currently have approximately $14 million remaining.

We finished the quarter with a healthy cash balance of $64 million. In addition, we have no significant near-term debt maturities and no amounts borrowed on our $95 million credit facility. We have begun discussions with various financial institutions regarding the potential refinancing of our senior secured and revolving credit facility and senior notes to take advantage of favorable market conditions. Based on these discussions, we currently expect to refinance this debt well in advance of their maturities and may increase the size of the senior secured revolving credit facility.

As a result of the actions we've taken this quarter, our leverage coverage ratio, as measured on a net of cash basis, has improved from a high of 3.8x in the last three years to 2.7x as of January 31, 2011. This improvement further attests to the financial strength of the company.

Moving on to taxes. A few years ago, we commenced a comprehensive examination of our tax policies and implemented several IRS-approved changes that have produced significant positive results. We have realized tax refunds and reductions of tax payments of $56 million over the last four years, and we'll further reduce our future estimated tax payments by approximately $25 million, a total cash savings in excess of $81 million.

We are currently reviewing and gathering information on other tax initiatives which, if successful, will provide for additional potential cash savings. As a result of the successful tax planning, we anticipate paying nominal federal cash taxes in fiscal years 2011 and 2012.

In regards to the company's trust portfolio, and during the first quarter of 2011, our preneed trust experienced a total return of 4.7%. And our perpetual care trust experienced a total return of 2.3%.

Overall, total returns experienced for the trailing 12 months were nearly 15% for our preneed trust and 12% for our perpetual care trust.

In addition, over the last 12 months, the fair market value of our portfolio has improved significantly by approximately $68 million, including a $21 million increase since October of 2010 to a total of $816 million as of January 31. One of the actions we've taken to rebalance our asset mix has been beneficial and it produced stronger returns with less volatility.

Finally, the solid results from our first quarter are a great beginning to our fiscal year and we're looking forward to further success in fiscal year 2011. Now, I'd like to turn the call back to Tom Crawford.

Thomas Crawford

Okay, Tom. Thank you for that review. While we're pleased with the quarter, I am most pleased with the fact that we have continued to strengthen the business over a longer-term horizon. Despite the economic and financial market challenges of 2008 and '09, we continue to invest in our people, who improve their interaction with client families and to help them better understand how their behavior impacts and drives company performance. We made major investments in technology to help us manage better and respond quicker to customer needs.

While the size and scope of our technology infusions required significant management time and attention, that time and attention required was critical for long-term growth and success of the company. That major effort and the heavy lifting is complete, and we're focused on mining all the benefits from those investments.

We improved our selection of presentations and packages to make it easier for client families to understand and appreciate value, and make it more productive for arrangers to serve families. We've invested in the Cremation segment with the intent of changing our internal mindset that cremation is an opportunity to better serve families and further improve company performance. We changed and enhanced our organization to accomplish that objective. We expanded our managerial and leadership manpower with the hiring of key people who have a deep and profound cremation orientation, commitment and experience. And we've improved and fundamentally altered cremation merchandise in our funeral homes and cemeteries.

With all these actions and others, we saw our efforts were paying off with the performance of the fourth quarter of 2009. That uptick in performance continued throughout 2010, the first quarter of 2011, and we expect it to continue well into the future. We believe our performance over that period indicates that we're doing the right things operationally and financially for the company to continue to grow and prosper. We also believe the actions we have and are taking will have a tremendous payback as the death market begins to expand as the growth in live births beginning about 75 years ago begin to cycle into the market.

Our balance sheet is the best it’s been in 15 years. The tax strategies, as Tom just described, have further improved the productivity of the balance sheet and cash flow. Our preneed investment portfolio has been rebalanced to where we are generating acceptable returns with much lower levels of market risk. We are more aggressively pursuing additional growth through acquisitions of Stewart-type businesses.

I mentioned in the last call that we are devoting more resources to this cause, and in January, we announced a well-connected industry leader, an expert, joined our firm to help drive our acquisition process at an accelerated pace.

In short, we are encouraged with our results for the quarter and more encouraged with the actions we're pursuing to drive growth and to continue growth in earnings and cash flow well into the future.

On a final note, I trust that you are aware that I will step down as President and CEO of Stewart Enterprises at the annual shareholders meeting on April 7. And to do so, I will fulfill a three-year service assignment for my church. While my wife and I are honored to serve in this capacity, I will tell you that I am deeply saddened to leave Stewart Enterprises. I'm positive about the health and strength of the company and quite excited with the things we are doing to add greater value in the future. From a company leadership position and as a continuing shareholder, I couldn't be more pleased to have Tom Kitchen succeed me as Chief Executive Officer of the company and Lew Derbes to succeed Tom as Chief Financial Officer. Throughout my business career, I don't know that I've worked more closely with anyone as I have with Tom. I have the highest regard for his business ability, his leadership qualities, his knowledge of the business and his personal and business ethics. I believe the business just will get better and stronger under Tom's leadership.

Lew is a great young leader in the company who shares the same qualities and abilities as Tom. The board was unanimous in their approval and support for Tom and Lew.

With that, we are now ready to take your call and your questions.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll take the first question from Clint Fendley from Davenport.

Clint Fendley - Davenport & Company, LLC

First off, I wondered if you all might be able to talk about how the same-store sales results trended by month during the quarter? I mean, did we see that improve on a monthly basis here?

Thomas Crawford

Clint, I will tell you, in this business, it ebbs and flows. I don't know that anyone would wager a nickel on trying to forecast volume month-to-month. And again, we saw some good spikes in months and we saw some where we had a little bit of a lag, but it caught up, and I think with this business, you just -- it's consistent. That's the key thing. It's consistent. We just can't -- from our standpoint, we just can't predict it on a month-to-month basis. And we didn't see every month getting better, but every quarter, it just continued to get stronger every month.

Clint Fendley - Davenport & Company, LLC

Were there any noticeable, notable geographic trends on a volume basis?

Thomas Crawford

No. We did see some gains in California where we'd had some slippage last year, and that's, again, the interesting thing about this business is that you’ll get those ebbs and flows not only on a quarterly basis, you get it on a yearly basis. And so California saw upticks, we saw upticks just about in every part of our business. And one things that we’ve really been pleased with, beginning last year, is with our people. As we said, we’ve spent an immense amount of time and effort and resources in training our people, retraining our people again and again on better improvement, really opening their eyes to the role that they play. And that may sound not all that complex, but it was really -- it was stunning with the results we had. Also, we have been focusing our people out in the communities, not only from a leadership standpoint, but during this last year, we conducted well over 650 community presentations, which was -- clearly exceeded my expectations for what I thought we were doing during the year. And that just promotes our business, it promotes the good name of the facility, it gets our people energized, and this year, we plan to extend that even beyond that amount and do well over 1,000. So we're getting our people actively involved in the community.

Clint Fendley - Davenport & Company, LLC

Great. And then I had a couple of questions about your investment in the cremation gardens, like the one that you have in Orlando. I was wondering, is it too early yet, or have you seen any notable increases from a historical basis in your property sales at your site there in Orlando?

Thomas Crawford

What we're seeing in Orlando, yes. And throughout the company, I will say yes. Now we're putting resources in our facilities, but what we've seen in this last year, and I'm talking about a mindset, it's a mindset shift. And this is typically a hard industry to start shifting that mindset around from a negative to a positive. So just by putting in the cremation garden in Florida, that has a ripple effect through the rest of the organization. We saw our salespeople, our funeral people, becoming much more aware and really quite excited about the potential. I will tell you, in the investment we've made in Florida, again, it's early on, we have really started, even though we opened it in the fourth quarter, really didn't start selling from a marketing standpoint, promoting it, until January. And right now, we're probably -- so what we -- so we've got really January and February under our belt, a little bit of March, we're in excess of 50% to fulfilling the objective we had for the year. So we're pleased with that result.

Clint Fendley - Davenport & Company, LLC

And what is your timeline for when the seven projects should be completed? And how did you go about selecting these markets?

Thomas Crawford

Well, they'll go -- all seven, as I said, some will be completed in 2010, some will roll into 2011. It's a pretty good undertaking and we've had to balance that as an ongoing investment in all of our investments or inventory, not only cremation but traditional as well. But as I said, some of that will come in this year and the next. And Clint, I just forgot. What was the second part of your question?

Clint Fendley - Davenport & Company, LLC

Just how you went about selecting the markets that you entered here.

Thomas Crawford

We've done it from a couple of standpoints. One is where we had -- one, where the cremation presence is, it's low for us. The cremation rate is high. And in many of these areas where we have the combination properties is the first and primary opportunity because we want to connect that with our funeral operations. And two, is where we have really got low market penetration as far as serving cremation families. And we've got a couple of projects that will be very experimental for us to go into markets. We have almost very little market share, I mean, minimal market share, but there are high cremations in the area. And we think that's a great opportunity for us to test some new concepts.

Clint Fendley - Davenport & Company, LLC

Okay. And I guess just to be clear, I mean, you said you will finish -- some of these projects that you've started won't be finished until 2012 then, that's correct?

Thomas Crawford

We'll have them in -- yes, that's right. The ones we’ve talked about, some will be completed this year, some will roll into the next, and then we've got the feasibility of the ones that I mentioned earlier. So it's not -- they won't -- and even the ones that are coming in, in 2011, they won't have the full-year effect until 2012.

Clint Fendley - Davenport & Company, LLC

Okay, great.

Operator

We'll move next to Robert Willoughby from Bank of America Merrill Lynch.

Robert Willoughby

In the press release, when you announced that you would be moving on, there was a reference to some disagreement to the Board. I've spoken to Tom Kitchen about it, and not worried that he's stepping in any real problems of sorts, but can you flesh out any color around what may or may not have been the concerns that you had with the Board?

Thomas Crawford

Sure. And, Robert, it really wasn't with the -- it was the issue on priorities. Let me just explain, first and foremost, the reason I am leaving is really because of this mission call. And had the call not come, we wouldn't be having this conversation, because I am very excited and energized about the things we're doing. And if I could have had my way, I would have see if I couldn't stalled and hemmed and hawed around for another two to three years. But obviously, that's something you don't do when you're asked to do this. And if you believe what we believe, you go. And we're delighted. Now, with that said, I think we said in the release that the differences with the Chairman is related to priorities and staffing and manning. Now, I will tell you, almost 3 1/2 years ago, we put together, as a management group, a strategic framework. And that's the key thing as a management group. We've said before that 10 minds are better than one. We try and live by that. And we put this framework in place 3 1/2 years ago that's been driving us. And every year, we then organize our priorities to fulfill that framework. And we do that every single year. And simply stated, as we lay out the priorities for the company, and the Chairman, he's got such a wealth of experience in this industry. He's an icon in this industry, and my goodness, has done so much for this industry as well as the company. As a matter of passion, he's -- and one of the priorities that we already listed, one that's higher on the list. That's all it was. It's just higher on the list. And that became a little bit of a challenge, just in managing that priority within the greater scheme of priorities. If not, why do you even have priorities? So that’s what we have to balance out. Now, in light of leaving the company, we talked about that as a full Board as a way of strengthening the relationship with the Chairman and the CEO, improving the relationship and the performance of both Chairman and CEO for me or any incoming CEO. And this is a company -- we disclose everything. We're a transparent company. And so we felt that even with that discussion, after the discussion on leaving the company, that we needed to hold the scores of some of the things that we talked about to improve the business. And that's really it. I said the main driver for me is we're called to serve and delighted to do it, and that's what causes me to leave. And I will tell you, it'll be a sad day. When we drive out of here, it will be a very, very sad and difficult day.

Robert Willoughby

That's extremely helpful. And to the reference to the incremental $5 million spent on some of the cremation projects here, is this a suggestion that maybe we temper our growth expectations here a bit near-term? Or are the trends, certainly this quarter, are they strong enough to support this spending without a real hit to the trajectory that you're currently on?

Thomas Kitchen

Bob, it's Tom Kitchen. Now, the quote -- the reference to the $5 million are really just to put in context what we think we'll spend. We had been talking about commitments to expand our cremation offerings in the gardens, but they had not been specific with regard to the spending plans. So much of this will be inventory development, which is kind of normal and customary for us. But just for the benefit of the investors and the public, we just wanted to put into context the expectation of what we think we'll spend. The number could be $3 million to $5 million. We think $5 million is a safe number for us for this year.

Robert Willoughby

Okay, that's great. And just any details on the refinancing? You mentioned possibly retiring some notes. You went a little quick for me. Is there a chance you'd be looking to wipe out the remaining converts or include any kind of accelerated buyback in any refinancing effort that you’d do?

Thomas Kitchen

No. Plans are, at this point in time, would be to look at options with regard to refinancing the company's revolving credit facility. And we mentioned, in my part of the presentation, looking at increasing the size of that from the current $95 million. In addition to that, we believe market conditions are favorable for us to refinance this company's senior notes. The senior notes, just for your information, don't mature until 2013, so there's two years to go on that. And the revolving credit facility, the current one, matures in June of 2012. So we just think that market conditions are appropriate or at least are very favorable for us to consider refinancing and extending out the maturities in both of those notes and that revolver.

Robert Willoughby

That's wonderful.

Operator

The next question comes from Jamie Clement from Sidoti.

James Clement - Sidoti & Company, LLC

It seems over the last three to six months, you all have talked a little bit more about acquisitions. You've added some personnel in that regard recently. Obviously, from the Stewart Enterprises' perspective, your balance sheet is cleaner than it's been in, what did you say? 15 years? I was going to say more than a decade. That's as long as my columns go back on the excel sheet so I'll take your word for it on that. What's changing from a supply perspective? Are there more quality businesses that have reached out to you or have reached out to the industry as well? And if that's the case, what do you think is driving it? Is it partially just demographic, people are ready to retire?

Thomas Crawford

Well, that's a good question. Let me back up a little bit to go forward. One of the reasons why we say we're going to pull in our horns is we wanted to make sure that we had our house in order before we go on with any growth by acquisitions. That's why we spent so much time on this Best in Class initiative, cleaning up the balance sheet, as Tom alluded on, to doggone well over the past years and getting our systems in place. We felt we needed to do that. If not, whatever we acquired, we wouldn't be able to keep a gain or we didn’t feel we'd be as successful in keeping the gain. So we really wanted to have our house in order, our supply lines, and that's internally as far as information management and just how we manage the company, in a good position. And once we felt we've had that where we needed to be, then as we went out and acquired, those acquisitions are going to continue to add value and with very little interruption. And that's the main thing. That's why we pulled back. Now as I said, we feel like we're in a terrific position right now to grow and add value. And that's why we're now starting to move forward. Our activity has picked up. And I don't know if I could give any specifics on demographics, that we're seeing people beating our doors down, that's not the case. There are still companies that come to us with brokers, but one of the reasons that we wanted to reach out and get someone who is well connected in this industry is to give us a range of connectivity that we might not have here in New Orleans. And we're quite excited about that. Doors are being opened up that we couldn't have opened from that standpoint before. And so for us, Jamie, it's just getting our house in order, getting our systems in place, getting our philosophies in place, getting our balance sheet cleaned up. We've done that, and we can just now -- makes a heck of a lot of sense for us going forward, but it still says you have to -- we just won’t acquire any business. It has -- it will pass tough scrutiny and get through a very detailed process for us. But also, in having our systems in place, we've already started this process. We've made a little acquisition to get us going. And the integration of that was like night and day compared to how it was in the past. And we look to that as a little test case and a great success for us. Of all the things we're yammering on about, there's more words or action, I think, that went through the system pretty doggone quick. But it would not have happened any other way. So we feel like we got a good platform to go forward.

James Clement - Sidoti & Company, LLC

Okay. So if you don't mind my asking a follow-up question, I think you all have talked a little bit about valuation expectations and the kinds of businesses more from a quantitative as well as qualitative perspective, that you'd be interested in. Let me ask you about this, culturally, what is important about the businesses that you'd be buying?

Thomas Crawford

Well, culturally, it's just that we buy Stewart-esque kind of businesses. We like larger-than-average-sized locations. We like cemetery-mortuary combinations. And we like associating with good people, and we hope they would stay with us. And some of the ones that we're looking at right now, Jamie, I will tell you, things that get us quite excited. And as I said, for me, I'm kind of -- I’m going, but I'm holding on to the doors long as I can. They're going to have to pry my fingers off because I like the things that we're looking at and I like the people we're looking at. So, that’s the other thing. Culturally, with Stewart Enterprises, I use that same 10 minds are better than one. We don't care where the ideas come as long as they come. And the other thing that I think is a plus for us, culturally, with whoever we acquire is that you don't hear a lot of I and me around the office here. Again, it's a team orientation. That chemistry is important. And so culturally, good businesses, quality businesses, in markets that we can continue to build around, but we're also seeing opportunities in markets that we're not in right now. And time will tell how that works, but we look at that as an opportunity as well.

Operator

The next question comes from Ellen White from Rice Voelker.

Ellen White

I have a couple of questions I'd like to ask you but last quarter, you said that you were looking for a better term or measurement to quantify some of the advances you're making in your cremation initiative. Have you gotten a metric in place now? And then if so, how does that compare to the same period last year?

Thomas Crawford

That's a great question, and I will tell you, our metrics are becoming better. And they're not 100% where we need to be, but I will tell you we're tracking more data than we ever had on cremation and looking at our absolute number of cremation families that are staying or coming to the cemeteries, as it relates to our cemeteries versus traditional as well. We're also tracking, for the first time, so we put new measurement systems and we can only track period to period, not in relation to last year but a year from now, we'll be able make that case. And now we're looking at every one of our locations for combinations, how many cremation families came to the funeral home and then went to the cemetery. So then we have that capture rate and how many were slipping away from us. We also know from our cemeteries, our stand-alone cemeteries, where they're coming from. So this way, we'll be able to track what's happening once the family comes to our location. Do we keep them within our cemeteries or are they sliding away? And if that's the case, then we can start to use the diagnostics to find out why. But our systems are getting better. But it's, again, we're just -- we haven't looked at it this way before. And in my enthusiasm, I am quick to jump on measures and then it's up to somebody else to figure out how to track those doggone things. And we've made improvements along the way, but if you ask that question a year from now, we'll have some really good comparisons. But right now, we feel like our measures are, from my 40,000-foot excitement down to really tracking the nuts and bolts, that we feel like we've made good progress. And we are, in every management meeting, every month, we talk about what we are seeing and our measures and making sure that we're tracking the right things.

Ellen White

Okay. So right now there's nothing that you guys want to disclose?

Thomas Crawford

No, not right now. The only thing I will tell you is by the measures we're looking at, we're really positive about what we see as far as our revenue, the number of people that are staying in our cemeteries. So we're having an impact. But as far as disclosing those measures, no, we don't have them refined to where we need to be that they'll be as meaningful as we want.

Ellen White

Okay. And then in order to understand what basket we should put the inurnments in, if I'm trying to understand how it impacts funerals versus cemetery, and your cemetery gross margin was up nicely, was that due to cremation?

Thomas Crawford

That was due to, yes, all of the above. I mean our traditional burial or cremation, our preneed people buying in advance, that was driven by all parts of the business. There’s not one part that we isolate. It was driven by just what we normally do.

Ellen White

Okay. And then last quarter, you guys stated that revenues from the Orlando cremation garden were at $100,000. Can you give us any more -- you spoke a little bit to it, but can you give us any more specifics on how that specific location may have improved revenues this quarter?

Thomas Crawford

Well, what I will tell you is as far as what our expectation was for a full year, as I said, for what's being sold there, in at need, preneed, we’re about at 50% to 60% of where we thought we'd be for the year. So two months into the fray, two months and a week or two, we're tracking very, very well for what our expectations were. I was going to say we're well ahead of what our expectations were.

Ellen White

Okay, great. And then could you tell me a little bit about your e-commerce program, what you want to do on that level? And then when will that be rolled out and what might it cost?

Thomas Crawford

Okay, well, we've got a couple of things on e-commerce. First of all, we are selling e-commerce today. We are selling flowers, we are selling cremation objects as well, but when you get on our website, you can already go and capture some of that e-commerce. And that's had a -- it's one we -- it's kind of a marginal impact. It's a positive but it's not driving huge volume gains. Now that's one part of e-commerce. The other part is that we'll work on the new inventions part of our framework. We do have -- we are funding a little startup operation, development operation, let me call it that way, and R&D to look at bringing new value into the marketplace. And again, that's still under development. So we’ve still got a lot of go, no-go decisions to go through on this before we unveil that. But it will be sometime as we pass through those nodes of go, no-go, it'll be in the fourth quarter of this year before we flip the switch.

Ellen White

Okay. And let me just go back to wanting with relation to the cremation gardens. I have in my notes that you guys opened that garden for $500,000 or that was roughly the cost. Is that the correct ballpark number to use in terms of your investment?

Thomas Crawford

Yes, I would say probably about $600,000, $650,000.

Ellen White

Okay. And I guess different locations may be different costs but if that's a good ballpark, that's what I was trying to confirm.

Thomas Crawford

Yes, and again, there's not one simple single way of doing that. When we look at each one of these investments, we also look at it from an IRR standpoint, what our expectations are. And this garden is a first and a unique one. It's beautiful. We've also got another one coming in that area that will be equally stunning and will be for a different function in a stand-alone cemetery. And we also have investments that we're making in our existing facilities that are as simple as taking existing facilities that have been sitting there and turning those into glass-front niches. So that's a much lower investment with a heroically higher return. So we are doing a combination of stronger projects all the way down to very simple with high return.

Ellen White

Okay, alright. Well, great.

Operator

We'll go next to Richard Innes from JC Clark Ltd.

Dick Innes

Three questions for you. First of all on calls, I think this is the first increase we've seen on calls in, well, since Q2 of 2008. Do you see this as a one quarter blip, or is this the trend change that we've been hoping for, for a long time? And related to that is are you seeing this continuing in February and March?

Thomas Crawford

Let me tell you from a volume standpoint. We're thrilled with the volume increase and that's a function of a whole bunch of things. And I think we'll only know whether this is the long-awaited tsunami of births that are coming, I think we'll know that probably a year from now as it continues on. And as I said, with this industry, and you know it well, it can ebb and flow around. It has been in decline, but all I can tell you right now is we're pleased with what we have. We think we've been taking a lot more proactive actions with our people in the field, both from a funeral home and all those presentations we've made and our people out selling preneed funeral. We've had -- just it gets the name out, so we're encouraged with what we see. And whether this stays on for the rest of the year, none of us can answer that question. But again, we think we’ll just position ourselves well for the future.

Dick Innes

Second question is on revenue per call. Very strong on cremation, plus 4.8%. Does this reflect success in converting cremation calls to calls with service? I know that was one of your stated objectives.

Thomas Crawford

Dick, two things. As we track that, yes, we are trying to get more service out of it, and what we're also trying to do is for our people, which, one really takes care of the other, is the quickest, assuming that people who wanted direct cremation don't want anything else associated with it. So again, it gets back to that mindset. So what we do know is that we are offering more products to families than we have. We've increased our selection in urns with a much broader array, and our cremation containers, we've made those more feasible for families to utilize. So it's a function of just not throwing in the towel with the direct cremation, not asking the question. We are asking questions now that we haven't asked. And just by asking the questions, it's given us the yield going in that strong direction.

Dick Innes

And are the calls with service on cremation going up, the percentage?

Thomas Crawford

That's one of those, again, as we look at it, we've had to refine our data from where we looked at it. We've gone through I think about two revisions of how we even collect the data. And as with our cremation in our cemeteries, we’ll have, as we revise that right now, to really get clean measures on what is with service. I mean, the days come by. For example, we might have one situation where if someone included a singular flower, that might have not been a direct cremation. Well, that's not good enough. So we've gone back and revamped our, the way we collect our data and we'll have better measures period-over-period going forward.

Dick Innes

Okay. Last question is about cash flow priorities, acquisitions, debt buyback and share buybacks and so on. Could you talk a little bit about that?

Thomas Crawford

Okay, can you give me any more specificity? Which one about that?

Dick Innes

Well, in terms of what's the order of priority here? Is it acquisitions, debt buyback or share buyback or increasing dividends, for example?

Thomas Kitchen

Dick, this is Tom Kitchen. I think the three steps that we're looking at in terms of the use of the cash, certainly, we want to grow the business. We want to grow organically. And that's why we're making investments in systems and people and training and so forth to help us grow the business organically. We also believe acquisitions represents a significant opportunity for us and we would look at any acquisition that we think fits the criteria that we want, both from a qualitative as well as financial criteria. And then, yes, we would look at debt repurchase as an opportunity for the company. But absent any debt repurchase, we would look to continue to reinvest in the businesses that we have. A dividend increase, that's the Board's decision to consider what to do with regard to growing the dividend. We're not going to what I call in the past, "warehouse cash." We believe that another opportunity for us is to repurchase the company's shares of stock out there. So we have $14 million left in the current repurchase plan, and we would give that serious consideration as well. First and foremost, we think that the best use of the cash for the company is to grow the business either organically or through an acquisition.

Dick Innes

Okay.

Operator

[Operator Instructions] We'll go next to A.J. Rice from Susquehanna Financial Group.

Albert Rice - Susquehanna Financial Group, LLLP

A couple of questions. If I could ask, obviously, with the Puerto Rican decision you highlighted in the release, what is the appropriate tax rate going forward? A specific question maybe to start.

Thomas Kitchen

Well, I think what you’re talking about is what's the effective tax rate for the company in modeling?

Albert Rice - Susquehanna Financial Group, LLLP

Right.

Thomas Kitchen

It would be in somewhere in the 37%, 38% range for us. So this one quarter, we expect this to be a one-quarter blip. There could be some adjustments down the road but we think that we've caught most of it.

Albert Rice - Susquehanna Financial Group, LLLP

Okay. Second, I guess, I don't know whether you -- I maybe jumped on a little bit late, did you make any comments -- obviously, one of the positives that both you and the other leading player in this space have seen is a stabilization on the case volumes. I know you commented a little bit about that. Maybe you can comment on whether that's continued into February and March?

Thomas Crawford

No, I didn't comment on that, typically, because we don't try to comment on those. And again, we're encouraged with what we've seen, as I said earlier. And that we're just not waiting for that to come to us. We've had our people very much involved in the community at community presentations that were really very effective for us. So, yes, I think we're all with great expectation that the market is going to come back very soon and with us as the start of it. We'll understand as probably the end of the year, whether it's back safe and secure.

Albert Rice - Susquehanna Financial Group, LLLP

Sure. And then in performance in the trust assets, obviously, now you've sort of got a year's worth of your performance and your performance in the last quarter. I know that you don't tend to automatically necessarily benefit, and I couldn't tell from the 10-Q, it doesn't appear that, that had a lot of impact so far on the income statement. But can you maybe give us some flavor, Tom, as to how quick that will have an impact and what the impact might be?

Thomas Kitchen

A.J., it is a longer term impact from the improvement in the investment portfolio. We have seen impact with regard to the fees that we earn as well as also some of the improved returns, in particular the perpetual care trust portfolio. So we are seeing the signs of improvement. We have not been specific in the past with regard to the exact amount that we've realized, but I think it's safe to say that there is significant improvement now compared to a couple of years ago.

Albert Rice - Susquehanna Financial Group, LLLP

Right. So if I look through year-to-year, either it's a positive on most recent quarter this year versus last year? And probably the expectation being the steady-state environment, it would benefit you incrementally in the next fiscal year?

Thomas Kitchen

We would expect that to continue. There was a positive experience in the first quarter in terms of the income that we derived from the investment portfolio. It was not of a material nature. It was in the category of maybe several hundred thousand dollars. It's showing that steady improvement. First quarter last year was good with regard to some of the income we derived from the investment portfolio. So we've had from that segment of the business, it had, let's say, a tough comparison to the first quarter of 2010.

Albert Rice - Susquehanna Financial Group, LLLP

Okay. When you look at, finally, at last, just the preneed cemetery sales, and again, if you commented on this earlier, that's fine, but looks like we've seen continued strength under that area of the business that was impacted by the economic downturn. Could you sort of tell us where you think we are relative to where we were pre the downturn? And have we gotten most of that back at this point, it's more of a steady-state situation? Or is there still further upset?

Thomas Crawford

No, and we're not back to where we were pre the turndown. And so consumers are still, they're coming back. They’re not coming back to the level they were before, but we have seen positives throughout all that period. Now here's the interesting thing about that is that the way we're managing the business today is even though we're not back to those pre-downturn levels, and that clearly is upside because we've been there before, we look at that and we’ve talked with our sales organization, made those exact points, that we have a lot of upside left in this business and beyond. But the fact is, we have managed better, and I think our profitability on a percentage basis, when you look at everything apples-to-apples, we're getting more bang for the buck now than we were getting in the past. So that's one of the benefits of a downturn, if there is such a thing. It causes you to go back and scrutinize your costs better and how we're doing things. But as we continue this going forward, we won't see those same kind of rates of change in the margin percentages increasing, but we think we'll continue to get steady increases.

Albert Rice - Susquehanna Financial Group, LLLP

Okay, great.

Operator

[Operator Instructions] We'll go next to Nicholas Jansen from Raymond James and Associates.

Nicholas Jansen - Raymond James

Just sort of a quick question on the Orlando cremation garden. What is the average revenue per cremation at one of those facilities versus let's say just a normal cremation at one of your other cemeteries? Just trying to get a sense of the magnitude of the impact from this dynamic.

Thomas Crawford

Yes. Typically, I don't know that we've given that out in the past and probably won't right now, but again, what we are seeing in the past, let me just compare and contrast this without giving you a -- I'm not helping you with what you want, but just what we are achieving is in the past, our cremation inventory, many times, is kind of an afterthought built into niches, built into a mausoleum or caskets. And now we focus totally on the cremation family where we have high-end -- we've got private estates for cremation families. We've never had those really before, as well as just enriched merchandise. So our averages, they are going up. I would say that they are going up, we just won't tell you exactly what they're going up to, if you don't mind.

Nicholas Jansen - Raymond James

Well, that's fine. And then...

Thomas Kitchen

One of the points that is of interest, too, is that the Tranquil Oaks garden in Orlando is part of a combination operation in addition to the cemetery revenue that we would realize. From the sales of Tranquil Oaks, we're looking at improving the sales of our cremation funeral events at the funeral home. So for us, the combination of facility there offers us a, I'd say, a double benefit. It's not only we sell the cemetery property, but if they’re interested in a cemetery property, in all likelihood, they're going to be interested in a funeral cremation service, which combined, enhances the revenue opportunities for us.

Nicholas Jansen - Raymond James

Okay. And then just one last one on the refinancing. Is it going to be kind of a straight refinancing of let’s say the $200 million of the senior notes or is it going to be something along the lines of maybe use your revolver capacity to pay that down a little? What kind of rates are -- is there any kind of timetable or kind of details you can give us on that? Would be great.

Thomas Kitchen

On the senior notes, we currently have $200 million. And we think that, that's an appropriate part of the company's capital structure going forward, and we will look to refinance it for the same amount.

Nicholas Jansen - Raymond James

Okay.

Operator

It appears there are no further questions at this time. I'd like to turn the conference back over to our speakers for any additional or closing remarks.

Thomas Crawford

Nancy, thank you. First of all, to all listening on the call, we thank you for joining us today.

In closing, let me just affirm that it's been a privilege and honor for me to lead this organization for the past four years and to rub shoulders with the company's talented employees who have dedicated themselves to everyday to serving families with the best possible care at the time of need. For me, it's been a wonderful and meaningful experience.

And finally, on a personal note, I may not be speaking with too many of you in the near future, but I want to thank each one of you for your interest in what we are doing and for your faith in the people at Stewart Enterprises. With that, now I'll turn the time over to Tom for his closing comments.

Thomas Kitchen

Thank you, Tom. I would like to say that I'm honored to have been selected to serve as the Company's Chief Executive Officer. Tom is leaving Stewart Enterprises better than it was when he arrived, and I intend to build on these successes and to continue to improve service to families, opportunities for employees and value for our shareholders.

I'm also pleased to have Lew Derbes, our current Senior Vice President of Finance, succeed me as Chief Financial Officer of the company. I've worked with Lew for many years and I'm confident that his knowledge and expertise would be a solid foundation for the future and continued success of the company.

On a personal note, it's been a privilege and an honor to work the last four years with Tom Crawford. I admire him very much and wish him the very best in the future. He set the right tone for our organization and helped crystallize several initiatives that I currently support. While he may not be with us to see them to fruition, our vision for the future incorporates many of the initiatives that he began.

Thank you for joining us today.

Operator

That concludes today's presentation. Thank you for your participation.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!