Park Lawn Corp.
(PLC-T) C$26.76
Rounding the Corner on the Tough Comps After Q1/23 Event
PLC will report Q4/22 results after market close on March 2. Conference call: March 3, 9.30 a.m. ET (888-506-0062; ID: 934271).
Impact: NEUTRAL
We forecast Q4/22 revenue growth of 1.8% y/y to $81.5mm and EBITDA of $18.6mm (consensus: $18.5mm), including -4.0% organic growth and a +6.4% contribution from M&A.
Heading into the quarter, we highlight that publicly traded peers SCI and CSV reported better-than-feared results and 2023 outlooks, in our view. At a high level, Q4/22 at-need volumes were stronger than expected, with the number of excess deaths remaining elevated and mitigating the y/y decline in COVID-19 deaths (i.e. societal factors, deferred healthcare during COVID-19, early impacts of the baby boomers, etc.). To be clear, at-need volumes were still down y/y, but not as bad as anticipated (Exhibit 5 shows U.S. deaths in Q4/22 down ~9% y/y, based on preliminary CDC data). Pre-need cemetery sales declined low-single-digits for SCI and CSV, but average revenue per call increased.
2023 outlook: 2023 should be poised for a return to positive organic growth following Q1/23, which is the last quarter with significant COVID-19 deaths (and related pre- need sales benefits). Thereafter, PLC will start lapping a more normalized operating environment, and we anticipate that it will return to historical organic growth trends (low-single-digits). At-need volumes may still be down slightly y/y as excess deaths continue to moderate, but we see this being offset by price (SCI noted that it is seeing virtually no customer pushback on its price increases). We still anticipate some recessionary impacts on pre-need cemetery sales, but note that both SCI and CSV are forecasting positive pre-need sales for 2023. The inflation environment appears to be moderating, with relief around utilities, energy, and improved labour availability, which we expect will help with margin recovery.
TD Investment Conclusion
We expect near-term results to remain somewhat volatile as the industry progresses through the post-COVID-19 normalization, and given 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).