Service Corporation International
NYSE:SCI
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
60.61
87.24
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Service Corporation International
You don't have any saved screeners yet
Good day, ladies and gentlemen, and welcome to the SCI Third Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. [Operator instructions] After today's presentation, there will be an opportunity to ask questions. [Operator instructions] Please note, this event is being recorded.
I would now like to turn the conference over to SCI management. Please go ahead.
Thank you, and good morning. This is Debbie Young. Welcome today to our company's review of business results for the third quarter of '21. I hope everyone has had a chance to review our press release we issued yesterday. Before we begin with the prepared remarks from common Tom and Eric, let me remind you that we will be making some forward-looking statements today. Any comments made by our management team that state our plans, beliefs, expectations or projections for the future are forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such statements. These risks and uncertainties include, but are not limited to those factors identified in our earnings release and in our filings with the SEC that are available on our website.
During this call, we will also discuss certain non-GAAP financial measures. A reconciliation of these measures to the appropriate GAAP measures can be found in the tables at the end of our earnings release and also on our website under the Investors Webcast Events section.
With that out of the way, I'll now pass it on to Tom Ryan, our Chairman and CEO.
Thank you, Debbie. Hello everyone. And thank you for joining us on the call today. This morning, I'm going to begin my remarks with a high level overview of the quarter followed by a more detailed analysis of our funeral and cemetery results. And finally comment on our guidance for the fourth quarter, as well as our updated thoughts and expectations now for 2022 and 2023.
As a broad overall comment, let me just say that 2021 has certainly exceeded our expectations. What we have been able to accomplish in the last two years has been remarkable. Our services and care for our communities has been needed more than ever. And in these unprecedented times, our team has risen to the challenge with grace and unwavering commitment. I am so proud of our team and continue to be amazed by their dedication and support.
Now for an overview of the third quarter, let's start by taking you back to our mindset the last time we spoke in mid-July. We were seeing a declining trend of COVID death that began during the second quarter. This downward trend coupled with the IHME's outlook was reflected in our earnings guidance for the back half of 2021. Shortly thereafter, came the impact of the Delta variant, and we saw an unexpected surge in COVID and non-COVID mortality that began in August and has continued into October. Therefore, we have seen funeral volumes in cemetery revenues that have exceeded our previous expectations.
Now diving into the highlights of the third quarter; we generated adjusted earnings per share a $1.16, a 47% increase over the prior year quarter. The primary driver of the earnings per share growth was mainly the results driven by increases in both volume and sales average. The cemetery segment also delivered strong revenue growth, which was generated by both at need cemetery revenue growth and continued strength in pre-need cemetery property sales production.
At a high level, adjusted the operating income grew $74 million and contributed over 85% of the increase in adjusted earnings per share. The remaining increase was primarily the result of fewer shares outstanding.
Now let's take a deeper look into the funeral results for the quarter. Overall, the funeral segment performed better than we expected. Total comparable funeral revenues grew $70 million or 14% primarily due to improvements in the sales average, as well as continued strong volumes from the Delta variant COVID impact and from excess non-COVID deaths, which tended to skew younger and more pronounced in smaller markets.
Recall that third quarter 2020 volumes were up about 19% year over year and we grew another 3% on top of that this third quarter, which we had not anticipated in our guidance from the second quarter call. Core funeral revenues grew by $48 million led by an impressive 8% increase in the funeral sales average and a 3% increase in funeral volume. The sales average continued to climb sequentially and is up about 4% over the 2019 pre-COVID third quarter.
Our percentage of family selecting services has essentially returned to pre-COVID levels and the funeral sales average is also being positively impacted by an uptick in ancillary revenues, such as flowers, catering and by a lower discount rate. The favorable impact of these positive trends has been slightly reduced by a modest 60 basis point increase in the core formation rate.
Pre need funeral sales production for the third quarter through $50 million or nearly 22%, which exceeded our expectations. Both our core funeral home and SCI direct businesses hosted strong production increases against an easier comparison quarter in 2020. The high insurance production component also generated a $7.5 million increase in general agency revenue. We continue to see growth in marketing leads from both digital and seminars that have not only very successfully generated pre sales production, but have done it at a lower cost.
On the core funeral home sales production front, we saw average revenue for contract increased by almost 8% to over $6,000. As an increasing percentage of our pre-customers are choosing some form of service. From a profit perspective, funeral profit increased $40 million in the gross profit percentage grew 400 basis points to 28%. The incremental margin percentage generated from the core revenue increase was slightly reduced by an increase in lower margin ancillary revenues and elevated staffing and service levels as compared to the somewhat more limited service structure we operated under during the third quarter of 2020. Additionally, we experienced elevated fuel and energy related costs.
Now shifting to cemeteries, comparable cemetery revenue increased more than $42 million or 11% in the third quarter. In terms of the breakdown acne cemetery revenue generated $20 million or 47% of the growth driven primarily this quarter by a higher quality core average sale, an impressive increase in acne large sale and by a modest increase in contract velocity.
Recognized preneed revenues generated about $16 million or 37% of the revenue growth, primarily due to higher than expected pre need cemetery property sales production, as well as higher recognized pre need merchandise and service revenue. Additionally, we achieved a $7 million increase in perpetual care and trust fund income, primarily due to the timing of capital gain pre cemetery sales production through $25 million or 8% in the third quarter, which exceeded our expectations, a higher quality core sales average accounted for the majority of the increase followed by growth in large sale activity.
The institutional implementation of beacon in our semi sales presentations has led to a reduction of discounting that is having a favorable impact on core sales efforts. Although we expected a tougher comp on the velocity side, the number of printing contracts sold actually grew modestly in a quarter, which also contributed to the increase. As I mentioned in my pre funeral discussion earlier, we continue to see production growth from our marketing generated leads program that very successfully generated pre sales production.
Additionally, we are seeing improvements in key sales metrics, such as appointment and close rates, cemetery gross profits in the quarter brew by approximately $28 million in the gross profit percentage increased 300 basis points to 38% similar to the funeral segment. The incremental margin percentage on the revenue increases was slightly reduced by elevated staffing and maintenance costs associated with operating full service cemeteries as compared to the limited service structure during the third quarter of 2020.
Now let's talk about our revised outlook for 2021 based upon better than expected results. In the third quarter, we are again raising our guidance to an earnings per share range of $4.15 to $4.45 for the full year 2021. This increases the midpoint by an additional 95 cents and represents a 33% increase of our 2020 results. This raise in our guidance is primarily due to the earnings per share outperformance delivered in the third quarter.
Additionally, we have increased our projected earnings per share for the fourth quarter, primarily due to higher than originally anticipated funeral items and higher than anticipated at need cemetery revenues, both being impacted by an increase in Delta variant morbidity and non COVID excess deaths. The midpoint of our fourth quarter guidance, $0.89 per share would still be a decline in earnings per share as compared to the $1.13 earned in the fourth quarter of 2020 within our funeral segment, we are anticipating a comparable volume decrease in the highest single digit percentage range in the fourth quarter of this year versus a very strong prior year quarter, which was up over 17%.
Meanwhile, we expect the average revenue per K to continue to compare favorably growing in a mid-single digit percentage range for the last quarter of the year. Finally, we forecast pre funeral sales production to grow in the high digit percentages for the fourth quarter fourth quarter versus the prior quarter on the cemetery side of the business, we expect at cemetery revenues for the fourth quarter to be relatively flat compared to the prior year quarter. This is comparing against a phenomenal 2020 fourth quarter that delivered a 30% increase in 2019.
As far as pre sales production goes, we expect a flat to low single digit percentage increase in the fourth quarter when compared to a very robust fourth quarter 2020, which was up over 16% culminating back to back years of impressive, 20 plus percent growth in 2021, I'm sorry, in 2020. And in 20 so months when looking out over the next couple of years, we expect COVID to have a negative pull forward effect on revenues and earnings temporarily like as many other companies, we also expect to experience mild wage and supply chain cost pressures in the near term.
Having said all that this crisis has accelerated the utilization of technologies resulting in enhancement, which improve our effectiveness and resulting cost efficient in our field operations within our sales teams and our support functions compound that with improvements in our capital structure to share buybacks and managing our debt maturity profile. And we expect to generate impressive earnings per share compounded annual growth rates, both in the next two years and well beyond to emphasize the strength of our post COVID operating platform and capital structure. I will again give you an example, utilizing the dollar 90 in earnings per share.
We reported in 2019 as our pre COVID base in 2022, we expect the impact of COVID to begin to wane, thereby bearing the brunt of the pull forward effect. Even with funeral volumes down double digit percentages. And now we're thinking roughly 15,000 funeral cases, less than we did in 2019, we will lead at the midpoint of our models. Our 2022 earnings per share can reflect a 14% compounded growth rate over the three year period resulting in a $2 80 cents earnings per share for 2022, beyond 2022.
We believe that the pull forward effects should begin to wane in a trend of year over year growth should begin. As we approach an aging baby boomer cohort with a leaner and more technologically efficient and effective operating model. We continue to believe that we will see 20, 23 earnings per share approaching $3 and 25 cents, which would maintain that 14% earnings per share tagger over the four year period.
I wish I had never heard of COVID 19, but it is a reality. Our company, country, and world have had to deal with and are dealing with. I am so very proud of our team, what they have done in helping our communities while finding a way to make our company an even better one in a post COVID world, all the way, generating such impressive earnings for shared growth for our stakeholders in closing, thank you again to our entire FTI team for your selfless dedication to our client families and the communities that place our trust in us with that operator.
I'll now turn it over to Eric.
Thanks Tom and good morning, everybody. I think I'm going to start off the same way. Tom just ended with the most important message of the day and that's the first acknowledge and thank our great team of associates that all of our funeral homes and cemeteries that have been working tirelessly during these very busy and let's face it very challenging times the months of August and September, where very busy months for us.
And I continue to personally be amazed. And I have to say also humbled at how well our teams are able to take care of our client families and our communities, and when they need it the most. I want you to know that we appreciate each and every one of you on the SCI team. So in my remarks this morning, I'll walk you through our cash flow results in capital deployment for the quarter, and now provide some comments on a revised full year, 2021 cash flow guidance and financial position. And then just like Tom did, I'll briefly discuss our 22 and 23 outlook. So let's start with the quarter adjusted operating cash flow increased 37 million to 232 million compared to 195 million in the prior year. So the drivers for this growth were the impacts from the Delta variant that drove unexpected increase in COVID deaths.
But we also did see unexpected increase in non COVID deaths that were impacting both our funeral and our cemetery operations. In addition to this strong adjusted EBIT doc road, which amounted to about 60 million, we also benefited by a decreasing cash tax of about 28 million. So remember in the third quarter of last year, cash taxes were unusually high. We had to pay approximately 50 million of federal and state income taxes that were deferred from the second quarter of 2020.
So these positive cash flow item were somewhat offset by a net use of working capital in the quarter, which primarily related to an increase in payroll taxes. And again, we'll have to remember this remember last year that we're able to defer quarterly payroll taxes under the cares act, which totaled approximately $42 million for SCI for full year of 2020. So in this current year quarter, we are required to pay half of that amount or about $21 million and keep in mind the remaining half, the other $21 million will be paid in the fourth quarter of next year of 2022.
So during the court, we also deployed about 280 million of capital, which is the second highest quarterly capital deployment that we've seen really in recent history. This capital went to reinvest it in our businesses first, then expanding our footprint and ultimately returning capital to our shareholders. So now into of the breakdown, we invested $65 million in our businesses with $40 million of maintenance capital and $25 million of cemetery development capital, our maintenance capital not only affects improvements made to our facilities, but also investments in more contemporary customer and customer facing technology for the cemetery development capital spend.
We started this quarter making up some ground to our annual target, but continued to experience some construction delays primarily on the permitting side for some of our larger development projects. But at this point I still believe we'll end the year with around a hundred million of capital development spent from a growth capital perspective during the corner we invested about $20 million co consist of 10 million to funeral home, new build opportunities, $5 million on business acquisitions, as well as $5 million on real estate acquisition.
So just, touching on that acquisition pipeline for a moment, we're excited as we look at the opportunities we are working on for the remainder of 2021. And by the way, we remain confident that we'll be able to close several transactions during the fourth quarter that I believe will get us to our $50 million to $100 million annual acquisition target that we've been describing during the year. Then finally we deployed just under $200 million of capital to shareholders through dividends and sharing purchases, the dividend payments in the third quarter, total just under $40 million. And this reflects the nine and a half percent increase to 23 cents per share per quarter that we announced in August.
So shifted to a few comments on our updated outlook. As you saw this morning, we were increasing our adjusted cash guidance for 2021 by about $150 million. So the guidance went from $700 million to $75 million to a newly revised annual guidance range of 850 to hundred $25 million. So when we compare back to 2020, this new midpoint of $888 million represents an increase of about 10% or 83 million over last year.
So let's talk about a little color on this $150 million increase. It is primarily driven by an approximate $210 million increase in cash earnings. And these are associated with the 95 cent increase at the midpoint and today's revised EPS guidance. And as noted earlier, this increase is primarily due to the outperformance and earnings during the third quarter on increase mortality, as well as expected cash flow increases in the fourth quarter on higher funeral volume and at need cemetery expectations, the increase in cash earnings is partially offset by about $50 million increase in cash taxes and other working capital uses that are, that are so we're now expecting closer to $260 million of cash tax payments in '21 or an additional $50 million over the $210 million that we've talked about in August, again, because of these higher expected earnings.
So looking forward to 2022 next year, while there's still a lot of variables to try to predict you should expect our cash flow to decrease in 2022 in line with the earnings expectations that Tom just described as the impact of COVID WANs. However, our expected cash declines should be buffered by lower cash taxes on, on these lower, on these lower cash earnings. And then looking forward to 2023, we expect to be on an increasing growth trajectory as we approach an agent baby boomer cohort, utilizing our services and again, along with the leaner more technologically efficient and effects operating model.
So the underlying stability of our CASHS, as well as the strong financial position, we have given us the confidence and flexibility to continue being opportunistic and deploying capital to the highest relative return opportunities for many years, at least for the next several years in closing, we continue to have a solid balance sheet bolstered by a tremendous amount of liquidity, consistent of about $400 million of cash on hand plus about $1 billion of on our long term bank credit facility.
Early in the year, we completed a debt refinance and transaction that not only refinance some notes that would've been done later this year in 21, but also allowed us to repay the outstanding balance on our revolver, which will provide us with plenty of flexibility, the fund, a future pipeline of acquisitions or other capital deployment for several years. Additionally, this transaction reduced our interest rate risk. As we increase our proportion of fixed rate debt now to just over 80% on the continued growth, our leverage ratio at the end of the quarter remains below three times. It's actually about 2.4 times.
As we have noted in the past, looking beyond the impacts of this pandemic, we continue to expect the naturally lever back up to our targeted leverage range of three and a half to four times net debt to EBITDA. And I think this will happen towards the end of 2022. So finally our results in the quarter, as well as the first nine months have really been impressive. And I would like to once again, thank all of our frontline associates for all of their efforts. We intend to finish the year strongly and we believe we are very well positioned for future growth. So with that operator, that concludes our prepared remarks.
I now like to turn it over to you for questions.
Thank you, Sir. We will now begin the question and answer session. [Operator instructions] We'll take our first question from John Ransom from Raymond James. please go ahead.
Hey, good morning. Thanks for all the detail on 2022. One thing that's been a little challenging is to model segment margin with these big moves and revenue. So if we think about the decline in death next year, how do we think about that in a couple ways, one just thinking about your funeral and cemetery gross margin, and secondly, how are you thinking about the knock on effect that to your cemetery? We need to,
Okay, John, thank you for the question. The reduction, John, once you experience that reduction in death that we all hope for obviously is going to be more per announced on the funeral side of the business. So as you think about margins historically on the funeral side have probably been closer to 20%. And so as you think about these declines in the pull forward effect, you probably expect those margins to dip down into the, I'd say high teens, as most likely while that's occurring on the cemetery side, really a lot less.
So, I think this quarter we reported 38%. I think we're comfortable even in models where we see the death rates decline, because again, our printing sales while that's a lead source for us, we feel like we've done a lot of things to enhance our ability to deliver that. So again, I think we're very comfortable seeing the cemetery margins if they're going to pull back into the low thirties, but that's probably an area that we feel pretty comfortable about.
And what about the pre need -- the cemetery pre need knock on…
Yeah, I think, that would be inclusive right into the, the margins of cemetery, but, but I think as we think about, you know, year over year, clearly because of the success that we've had, we could experience some slight declines in our pre need production, but, even in a terrible scenario that we'd anticipate, I don't see that going backwards very much?
I see if declining year over year, but probably in single digit type of area and then John kind of building back on that newer platform. Cause again, as you look at year over year trends you know, once we establish that 20, 22 baseline, we get back to what we believe being able to grow that those in the mid to high single digit percentages and maybe maybe better.
We're still trying to measure the impact of the different things that we've done, be it from implementing beacon on the cemetery sides, be it from utilization of the Salesforce platform and the tools that we use now. And we really are driving, better behaviors and we're utilizing facts to, to generate sales growth. We've got better, are lead capabilities now, particularly on the digital side and are getting better and better and more effective. So I just feel very confident that once we work through the, the, the issue with the pull forward we're going to continue to grow it very impressed.
Great And, just last one for me, Eric, this is a small point, but you know, given the back end loaded nature of M and a this year you have an, an estimate of sort of the full year EBIT effect in 22 versus the partial year in 21, just from a Tommy standpoint.
No, I don't think we do yet because we don't know which ones we're going to close. What the guidance I give to you, John, if you wanted to model something is, you know, I think year to date, we're pretty low in terms of how these transactions have ebb and flows. So we probably spent, and I'll call it $10 million to $15 million. And ultimately I think we're going to get well into that 50 to a hundred million. And I'm more hopeful to get towards the high end of that.
And then the type of multiples, you know, that we're paying. The pre synergy multiples are in that eight to nine times. And then, you take a turn off immediately for some of the purchasing power we have, and maybe another turn as we find other synergies, you know, dependent on how well the acquisitions tuck to the existing network. But these per ones that we're talking about, I think were somewhat pleased with the type of footprint that they have versus our existing network.
But something like $5 million to $8 million wouldn't be crazy. Just as an incremental contribution next year.
Yeah, I would say so.
Okay. Thank you. That's all for me.
Thank you. The next question comes from Scott Schneeberger from Oppenheimer. Please go ahead.
Thanks very much. I'm curious and you've covered it, but covered it seemingly at a high level about all the efficiencies in cemetery that are going to keep this margin elevated. Could you just give us I guess a taste of, of magnitude of these main drivers you know, I've heard, I've heard sales support a few other items. Could you just talk about the biggest drivers degree magnitude of, of, of, of what's of what's doing it and maybe some anecdotes of, of areas that, you know, directly that you experienced, that, that we could better comprehend how this is how this efficiencies are occurring. Thanks.
Sure. Scott, some of the natural things that are in there and part of its market driven, so this isn't necessarily efficiency, but if you look at the trust income contributions that you're seeing across the spectrum, ECF merchandise and service on the cemetery side, and even on the, on the funeral, we've got a really good, I'd say cumulative return. That's beginning to flow into our margins flow into our cash flow. So start with, you know, as long as that's still there.
And again, you could even absorb a bad year or two because remember that's a cumulative performance over an eight to 10 year period, a really strong the other things kind of across the board that I was mentioning because I think I mentioned that we're seeing it in operations. We're seeing it in sales, we're seeing it in the back office piece.
For instance, on the operational side, we utilize a full-time equivalent operating metric and through all this with, you know, trying to understand better how to utilize people and resources and we've implemented technology and found ways to reduce our part-time and overtime usage as an example within a market and managing staffing level. So we're seeing that kind of play out and stick to a certain level and, and can utilize that as things change on the selling front, we've seen as an example, digital leads we've talked a little bit more about how we're leveraging that more.
We utilized WebEx and interacting with consumers, cutting down the amount of time that our salespeople are spending and making 'em more efficient. I talked about the two implemented technologies recently, you know, both beacon and Salesforce as an example because of the crisis, it forced our entire sales team to really dive deep into Salesforce.
And now Salesforce is a very, very effective tool. It reduces the amount of travel that we have to do it, it allows us to train better off that platform. Beacon has reduced the amount of discounting that's being done because it allows us some discipline around that, that hide back into compensation. So really it's the institutionalization of these great tools that were out there that COVID kind of forced us to do.
And now they're just part of the way that we do business. And then I think on the, on the overhead front, again, we're utilizing WebEx meetings, we've cut back dramatically on travel that, you know, aren't going to return to of the pre COVID levels. We've onshore certain functions around the, the, the globe understanding the impacts of being a supply chain that's offshore and found more efficient and effective ways to do that. So hopefully that mean that's, there's a lot of little things that kind of add up and, and seeing those benefits and believe those benefits are going to stick over time.
Thanks, Tom, appreciate that. That's helpful. I, I have a follow up on that. And then another question, the follow up real quickly a lot of industries out there are enduring the labor sort of, you guys are showing the very nice margins and seemingly operating well in that environment. You just mentioned reducing part-time overtime items like that, but could you just touch real quickly on the labor dynamic and if that should be disruptive at all or anything else on the on the labor front a particular way as we enter 2022. Thanks.
Sure, Scott, thank you. First of all, let me say this. I think generally our, our labor, when you think about the business that we're in it. It is something that is near and dear to people's hearts. I feel like people view this as, as you know, God's work, if you will. And, and so I analogize it to what goes on in the hospitals. I mean, people enter this profession because they want to help others at a different point in time.
So I think we start off with, we've got a unique workforce that is passionate about what they do. Having said that you're exactly right. There's labor tightness out there. We're seeing it in certain markets. I think we would anticipate that we're probably going to see a little bit of a of an impact as we move forward.
I kind of mentioned it in our comments. There's definitely, you know, wage inflation going on. You know, we've tried to do everything we can by making those adjustments we've over the period of time done some, you know, special bonuses, hero bonuses for our people. We've did a yearend bonus last year to reflect the hard work and dedication of our folks. So we're trying to do everything we can both monetarily and also, I would say just culturally to support particularly our field personnel that are out there in the trenches doing this hard work.
So we're very keenly aware of the issue. And I do expect some wage pressures, but I do believe it's very manageable, particularly as you look at other industries. I mean, I don't think we're a trucking industry. I don't think, you know, some of the, some of the things you're seeing on the restaurant side there, there's not the same level of passion when you think about our workforce and what they're doing every day.
Thanks, I appreciate that. And just the other question, if I could, funeral revenue per service is up over 2019 levels. Could you just speak to what has occurred for that to have returned so strongly? Thank you.
Yeah, I think what it's saying is we're seeing more and more people that are beginning. You know, if you remember Scott from 2019 to 2020, we had a pretty significant drop in the people choosing service, some form of service, whether cremation or burial, and we were a little concerned about it. And I think there were some industry fund out there saying, you know, this is the end of a traditional funeral service and people are going to be more efficient.
And we were pleasantly surprised that levels have rebounded and rebounded to a point, I think in October now where burials higher information back to pre COVID levels. We're just seeing people that want, that, that find what we do, remembrance celebration that, that they're choosing those things. When they, when they choose a SCI, that's what they're coming to us for, and our people are great at giving that service.
The other thing is some of the ancillary things that we do as an example, we're selling a lot more flowers than we did, you know, two years ago, three years ago, four years ago. And a lot of that quite honestly, is being driven by a great digital strategy that Jamie pears and her team have helped us tap into. And, and we feel really good about that going forward. And when you look at the, if you look at the catering side, really the same thing, so a lot of ancillary products and services got go into that.
The other thing that I would just mention is the pre back wall. You know, we've spent a lot of time developing that fruity backlog with our Salesforce, and we're seeing averages coming outta the backlog now that are super impressive. You know, in the $6,400 level and that's, you know, trust, income, build up selling good product that's coming out. So I think those are the things that are really, probably over the edge pushing have 2019 levels. And we, we see those trends continuing.
Great. Thank you very much taking your request.
Next question comes from Joanna Gajuk from Bank of America. Please go ahead.
Thank you just first, I guess, a couple of follow up questions on the discussion around deal activity. So when you, we're talking about I guess pushing or still expecting those deals to, to be done this year when you talk about your 20, 22 outlook does that include that amount of deal contribution that you outlined?
Yeah. That I think 2022 would reflect that Joan and, and again, I, I hesitate, there's so much uncertainty around what's to happen. And so we're just trying to give you guys our best guess, you know, that, that, that assumption really would say that COVID goes in a corner pretty quickly here, and we're going to have a little bit of you know, continued impact from that. The other thing that we're trying to wrap our arms around is, you know, what we're seeing in excess death is not all COVID, again, we're beginning to see deaths related to a variety of other things, probably more tied to both physical health and mental health that we can't project what's going to happen with those numbers.
People, obviously a lot as people went in for cancer screenings for, for annual check-ups and the impact of that is surely being reflected in the numbers. And I don't think that's something that necessarily goes away. So there's a lot of uncertainty around what we think those volumes are. And we're, in my opinion, we're probably being a little conservative to say, Hey, if this went away, how are we going to manage our cost structure? What are we going to do with our excess cash? But again, I think as we get closer and hopefully, you know, in February, we have a better idea of really what's going on, but so I feel pretty good about our 2022.
Sure. No, that's definitely good. I just want to confirm that and, and the other want to follow up on that discussion, when you talk about multiples, are you seeing multiples moving higher? I guess there are other players in the market, you know also doing or consolidating the, the locations in the us. So, so is there you know, some pressure on multiples and I guess also are you expecting kind of acceleration or, or slowing down of, of the due activity into next year?
Yeah, I think first, let me speak to the accelerating. Clearly the Biden tax plans that have been out there have motivated some people that were, you know, probably in the window thinking about selling their business to get out there. So I do think we're seeing an influx of activity associated with that. And to Eric's point is why I think we'd expect the fourth quarter to be a nice closing quarter, as you think about acquisitions as far as pricing goes, I guess I'd say two things.
There's clearly a little more robust activity. That's probably putting a little bit of upward pressure. The other unique factor you have is COVID right. So am I selling off my 2020 results? My 2021, I think that's one of the confusing aspects of trying to understand what are you paying a multiple off of that again, probably puts some confusion and maybe a little bit of upward pressure, but overall, I mean, these are still deals that the ones that we're looking at and competing for they're going to have meaningful right. To return that, you know, you and, and our other stakeholders would say good use of capital team. So, so we feel good about it.
Thank you. That's helpful. And, and one last follow up, cause you also mentioned, I guess, sounds like wages obviously been on the rise, but I guess so far this year, you know, it's being, MAED masked by the very strong revenue results, but you also mentioned you know, elevated fuel and energy costs. So how should you think about the magnitude of things there? Thank you.
Sure. So the elevated energy costs again, really tie back. If you think about it, we've got what, 1600 funeral homes that all have electricity, air conditioning, whatever it may be. Clearly we operate a lot of vehicles when you think about the energy costs, particularly both in the cemeteries and at the funeral homes. So those are really just coring. What's going on with natural gas and, you know, oil prices, which as we all know, were very, very low and we enjoyed that benefit.
And they've really spiked, oils up over 80 bucks. Gas is trading between five and a half and six bucks. So those, you know, convert into usage in our homes. Now, the good news is for us is we we're utilizing technology to manage those costs a little bit better. So we've got existing programs and improvements that we're working on today that I think will allow us to manage usage better, both from an environmental perspective, as well as kind of lowering the cost.
So, we're on it. And I believe we'll manage that, but I think you can correlate that with what's going on with natural gas and oil prices pretty well. It's not doing, it's not a meaningful enough number to, to move it. I just want to give a little bit of flavour. You know, we sell on the funeral side incremental revenue should deliver, you know, somewhere around 65% margins. I think we saw 57, 58. So explaining, you know, why did you get the 65%? Well, a little bit of its energy, a little bit of it, some of these other things. So we still feel very good and very able to manage those energy costs, staffing costs and really, you know, whatever comes our way.
Okay. That's a very helpful caller. Thank you so much.
Thank you. This concludes our question-and-answer session. I would not like to turn the conference back to SCI management for any closing remarks.
Thank you again, everybody for for being on the call today, we really appreciate your questions and your comments. And the only other thing I have to say is go ask us, we'll talk to you in a few months. Thank you very much.
Thank you. The conference has concluded now. Thank you for attending today's presentation, human out disconnect.