GAAP EPS rose 24% to $1.03, yet $11.2M of divestiture gains lifted operating income 8-K. Company-defined adjusted EPS rose 11%, and Q4 adjusted EPS is guided to $1.10 to $1.20 on lower funeral volumes than first expected 8-K.
Service Corporation International · Q3 2026 · Reported 28 Oct 2026 · US
Key figures
Million USD | Q3 2026 | Q3 2025 | Change |
|---|---|---|---|
Revenue | 1,107.26 | 1,058.10 | +4.6 % |
Gross profit | 272.27 | 265.54 | +2.5 % |
Operating income | 252.89 | 226.39 | +11.7 % |
Net income | 141.28 | 117.47 | +20.3 % |
Diluted EPS | 1.03 USD/share | 0.83 USD/share | +24.1 % |
Operating cash flow | 296.85 | 252.28 | +17.7 % |
Gross margin | 24.6 % | 25.1 % | -0.5 pp |
Operating margin | 22.8 % | 21.4 % | +1.4 pp |
Net margin | 12.8 % | 11.1 % | +1.7 pp |
Figures in USD, as reported. Margins are computed from the reported lines. Operating cash flow for the quarter are derived by subtracting year-to-date periods.
Divestiture gains explain part of the operating income jump
Revenue grew 4.6% to $1.11B, while operating income rose 11.7% to $252.9M and diluted EPS rose 24.1% to $1.03 8-K. The quarter included $11.2M of net gains on non-strategic asset divestitures and impairment charges, against $0.4M of net losses a year earlier 8-K.
Excluding that gain, our calculation (not a company figure) puts operating income up 6.8% and operating margin at 21.8%, against 21.4% a year earlier and 22.8% as reported. The item accounts for about 1.0 point of the 1.4-point reported margin gain 8-K. Net income rose 20.3% and EPS 24.1%, the gap reflecting diluted shares of 137.2M against 141.4M a year earlier 8-K.
Cost pressure cut gross margin even as revenue grew
Gross profit rose 2.5% against revenue growth of 4.6%, so gross margin fell to 24.6% from 25.1% a year earlier. Management attributes the margin pressure to higher healthcare costs, higher selling compensation and increased advertising and marketing supporting preneed sales growth 8-K.
Trust fund income and lower corporate general and administrative expenses partly offset these costs. The G&A decline reflects reduced long-term incentive compensation tied to total shareholder return 8-K.
Funeral growth is price-led while cemetery revenue lags sales
Core funeral revenue rose $10.6M, or 2.3%, on a 2.8% increase in core average revenue per service, partly offset by a 0.5% decrease in core funeral services performed 8-K. Management cites stable funeral volumes in the quarter, but it now points to lower funeral volumes than originally anticipated in its outlook 8-K.
In cemeteries, recognized preneed property revenue grew 1% while preneed property sales production rose 4% 8-K. Management says this pressures near-term cemetery gross margins but builds backlog of higher-margin deferred property sales 8-K. Comparable funeral preneed sales production rose 6% and cemetery 5% 8-K.
Operating cash flow grew 17.7%, slower than net income
Operating cash flow rose 17.7% to $296.8M, which is 210% of net income against 215% a year earlier 8-K. Management cites higher operating income and working capital sources, partly offset by higher cash taxes 8-K.
The company-defined adjusted operating cash flow rose 11% to $296.9M, against $267.9M a year earlier 8-K. The reported gain is larger because the year-earlier reported figure of $252.3M sat below its adjusted figure 8-K.
What to watch next
Q4 adjusted EPS is guided to $1.10 to $1.20, with full-year adjusted EPS now expected at $3.94 to $4.04, reflecting lower funeral volumes than originally anticipated 8-K.
Management expects elevated healthcare, selling compensation and advertising costs to continue into Q4, so gross margin (24.6% against 25.1% a year earlier) is the line to check 8-K.
Full-year adjusted operating cash flow guidance is maintained at a $1,085 million midpoint, with maintenance capital expenditures of $335 million and expected adjusted free cash flow of about $750 million 8-K.
Sources
Produced by Clarifo Research with the Clarifo financial research engine from the company's public filings. AI was used in parts of the analysis and drafting. Figures are checked automatically against the filings they come from. This is not investment advice.