A Dying Industry

If you’re following me on Twitter or Facebook, you’re aware that there’s been a lot of <hashtag> finance homework going on this week.  This is probably the most homework I’ve had due in the same weekend in the five months class has been going on, in part because we have two difference classes on Friday and Saturday and a big list of deliverables for both.

The big project for tomorrow is a corporate financial analysis.  It’s worth 30% of the grade for one of the heftier classes in the EMBA program.   Here’s the way the project works:  two classmates pick two firms (companies) in the same industry and gather all the financial information possible on those firms.  Then each one evaluates his or her firm, and the two of us put together a presentation on each firms and a comparison of the two.  We’re reading the annual financial reports (Form 10-K, Balance sheet, Income statement, etc.) and evaluating them in light of industry averages, market forces, etc.

My partner and I chose, largely because we couldn’t settle on anything and because of my wife’s deep interest in the topic, two firms in the “Death Care Services” industry.  Death is a $13B+ per year industry in the United States, and it was fascinating to see the different issues surrounding two of the largest corporations in the industry.  I chose Stonemor Partners as my firm:

StoneMor Partners L.P. is one of the largest companies in the deathcare industry, servicing thousands of families in a caring personalized manner. We draw upon more than 100 years of collective experience in the advanced planning and cemetery industry to serve families in the best possible manner – with dignity and understanding.

We provide a broad scope of products and services through the ownership, development, and operation of cemeteries and funeral homes in multiple states. As we continue to grow, we will maintain our commitment to serving families locally with compassion, dignity, and honesty.

via StoneMor Partners L.P – Who We Are.

Stonemor owns or manages cemeteries in 27 states and is second largest in the industry.  80% of the market, though, is small, local providers which gives a good deal of expansion possibility despite Stonemor being outgunned by industry leader Service Corporation International by a factor of 8 or more in sales and assets.

One part of  what was interesting was to look at the trends in both market share for products and services and national trends for market in general.  Humans have a 100% death rate.  Pretty easy to measure.  But longer life-spans have affected the industry negatively, and only the stronger firms have survived the shift.  That being said, the baby boomers will start dying at some point soon…giving an unprecedented death rate for the US which opens both firms up to huge potential growth.  For a time, but long enough, with a certain end point. that the firms can plan diversification as the end of the “death boom” approaches.  (I know this is kind of morbid, but somebody has to think about it!)  So while there is a huge problem for any firm in this industry 30 years from now, right now, “death is a growth industry.”  But at some point these firms will have to look stockholders in the eye and say “We’re sorry for our loss.”  (I couldn’t resist)

An additional wrinkle is a shifting culture on choices around death services.  As recently as 1998 less than 25% of deaths were accompanied by cremation.  Today the trend is way up, at 42% last year and estimated to be over half of all people to be cremated as soon as 2017.  That threat of a less expensive substitute service is affecting the industry, especially when that substitute (cremation) comes with a higher profit margin and a lower price point.  I thought Stonemor was acting in much the same way the publishing industry is with that type of a major market shift:  avoiding it instead of embracing it.  And it may be with “good sense” because even though the profit potential is high, a drop in annual sales could get them into debt trouble very easily.

I will probably watch both these firms for a long time in the future, just because I will want to find out if my guesses about their future will be correct.  It’s been fun to learn and I really wish I had another week to finish the project instead of a day so that I could dig a little deeper and study a little more broadly.  I put this project off for far too long, but now that I’m in to it, I’m learning a ton and enjoying the learning process and intrigued by what else there may be to learn.  And now I’m also looking forward to the presentations of the other 6 teams tomorrow so I can learn about the industries they examined!

So I’ll be up late again tonight finishing this project, but I’m optimistic I can be in bed soon enough to get some sleep before class tomorrow.  It will be a long few days (I still have work left for Saturday’s class as well) but I think I’ll survive long enough to come home Saturday and crash.  Or should I say, as of 6pm Saturday I’ll be “dead to the world” until it’s time to get up Sunday morning.

At some point I’ll have more to write about my thoughts on death and how Christians ought to grieve death and celebrate life, but that will have to wait for another day.  I will spare you the rest of the death puns running through my head and simply ask, what are your thoughts about the culture changes around death and cremation?  Do you think Stonemor is worth investing in?

 

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