The Rite Stuff Constant Demand For Servicekeeps Funerals Profitable Industry 06-05-1994 Times Picayune ************************************************* Copyright. All rights reserved. http://www.usgwarchives.net/copyright.htm http://www.usgwarchives.net/la/lafiles.htm ************************************************ Frank Stewart Jr., chairman of one of the nation's biggest funeral-home and cemetery companies, already has chosen the inscription for his gravestone. "I've enjoyed every minute, every moment, every second of this life," it will read. "Even now." Stewart, 58, may seem surprisingly upbeat about death, but he has every reason to be. The business of death has made him a rich man. Stewart Enterprises, the Metairie company that sells funeral services and cemetery property in 13 states and Puerto Rico, has blossomed under Stewart's leadership. He's been running the company since the late 1960s. The family-owned company went public in October 1991, and has been on a fast track ever since. For example: Stewart completed three public stock offerings in the past 2 1/2 years, raising $48 million, $61 million and $65 million. The latest offering of 2.7 million shares took place in January. The money helped finance the purchase of several dozen funeral homes and cemeteries in 18 new markets between October 1991 and May 31, giving the company 90 funeral homes and 66 cemeteries at last count. More deals are in the works. Total revenue is expected to reach $260 million this year, double the level of 1991. And the company's stock price has doubled from an initial offering price of $11.83 (adjusted for splits) to Friday's closing at $24 1/2 per share. The stock has traded as high as $28 1/2 in recent months. For all that activity, Stewart has risen to be the third largest company of its kind in North America, ranking behind Service Corp. International of Houston and the Loewen Group, a Canadian company, in revenue and properties owned. The three companies reflect a significant trend in the field, referred to in the business as "death care." Family-owned funeral homes and cemeteries are selling to the chains in growing numbers, with several hundred properties changing hands annually. The pace of acquisitions has picked up considerably since 1990. In many cases, local funeral homes sell when current owners approach retirement age and no other family members want to stick with the business. Selling to Stewart Enterprises, Service Corp. or Loewen represents a way for owners to cash out while there's a trio of hungry acquirers willing to pay top dollar. Stewart has managed its rapid growth by bringing top management from many of its acquisitions into the corporate fold. For example, William Rowe, who sold his West Virginia company to Stewart in 1987, later became president of Stewart's Mid- Atlantic division. He's now Stewart's senior executive vice president and chief operating officer. Acquisition activity is expected to continue at a furious pace, mainly because there's still a lot to buy. There are 22,000 funeral homes and 9,600 cemeteries in North America, and 95 percent remain privately held. One thing is clear. The $8 billion-a-year death care industry is a money-maker. "Funeral homes and cemeteries have one of the lowest business failure rates in the U.S.," said Jeff Villwock, who follows the industry for Johnson Rice & Co. in New Orleans. "And there's a good reason: Demand is fairly constant." Stewart Enterprises has come a long way since Frank Stewart's grandfather, Albert, founded the business in 1910 by acquiring the St. Vincent De Paul cemeteries in New Orleans. The family also built monuments for cemeteries and later built mausoleums and crypts for its cemeteries and others. In 1949, the Stewarts built Lake Lawn Park, Mausoleum and Cemetery. Twenty years later, they bought the adjacent Metairie Cemetery. *** More expansion planned *** Today, Stewart has four operating divisions nationwide and plans for two more. Additional deals are likely in California, Mexico and the Midwest in the near future, industry analysts said. Last year, Stewart Enterprises ventured outside the continental United States for the first time, buying a cemetery in San Juan, Puerto Rico. Since then, the company has bought 13 funeral homes and three other cemeteries on the island. The company said it expects more deals in Hispanic markets because that culture values - and is willing to pay for - traditional funeral services. Stewart's deal-making is just the tip of the iceberg. Service Corp. bought 124 funeral homes and 21 cemeteries last year, including several in Australia. That's three times the acquisition activity of Stewart. "We're not in a contest for size. We're not interested in being the biggest. But we are interested in being the best," said Frank Stewart, who took control of the family business in the late 1960s after his grandfather, father and an uncle died in a span of four years. Stewart owns nearly 47 percent of the company's voting stock, thanks to a big chunk of Class B common stock with 10-to-1 voting rights, Villwock said. Stewart's 2.9 million shares of Class A stock, which trades over the counter, has a market value of more than $70 million. Analysts and competitors give Stewart high marks for an innovative approach to the sale of funeral services and cemetery property. "To me, Frank Stewart is a visionary in the industry," said Ronald G.E. Smith, an economist at Hunter College in New York City who is writing a book on the funeral business. Among Stewart's key strategies are the sale of prearranged funerals, and construction of funeral homes on cemetery property - a development that allows one-stop shopping for consumers. "Within five years, 50 percent of families using a cemetery will use the on-site funeral home," if one is available, said Lawrence Berner, Stewart's president and chief executive. *** Planning ahead *** Pre-need funerals are sold either through insurance (that's the case in Louisiana) or via funeral trusts in which customers pay a fixed price today for services delivered later. Money placed in a trust is invested in bonds, stocks and other investments. Amounts deposited are available to a company only when funeral services are performed. But net capital gains are counted as revenue each year. Stewart currently has a backlog of more than 130,000 prearranged funerals waiting to be performed at an average cost of $3,100 each. The company has one major local competitor, Security Industrial Insurance Co. of Donaldsonville. Security, founded by E.J. Ourso, has been selling pre-need burial insurance since the 1940s. The company also owns several funeral homes and cemeteries around the state, including Jacob Schoen & Son, Bultman Funeral Home and the Tharp-Sontheimer group locally. Ourso said he's not interested in becoming a publicly traded company or expanding outside the state. "We had the blood, sweat and tears involved in building our businesses, and we're content," he said. Lee Norrgard, a consumer affairs analyst with the American Association of Retired Persons, said pre-need funeral sales are likely to increase as the baby boom generation gets older. Total U.S. deaths are expected to rise from 2.2 million a year to 2.6 million by 2010, according to recent demographic studies. "The first wave of baby boomers will reach age 50 in 1996, and that gives us a great opportunity to lock in future market share," Berner said. Prearranged sales capture people's attention as they get close to 60, he said. Analysts expect Stewart's expansion to continue. Steven E. Kent of Goldman Sachs & Co. in New York said the company will probably buy between $100 million and $110 million worth of funeral homes and cemeteries this year and again in 1995. Those numbers may be conservative. So far this fiscal year, Stewart has closed or announced deals on 16 funeral homes and 28 cemeteries valued at $105 million. About the only threat to Stewart's future revenue - at least in economist Smith's view - is cremation. A typical funeral can cost $5,000 or $6,000, not counting buying a gravesite or vault in a mausoleum, which can run an additional $3,000 or more. Cremation, on the other hand, costs about one- third to 50 percent less, analysts said. *** Cremations increase *** U.S. cremations are expected to double over the next 16 years to encompass 38 percent of all deaths by 2010, according to the Cremation Association of North America, with most occurring in the Northeast and West. In Louisiana, cremation was used in 6.4 percent of deaths in 1992. Eighteen percent of Stewart's services nationally involve cremation. Locally, the company said, about 15 percent of burials are cremations. Stewart and Berner don't fear cremations. Elaborate funeral services and cemetery memorials can continue to be sold even when clients choose cremation over a traditional burial, Berner said. Smith isn't as confident of that, calling the rising cremation rate "a challenge." Too high a percentage of cremations could hurt death care companies' future earnings because of the lower price tag on such services, he said. But expansion into Latin America, the Caribbean and other markets where cremation is frowned on could help Stewart avoid serious trouble, Smith said. The cremation rate in the Deep South also won't get above 10 percent or 15 percent in the next two decades, the Cremation Association predicted. Frank Stewart said he's counting on human nature to keep his business strong. Human beings will always stage funerals and build elaborate tombs, he said. "I never met a man who amounted to anything who didn't have a burning desire to be remembered as being significant," he said.