Stewart Enterprises F1Q08 (Qtr End 1/31/08) Earnings Call Transcript

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 |  About: Stewart Enterprises, Inc. (STEI)
by: SA Transcripts

Stewart Enterprises, Inc.(NASDAQ:STEI)

F1Q08 (Qtr End 1/31/08) Earnings Call

March 11, 2008 11:00 am ET

Executives

Scott Eckstein - Financial Relations Board

Tom Crawford - President and CEO

Tom Kitchen - Senior EVP and CFO

Analysts

Daiya - JPMorgan

Jamie Clement - Sidoti & Company

Mike Scarangella - Merrill Lynch.

Colin Stewart - JC Clark

Dick Guiness - JC Clark

Jamie Clement - Sidoti

Jason Furton - Banc of America Securities

Henry Reukauf - Deutsche Bank

Operator

Good day, everyone and welcome to today’s Stewart Enterprises Inc., First Quarter 2008 Earnings Call. As a reminder, today's call is being recorded. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Instructions on how to participate will be given at that time.

Now I would like to turn the call over to Mr. Scott Eckstein of the Financial Relations Board. Please go ahead, sir.

Scott Eckstein

Thank you, Operator. Good morning and thank you for joining us. On behalf of Stewart Enterprises, I would like to welcome everyone. By now you should have all received a copy of the press release that was distributed this morning. If not, please contact Liz Dolezal at 312-640-6771, and she will send one to you immediately, or 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 statements due to several important factors which are described in the company’s Form 10-K for the year ended October 31, 2007. The company uses EBITDA 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 to 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 in the company’s press release dated March 11, 2008.

Joining us today from the management of Stewart Enterprises we have Tom Crawford, President and Chief Executive Officer, and Tom Kitchen, Senior Executive Vice President and Chief Financial Officer. At this point then, I’d like to turn the call over to Tom Crawford. Please go ahead.

Tom Crawford

Scott, thank you and good morning to everybody. On behalf of all the employees of Stewart Enterprises, we welcome you and thank you for joining us on our first quarter conference call. For today’s call we will follow same pattern as in the past, and then I will provide a performance summary for the first quarter and Tom Kitchen, the company’s Senior Executive Vice President and Chief Financial Officer will provide an in-depth review of the results.

While the financial results for the quarter did not meet our expectations, we took actions that are clearly intended to strengthen the company over the long-term. Clearly, we have an opportunity to improve and as we evaluate all parts of our business, we are identifying and finding those opportunities which encourage us about the positive future of Stewart Enterprises. The performance for the quarter can be summarized in five main areas.

First, we had positive volume growth in our funeral segment. Second, we didn’t grow our average revenue per event, but maintained with increase of volume. Third, we were negatively impacted by above average cost increases from some suppliers. Fourth, we experienced a decline in gross cemetery property sales, and fifth, we paid more taxes in terms of rate and dollar payments.

We are pleased with our growth in funeral events for the quarter. The data we track suggest that there are fewer deaths in our market than the previous year. Despite a lower market opportunity, we were able to grow our call volume by 2.2% which clearly implies that we continue to grow our overall market share. This is important to us, not only for the impact on current performance, but the increased opportunity for us to differentiate with more people visiting our facilities in support of our client, families or guests.

We want more guests coming on to our property and visiting our facilities. We value our growth in guest as an asset which increases our ability to influence and positively impact them in the future. Though we maintain our average revenue per event, period-over-period while growing our calls, we didn't get the same benefit of a growing average as we did in 2007 from the product packages that were rolled out in the last half of 2006 and early 2007.

Additionally our averages were impacted by the expected rise in cremations and a slight mixed in within the category. We experienced a proportionately greater increase in low priced cremation services when compared with the total number high price cremation service.

For the quarter we experienced significant increases from certain merchandise suppliers as they pass down the affect of rising raw material prices which have been impacted by global market conditions. Those increases negatively impacted cemetery and to a lesser degree funeral operations when compared quarter-to-quarter. We are monitoring and adjusting our product offerings and pricings as necessary to improve our margins.

The quarter was negatively impacted by a reduction in cemetery revenue. Property sales declined 5.9%. We grew property sales for the first two months of the quarter, but the result of January fell well below the previous period and were enough to negate the gain in the previous two months. While there are many factors that affect our sales production including the impact of the economy and weather conditions in certain parts of the country, we're closely monitoring the external conditions and our internal processes.

I will tell you that February production is more in line with our expectations and selling cemetery property and merchandise has long been and will continue to be one of our core competencies.

The other significant factor which contributed to the decline in our cemetery revenue was the delivery and construction of community mausoleums. Last year, the company addressed the need to better monitor and manage this important activity. During 2007, the backlog was significantly reduced which generated more revenue for the quarter, which makes quarter-to-quarter comparisons difficult.

However, as a result of this renewed attention, we continue to do a much better job of ensuring the timely construction of these projects. Our ongoing sales continue to add to our backlog of property to be constructed, which includes community mausoleums and private estates, and currently represent about $24 million of revenue, which will be recognized as construction occurs.

The final summary point is innovation to the comparable income tax activity. The company's tax rate for the current year is 37.5% compared to 26.4% in the same quarter of last year. In addition, we paid cash taxes in the current quarter as opposed to receiving a net tax refund in the first quarter of 2007.

And with that, I'm going to turn the call over to Tom Kitchen to give you a more in-depth review of our financial performance for the first quarter. Tom?

Tom Kitchen

Thanks, Tom, and good morning to everyone. I'll begin my review with the summary of our first quarter for this fiscal year. Company reported net earnings from continuing operations of $8.9 million or $0.09 per diluted share compared to net earnings from continuing operations of $11.9 million or $0.11 per diluted share from the first quarter of fiscal year '07.

Funeral revenue in the first quarter of '08 increased $1.3 million to $73.4 million, primarily due to a 2.2% or 331 events increase in funeral services performed. The total number of funeral events performed in the first quarter of '08 was 15,400 events. We also experienced 0.8% of an increase in the average revenue per traditional funeral service and 0.5% increase in the average revenue per cremation service.

Notwithstanding these increases, the same-store average revenue per funeral call remained the same quarter-over-quarter due to a proportionately greater increase in lower price cremation services when compared with the total number of higher priced traditional services. This is demonstrated by 120 basis point increase in the same-store cremation rate from 38.9% in the first quarter '07 to 40.1% in the first quarter of '08.

As we have found over the years, average revenue per event can fluctuate quarter-over-quarter. However, it's important to note that since the beginning of fiscal year '06 we've increased our average revenue per cremation 10.4% and our average revenue per traditional funeral 6%, resulting in an overall increase to a 6.8% over the last two years.

Our cemetery revenue had an overall decrease of $2.9 million to $56.8 million for the first quarter of 2008, primarily due to a $1.7 million or 5.9% decrease in gross cemetery property sales and a $1.5 million decrease in construction on various cemetery projects.

In regards to gross profit, we experienced a $4 million decrease in quarter-over-quarter due to the $1.6 million decrease in revenue and a $2.4 million increase in expenses. We experienced a $1.9 million increase in merchandise costs, primarily due to price increases from certain suppliers related to an increase in raw material costs.

In addition, we experienced a $500,000 increase in our health insurance costs, primarily due to an increase in high dollar claims. On the positive side, we are pleased to report an overall decrease in our property insurance costs of $400,000, primarily due to a decrease in premiums negotiated in the latter part of fiscal year '07.

In addition, our corporate general and administrative expenses increased $1.2 million to $8.2 million for the first quarter of '08. The increase is primarily due to a $600,000 increase in information technology costs due to the implementation of the two new business systems and a web development project in the current year, and a $400,000 increase of cost related to the process improvement initiative that began in the first quarter of fiscal 2008.

We also experienced a $2 million decrease in hurricane-related charges from a net charge of $1.9 million in the first quarter of '07 to a net recovery of $100,000 in the first quarter of '08.

Our EBITDA from continuing operations was $27.1 million for the first quarter of '08 compared to $29.5 million for the first quarter of '07. EBITDA for the first quarter was impacted by a $4 million decrease in gross profit partially offset by $2 million decrease in hurricane related charges, as previously mentioned.

Investment and other income decreased from $300,000 to $800,000 primarily due to a decrease in interest income related to amounts due from the Internal Revenue Service. Our interest expense decreased $900,000 to $5.9 million during the first quarter of '08, primarily due to a reduced rate from the issuance of the senior convertible notes in fiscal year 2007.

For the first quarter of '08, our effective tax rate for our continuing operations increased to 37.5% compared to 26.4% for the first quarter of '07. The reduced rate in fiscal year ’07 was primarily due to the utilization of $1.9 million of a capital loss carry forward. Prior year effective tax rate exclusive of the prior year benefit would have been 37.9%.

With regards to our trust investment performance, our preneed funeral and cemetery trust investments, long with our cemetery perpetual care trust investments were all impacted by the recent decline in the market value due to a broad-based decline in the overall financial markets. However, the funeral and cemetery merchandise trust funds do not have an immediate financial impact. The contracts they relate to a long-term in nature and we can manage the portfolio to mitigate the effects we are currently experiencing.

While we are seeing a decline experienced in our first quarter of ’08, the five year total annual returns including the first quarter of ’08 were 7.7% and 6.8% for the funeral and cemetery merchandise and perpetual care trust funds respectively. Cash flow from operations decreased $13.8 million from $17.9 million in the first quarter of fiscal year ’07 to $4.1 million in the first quarter of fiscal year ’08.

Our recurring free cash flow decreased some $11 million from $12.2 million in the first quarter of ’07 to $1.2 million in the first quarter of ’08. The decrease in cash flow is due to various reasons including a decline in the earnings for the period and the fact that the company became a cash tax payer in the current year. The company received $1.4 million in net tax refunds for the first quarter of ’07, compared to net tax payments of $3.3 million in the first quarter of ’08.

In addition, the company paid an additional $1.4 million and interest payments in the first quarter of ’08, compared to the same period in ’07 due to the timing of payments as a result of the issuance of the senior convertible notes. Lastly, the company had net cash inflows in the first quarter of '07 up $2.1 million in insurance proceeds related to Hurricane Katrina and $3.2 million of business interruption proceeds.

I'd like to turn the call back over to Tom.

Tom Crawford

Thank you Tom for the review. In summary the first quarter performance did not meet our financial expectations, but we are taking actions to improve our future performance as well as build on a stronger base to support sustainable growth. As I mentioned at the beginning, we are pleased with our funeral call growth. We wanted to grow organically and to keep more families and guest visiting our locations. Our independently generated customer surveys are increasing positive, and we believe it shows in our volume growth.

To improve our average revenue per call we will be rolling out over the next two months, new and intense packages which are expected to positively impact both funeral and cremation averages. We have refined our first round of packages and are offering more value-added options to the families. We'll also do a better job on sales, training and execution of time packages to preneed sales. To counter the impact of escalating merchandise and energy related costs, we have adjusted retail prices to improve margins.

Additionally we are conducting market tests of alternative products as well as evaluating sourcing options to reduce the cost to the families and to the company. We are confident this will enable us to reduce our dependence on certain raw materials, while we continue to serve the needs of our families. In addition to the actions we mentioned, we undertook to major initiatives during the quarter which we believe will provide a strong base for solid and future growth.

During the quarter the best-in-class initiative was rolled out across the company. The message is simply, we wanted to continuously and consistently grow our business organically as well as through external options. In the best-of-class initiative we have identified and quantified if you will, common cultural values in how we do with customers, guests and each other. We have implemented consistent key measures for all locations, provided locations dashboards comparing key measure result against planned and previous year, to track progress and to service early warning systems, and provided a systematic sharing of best practices and improving solution actions to generate improved results.

The expected outcomes of our initiative are to improve the incoming cash flow from our existing operations. The second major initiative is our overall continuous improvement project, and we are energized by the findings of the first phase. We have consulting experts working with dedicated Stewart employees to evaluate every step of our major processes, and the identification of waste of time, effort and cost are significant.

Additionally, successfully making changes and capturing the intended results will enable our infrastructure to accommodate to future growth. If we were concerned with short-term results, we would not press ahead with this adjustment at this time because it is a significant plus cost as Tom mentioned, and is the major undertaking. However, we are looking to the long-term results which will produce a significant benefit to the company and shareholders.

Finally we have also continued to return capital to our shareholders. The Board increased our share repurchase program to $50 million during the quarter, of which we have completed about $28 million and also paid $2.4 million in dividends. Since the beginning of fiscal 2007, we have repurchased $87 million of common stock and have paid [$13] million in dividends. We remain committed to the share repurchase program with approximately $22 million presently available under the current program.

As I said in the beginning of my time with Stewart Enterprises, that we will not acquire for the sake of acquiring. Only where it makes strategic sense or where we can purchase at prudent prices and then add value to the business. Our best-in-class initiative is intended to help provide a consistent way in which we look at and manage our businesses, where we have a proven system for increasing the value of our locations.

While it will take time for the organization to fully grasp the power and produce the desired results, we are confident in the foundation it will provide, and we feel comfortable in becoming more proactive and energetic, and looking forward to making value-added acquisitions and installing the best-in-class mindset. We truly believe we are making investments in the company today that will show returns for the company tomorrow.

Now with that in mind, we're ready to answer or to take your questions.

Question-and-Answer Session

Operator

(Operator Instructions)

We will take our first question from Edward Yruma from JPMorgan.

Daiya - JPMorgan

Hello. Actually this is [Daiya] on behalf of Ed, because he is traveling today. Actually, can you provide us with an update on your process improvement and when do you expect it to be completed? And also, you mentioned implementation of new business systems in the quarter; could you give us some color on that as well? Thank you.

Tom Kitchen

Okay. The process improvement program we kicked off last fiscal year, and we are in what I would describe as Phase II of a multi-step process. We expect from a point of view that the implementation or the completion of the process improvement will probably take most of this fiscal year for us, but, of course, our attention is to take the lessons learned as we can and to implement them as quickly as we can in order for us to realize the benefit.

The software packages that we implemented, we implemented an Oracle financial reporting in the FY '07 period and that was done in the summer, probably more like about May or June. We also are working on overhauling our contract of system and implementing a death care based package that would facilitate the processing of information going forward and also the maintenance of the historical information that we have to maintain going forward. Those are the two significant software projects. The overhaul of the company's contract system is ongoing and will be implemented during the current fiscal year.

Tom Crawford

We have an incredible amount of data that we manage, as Tom said, through all the contract system. And with that there is a tremendous amount of manual handling and processing. And the project that we're undertaking right now is to identify every step along the way and looking for clear opportunities that we can shorten the cycle time, shorten the steps and improve the quality.

Daiya - JPMorgan

Okay. Got you. And also, just a bit more general, about the downturn you've seen, especially on the cemetery front, is it more a macro-related or agent-specific or have there been any executional issues on that front?

Tom Crawford

Well, we've seen that we've had more of an impact in the East than we have in the West. And as I mentioned, for the month of February that we just completed, and again this is preliminary, very topline, we saw that the results bounce back. As far as the effect the economy is having on our business, there we will have an impact, but historically we've been able to sell through that.

We believe our properties haven't changed. They're tremendous properties. And as I mentioned of what we saw, a little bit of a falloff in January, February is comeback and closer to our expectations.

Daiya - JPMorgan

Okay Thank you very much. And one final question, if I may. In terms of the flu season how much of the improved call volume was attributable to that and like what are the trends that you're seeing in this regards in February?

Tom Crawford

We do not believe that any of the first quarter was influenced by the flu season. And I think it's only as of late that it started to uptick a little bit. So over the first quarter the effect was negligible.

Daiya - JPMorgan

Okay. Thank you very much.

Tom Crawford

Thank you.

Operator

We'll move next to Jamie Clement at Sidoti & Company.

Jamie Clement - Sidoti & Company

Good morning, gentleman.

Tom Crawford

Jamie, good morning.

Jamie Clement - Sidoti & Company

Good morning. Tom, I think that it's probably safe to say that based on your prior work experience that among the senior executives in your industry you probably know more about the merchandise supply industry than probably any of the senior executives out there. So, given the raw material increases, given the fact that -- as I understand it, are under contract from a casket perspective, there aren't a lot of bronze suppliers out there. What can you guys do in terms of evaluating alternative products? I mean you're in a pretty traditional industry from sourcing. Can you give us a sense of the kind of things you are looking at?

Tom Crawford

Well, for instance, on the cemetery side, clearly bronze has been the most traditional product out there. I think it's no surprise on what's happening with copper prices and the influences. But what we're doing is looking at alternatives as far as accomplishing the same objective with different materials. We're also looking at remixing our product that we have to sell in our cemeteries. For instance, we have devoted space in our cemeteries for more of an upright monument space. I was just reviewing some in February in Florida and again those will not totally mitigate the situation, but there are ways that we can remix our selling in the cemetery and give us a different look, a different feel, and we think with even better revenue enhancing opportunities.

So that's one way we can deal with the bond's issue, and we've had a good strong relationship with our suppliers, we figure that, we'll continue to go on. But we will look at sourcing options as an alternative, and as I just mentioned within our cemeteries, arranging our gardens, our products offerings a little bit differently, so it's a different look in a different field.

Jamie Clement - Sidoti & Company

Okay. In terms of what consumers would see, in terms of some of the upright things. Are you specifically are you talking about granite or you are also talking about other kinds of materials.

Tom Crawford

Yeah. In the granite; yes, on the upright.

Jamie Clement - Sidoti & Company

Okay. Can you just remind us, like is that a higher price point item for a customer versus a flush bronze memorial or something like that. I mean is it a meaningful price difference?

Tom Crawford

Well, they way we're positioning that right now in some of the facilities that I have looked at is that yes, it's a little bit more - it's a more enhanced offering to this - now.

Jamie Clement - Sidoti & Company

Right.

Tom Crawford

But some of other, that I mentioned, product test that we're doing right now, those would be replacements. So it would be no different price points than families are doing today.

Jamie Clement - Sidoti & Company

Okay. All right, thanks very much for your time.

Tom Crawford

Thanks Jamie.

Operator

We'll take our next question from Mike Scarangella at Merrill Lynch.

Mike Scarangella - Merrill Lynch.

Hi, good morning. I did just want to circle back on the merchandise cost since it looks like it attributed for roughly half of the margins decline in both the funeral and the cemetery segments. It's my understanding and it was just mentioned I think in the prior question, you do in fact contract for most of these supplier, with most of the suppliers in advance? Correct.

Tom Crawford

Correct.

Mike Scarangella - Merrill Lynch

So the way you are describing the quarter, it sounds like it was a surprise. But you would have seen this coming, right? Given you would have contracted for this, I don’t know three, six, nine months ago. So you would have known that you would have to pass through these prices to your consumers and so forth several months ago. Is that true?

Tom Crawford

We finalized our contract in November just last year, and since that time we have experienced two price increases above and beyond of what we had anticipated.

Mike Scarangella - Merrill Lynch

Above and beyond what you contracted for?

Tom Kitchen

No. Above and beyond of what we anticipated.

Tom Crawford

Above and beyond of what we anticipated. And when we had the new contract base and that was in place in November, as I said, there were two additional price increases that were not anticipated by us. It was expected.

Mike Scarangella - Merrill Lynch

Okay. Which you learned about in November when you re-contracted, is that what you are saying?

Tom Crawford

We re-contracted in November. After that time period there were two additional increases with the rising cost of raw materials.

Mike Scarangella - Merrill Lynch

Okay. So when you talk about one of the mitigating strategies is to raise prices to retail, did that start in November when you learned about your rising supplier cost?

Tom Crawford

Actually the price increases started in November and December and January as they were put through this system.

Mike Scarangella - Merrill Lynch

Okay. So what we are seeing in the quarter though is obviously you started to mitigate it, in the quarter you just reported, but I guess the conclusion is that; that was not sufficient to offset the rise and what - should we expect more price increases going forward now?

Tom Crawford

Well that depends on the raw material prices that we are seeing right now. But again, we anticipate the increase, we took action; there were some additional prices that went up. We are going back and looking at our prices right now, but we are also looking at how we mix within. Because we have to be competitive, and that’s the other issue, how far can prices go up, are you for substitutions? I think that’s where our suppliers need to look at and clearly we are looking at that right now and looking at alternative materials and substitution that we could bring in.

Mike Scarangella - Merrill Lynch

Okay. You mentioned maybe alternative sourcing. Given your expertise in supplier base here is there overseas sourcing that you can purse, is there ways that you order your supplies, maybe could you order and bulk more, are there any triggers that you can pull other than switching materials?

Tom Crawford

Well, we're looking to those issues right now. Historically those have not proven to be worthwhile because of just the transportation cost and the ordering as you just mentioned. But we are looking at all the alternatives available to us right now.

Mike Scarangella - Merrill Lynch

Okay. Just switching to the average revenue per funeral. You talked about one of the reactions there is to change your customer packages. I'd like to get a little more color on that. I mean Stewart and your peers have been talking about a change in customer packages to get better averages for a last couple of years, and I think you guys have been somewhat successful in doing that in the past. What's going to change about how you repackage your services to get averages up?

Tom Crawford

Well what we've learned -- again the first packages, that's the first wave. We've put the second wave out right now, and I'll tell you that won't be the end of the changes. We'll continue to revise that. We've also added more options in addition to; that are not just casket or service-related alternatives for the family. So there are more value-added options to choose from as additions that will enhance the overall funeral. So its that approach, its also looking more at our product offerings that we have within our packages and making substitutions there as well as, plus enhancing our service offering.

Mike Scarangella - Merrill Lynch

Do you think it’s a training issue for your sales force? Do you think they're presenting the packages in the way that you intend or is that not --

Tom Crawford

Well I think there are two things. The sales force is on an at-need standpoint, it's our funeral directors and getting them more comfortable. I think when you look at our whole process of rolling out our packages it was not done in one fell swoop nor was it consistently applied across the board. And that's what we're trying to do right now with the enhanced. So it's more of a unified approach across our company. And so, it's consistent, it's timely and not stretched out for the time period.

So I think in the past we had a little bit of coming in and out at different times. From a sales standpoint, from a pre-need standpoint, we want to make sure that we are selling packages. So it is a training impact from our sales standpoint and making sure we're consistent. The initial feeling is, as we have gone through the enhanced packages right now, that as we do that, as we work more closely, sales and operations will get more closely tied with the new packages on our everyday selling.

Mike Scarangella - Merrill Lynch

Okay. Just a final question, maybe, for Tom. On the working capital, looks like you used a little bit more working capital, especially on the liability side this quarter. Is that a seasonal variation or is there a particular driver there that we should --

Tom Kitchen

There could be some seasonal factors. For example, like we negotiated our insurance coverage effective the beginning of fiscal year, November 1, and we pay those premiums, that's somewhere between $5 million and $10 million. From that standpoint, there is going to be a use of cash from factors such as that. Also accrued interest comes into play as well, and property taxes is another factor that is paid on, let's say, a disproportionate basis during the first quarter.

Mike Scarangella - Merrill Lynch

Okay. Was the working capital in line with your general expectations?

Tom Kitchen

Yes.

Mike Scarangella - Merrill Lynch

Okay. Thanks, guys.

Tom Crawford

Thank you.

Operator

(Operator Instructions)

We will go next to Colin Stewart at JC Clark.

Colin Stewart - JC Clark

Good morning, guys.

Tom Crawford

Good morning.

Colin Stewart - JC Clark

Just myself, I have also got [Dick Guiness] here with me. So I think maybe I'll ask a couple and then pass it over to Dick to ask a few questions if that's all right?

Tom Crawford

Okay.

Colin Stewart - JC Clark

The first one, just again on that working capital issue, is that little something that I believe you've commented in the past that the working capital should generally have a relatively neutral impact on overall cash flow and free cash flow over a full year time period? And I know, Tom, you just talked about some of the impact. Would that still be the expectation on an annual basis?

Tom Kitchen

In general, that's the expectation about, but, Colin; we are always taking looks at the components of our working capital in order for us to certainly convert the current assets to cash and to look at ways to manage the payables in an efficient manner for us to achieve an overall improvement with regard to the working capital. So planning-wise, we sort of like plan for somewhat of a steady state, but we tear it apart and look at the individual components in order for us to realize whatever financial advantages we can.

Colin Stewart - JC Clark

Okay. And as far as the usage of your free cash flow going forward, I know you purchased quite a bit of stock back in the quarter, is that presumably something with the share price at the levels we see today that you are being continuing to be fairly aggressive with or are there other things that you are looking to utilize your cash for and maybe comment a little bit on what acquisition opportunities, if any, you're seeing out there?

Tom Crawford

As I said earlier, we will continue with the stock repurchase program today. As this program finishes up, we will look at what the Board will clearly consider whether we should continue buying stocks. So that's clearly an option. On the acquisitions, we haven't been aggressively pursuing acquisitions at this point in time for all the things we've talked about in the earlier discussions.

But now it's put our best-in-class initiative in place, we will turn more of our attention to pursuing acquisitions. That doesn't mean we're going to do on. I can't predict anything right now to give you any goals and objectives going forward. But we will turn our time and attention to looking at candidates that we can bring on into our portfolio. So we intend that to be a possible use of our cash.

Dick Guiness - JC Clark

Good morning. Its Dick Guiness here, Tom and Tom.

Tom Crawford

Hi, Dick.

Dick Guiness - JC Clark

First question is on the 122 city tracking of deaths, my impression is that those numbers have been fairly strong recently. Is that your feeling as well?

Tom Crawford

Dick, what we've seen, and I'm trying to remember that offhand, for the last few quarters we have consistently been above the CDC for 122 cities on our funeral side.

Dick Guiness - JC Clark

Okay. So that is pricing which you are --

Tom Crawford

And as a matter of fact, I think for the last three quarters it was down. We see that, again, for the last 13 weeks, the CDC has shown us for 122 cities down 3% and in our markets, the Stewart markets down 2.3%.

Dick Guiness - JC Clark

That's tied in with your comments that you're growing market share?

Tom Crawford

Yes, it is. Now CDC data, it's what it is. Its surveys, its estimates, there is always error around that. But that's, at least, one measure we take a look at right now. And so, as we compare with the total and with the cities that were in the markets right now, as I said, is down, the markets are down 2%, we're up 2.2%.

Dick Guiness - JC Clark

Okay. Next question is on the revenue per call where mix has negatively impacted you, but even on the traditionals you were just up 0.8%, and my impression is that generally some of your competition are showing significant increases in revenue per call. Is there a problem with increase in pricing to at least offset cost?

Tom Crawford

When we look at the balance, again, we’ve seen prices go up historically, not as well as last year. What we've got right now is a situation where we are, our price increases and our volume is really a little bit more of a balance. Now, we believe we can take our prices up and we are because when we compare us with our competitors, in many instances, we are not the lowest price guys out there but we also believe we have we have an opportunity we can expand that. And two things are taking place. One is as I said, we are adjusting prices, which have just gone into effect in December and January as we talked about to mitigate some of the price increases. But at the same time we are trying to get our benefit out of our packages, just not taking prices up and looking at this as more of a long-term opportunity for us.

Dick Guiness - JC Clark

And last question on the $24 million backlog of orders on cemetery that can't be delivered because of construction, when do you expect to realize that? Is that short-term, long-term?

Tom Crawford

Well, that’s continuous process that we go through, we are constantly adding to that backlog. So clearly we don’t want that to go down, we want that to continue to rise, but we are managing our process and making sure we have speed in the delivery. So we are looking at right now is a pretty consistent basis and that’s what we saw during the quarter that it was consistent backlog. When we look at the speed going through, but what happened last year again is great work, took place last year to manage that backlog down. So the cycle time reduced, that backlog comes down, now we are measuring to that same consistent cycle time. And so you get the benefit of last year, consistency this year, but that's what makes the comparison a little bit difficult.

Dick Guiness - JC Clark

Okay. Thank you.

Tom Crawford

Thank you.

Operator

And our next question is a follow-up from Jamie Clement of Sidoti.

Jamie Clement - Sidoti

Thanks a lot. With respect to the call volume increase number, I mean that was a really impressive number. And can you all maybe just give us a little bit more color, a little bit more history and why you think, you put up that good a number compared to the CDC data and also to your peers?

Tom Crawford

Well, again I talked about our surveys. We spend a lot of time, well before I got here, focusing on just not what happen - getting people through but the quality of quarters going through and how well are we taking care of people. I think that's starting to impact that. When we put out our best-in-class, again best-in-class doesn't affect anything for the last quarter, it's going forward, but we continued to build on that. And so as everything we do is trying to tie back to how are the families are looking at us, as we talk to our people that we do this everyday, we get into a well (inaudible) but we are really trying to care of our families on a consistent basis, our surveys are showing that. And again, as we look long-term, I mentioned that issue about our guest coming through.

We believe that's a positive thing and a good thing. And we start multiplying the number of events we have, with a number of people that's come through and support, the number becomes pretty doggone big, and we think that's something that we haven't really tapped into as fully as we can as of today and we haven't really tapped into it. But we think that's a big opportunity and that's when we look our strategy going forward, we'd like to balance that issue of price increase and our volume, so we are making sure that we are not one, pricing our self out of the market, and then two is that, we have people coming through our turnstiles. That's very important to us.

Jamie Clement - Sidoti

And Tom I agree, I mean, you're in an industry that's got a relative high fixed cost basis.

Tom Crawford

Absolutely.

Jamie Clement - Sidoti

For a lot of years, I mean, everybody in your industry has pretty much been posting call volume declines, offset partially or completely by average revenue increases. And it seems to be that the Achilles heel on everybody is really the call volume number. Because people are rolling out packages or increasing prices, just to kind of to trade water so to speak, but you're actually showing 400 basis point increase compared to the CDC data out there and have actually gone positive. So if you get the other stuff squared away, I mean you're talking about a lot of money flowing to the bottom-line?

Tom Crawford

Jamie, that's exactly. You look at long-term and we're going through a little bit, as we've had some ebbs and flows in the whole industry, but I got to tell you, look ahead. The number of people passing away is just going to increase. There aren't going to be any fewer people on this earth, that's the good thing about it. That's what makes this industry so viable is, because, we're talking about recession resistant, it's not recession proof but it is resistant. So we have got a continuous supply of people who need our offerings, our products and services.

Now for us, it's really trying to recapture, to make sure we're capturing that, and so when that pig and the python goes through the system, we're right there. And that's important to us. And again, we're delighted with it. And I will tell you, we did mix down a little bit in our cremation side and we think we can do a better job at that. But we want to maintain that volume, we want to maintain our market share, as a matter of fact we'd like to increase our market share. And again, if we keep taking prices up and losing volume after a time, it becomes a product to the base.

Jamie Clement - Sidoti

Yes, I hear you. Thanks a lot for your time.

Tom Crawford

Thank you.

Operator

And we'll go next to Robert Willoughby at Banc of America Securities.

Jason Furton - Banc of America Securities

Hey guys, this is [Jason Furton] for Robert Willoughby.

Tom Crawford

Hi Jason.

Jason Furton - Banc of America Securities

I may have missed this, but was the weakness in pre-need funeral sales primarily attributable to the economic conditions?

Tom Crawford

You know what, I don’t know that I can pin it around any one thing. Are we influenced by the economy? I’d say we are on those. Those are sales that you can’t postpone and delay. And that’s what we are looking at right now. As we try to peel it back there are so many things that come out. Whether the economy has an impact? I cannot give you an absolute definitive percent as far as the impact that it may have had an impact. We’ve also had nasty weather conditions. Well, we have those everywhere but this year there has been excessive snow in parts of our market. So that slows us down a little bit.

But as I said, our February numbers, which do not make a perfect trend, but February bounced back a little bit and was more in line with what we are thinking about. So, we had a little bit of a pop in January. There are a whole bunch of factors that come into out economy. I can't give you a definitive amount to that, but we are pressing ahead, we are trying to sell through that.

Jason Furton - Banc of America Securities

All right, great. Thanks.

Tom Crawford

Thank you.

Operator

We’ll go next to Henry Reukauf at Deutsche Bank.

Henry Reukauf - Deutsche Bank

Yeah, just two quick questions. One, I know you said you are not the lowest priced supplier out there, but would you consider yourself on the top 25% in terms of pricing and the pricing is really just is at a threshold where you can’t raise it? And then with the very good volumes, is that something, is that the trend you think you are at a breakeven point where we are going to see positive volumes, 1%-2% up year-over-year

Tom Crawford

Well, I can’t, I cannot predict that. But let me go back on the pricing. We are not the lowest price guy and we are not the highest price guy at all. But we are in the top tier, let me put it that way. And I will tell you in Florida, I was in, frankly I can’t remember where it was, in Orlando, and they took me by a billboard. This is just to give you an idea of how we're trying to approach it. They took me by a billboard. One of our small competitors had a billboard up with a little graph that showed our prices against their prices. And our little graph and our little kind of thermometer was much higher than theirs. And as I look at that with our folks, I said, you know what, I want to put an ad up right next to theirs that said their ad is wrong, our prices are higher than that.

And the point was to our folks that's because we're giving more. And also this other little competitor was a bait and switch. It's the low price, but then they start adding everything else on. And the point to the organization that we're making is that we've told them we are not low priced, but we are going to give more value. And that's what we're trying to emphasize.

And in our best-in-class, I keep going back to that, that how we deal with the families. It's a common experience for us, an everyday experience, but not for the family. And the kind of battle cry of our folks is that we want to grow organically. We want to grow as fast as we can in anyway, but to make sure that we are doing all that we can for the family.

Another issue for us is that our combo operations, our cemetery, mortuary operations are a significant opportunity for us in one-stop shopping. That's a real plus for the family. And it shows up in our growth rates, it shows up in our profitability, and so we want to continue to extend that.

Henry Reukauf - Deutsche Bank

Okay. And just once again, what was the return this quarter to the trust portfolio? I missed that.

Tom Kitchen

The total return for the trust portfolio for the quarter, for the funeral and cemetery merchandise trust was a negative 7.3%, perpetual care trust funds at a negative 4.2%. And what we do, Henry, as we compare that to a long-term performance, because certainly one quarter is not indicative of what you would expect for the long-term, but the last three years, for example, those same portfolios generated a positive 5.2% and a positive 4.4% respectively.

And if you go back even a little bit further for, let's say, the last complete market cycle, including the period ended January 31, 2008, the funeral and cemetery merchandise trust funds returned a positive 7.7% on a total return basis and the perpetual care trust funds returned a total of 6.8%.

Henry Reukauf - Deutsche Bank

Was there any particular place in this quarter, granted that the returns were good that there was a particular loss in asset from any particular asset class?

Tom Kitchen

Well, our equity portfolio suffered the worst during the month of January. And our equity portfolio is an S&P 500 day’s portfolio. If you look across the S&P sectors, we are probably more heavily weighted than some of the sectors that had been more adversely impacted. For example, financial stocks, the IT and consumer discretionary are just three examples of where we probably have been weighted more, and it's resulted in, let's say, a disadvantage for us with regard to performance.

Henry Reukauf - Deutsche Bank

Okay. All right. Thanks very much.

Tom Crawford

Thank you, Henry.

Operator

With no further questions left in the queue, I would like to turn the conference back over to management for any additional or closing remarks.

Tom Crawford

Okay, thank you. Again, we thank you all for your participation today. I just want to make one last statement. I think it relates back to Jamie's comment about pricing.

Let me just emphasis that we want our prices to go up. We have to cover our cost, but we are also emphasizing we're not going to be imprudent when we do that. We're just not going to put multipliers on whatever comes through. And there are some areas that we won't take our prices up, on certain product categories, because competitively we just can't. So we're trying to be wise and efficient in what we do.

And again, the advantage that we have in our business is that if we have a commodity price impacting us in one area, we do have some different levers that we can push and pull on. So we make sure we're not putting ourselves totally in a noncompetitive situation. So we're being as prudent as we can, and we also think we can improve on that process. That makes us please.

Anyway, when we look ahead, as I mentioned, for the quarter our numbers were a little bit off, but we are very encouraged by the future. We are finding opportunities in this company to strengthen the business, to strengthen our processes that give us the ability to grow. We're excited about that. We are looking at this from not only a short-term perspective, but especially a long-term perspective.

And as I said earlier, if we weren't, we wouldn't be making the investments we are right now that nip us in the short-term but will produce benefits in the long-term. So we feel encouraged about the future. And we appreciate your time on this call with us today and we wish you good day.

Thank you.

Operator

That does conclude today's presentation. We thank everyone for their participation. You may disconnect your lines at any time.

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