Park Lawn Corp.
(PLC-T) C$24.81
Q1/23 Preview: Last of the Tough COVID Comps; Pre Need in Focus
Event
PLC reports Q1/23 results after market close on May 11. Conference call: May 12, 9.30 a.m. ET (888-506-0062; ID: 462890).
Impact: NEUTRAL
We forecast Q1/23 revenue growth of 4.9% y/y to $87.3mm and EBITDA of $20.1mm (cons: $20.1mm), including -5.0% organic growth and a +10.5% contribution from M&A.
Q1/23 will mark the last quarter, which laps significantly elevated COVID-19- related death rates. Preliminary CDC data shows U.S. deaths declined ~14% y/y (however, the preliminary data is generally biased upwards due to regional reporting lags). Park Lawn competitors SCI and CSV reported Q1/23 at-need funeral volumes down 12% and 8% y/y, respectively. Both firms, however, noted that volumes were better than internal expectations, with deaths for non-COVID-19 reasons remaining elevated. We expect PLC will report similar volume declines y/y. Average revenue per funeral service increased for both, with customers willing to absorb pricing, but higher cremation mix remained a drag.
Pre-need cemetery sales remain a focus given recessionary concerns: Pre- need sales diverged significantly for SCI and CSV, with SCI down 16% y/y but CSV up 5.3%. However, SCI attributed 80% of its sales decline to West Coast weather, namely heavy rainfall in California (recall PLC does not have any operations there). More broadly, SCI noted that pre-need sales have remained somewhat weaker than its initial guidance, some of which reflects inflation and recession uncertainties, but it still expects positive y/y growth in the coming quarters. We believe that PLC is well-positioned to navigate this increasingly challenging macro environment given its refocused sales/marketing team and with the FaCTS system now operating, offering better property-level insights and more targeted pricing. Furthermore, PLC has been acquiring higher-quality properties recently, which should help drive market share.
TD Investment Conclusion
We expect near-term results to remain somewhat volatile, as the industry progresses through the post-COVID-19 normalization, and given the potential recessionary impacts on pre-need sales. However, we see PLC as well-positioned, given its solid balance sheet and ample opportunities/capacity to grow through M&A. Ultimately, we continue to view death-care services as largely recession-resistant, with favourable demographic tailwinds fast approaching (i.e., Baby Boomers).