The death industry is a tale of two economies. A relatively few large companies, most of them publicly traded, control most of the businesses that sells caskets and granite for memorials. The rest of the death industry is made up of many modest businesses. Most of the 19,500 funeral homes in the country are small operations, often owned by the same families for generations. There are more than 120,000 cemeteries and many of these belong to families, nonprofits, and religious institutions.

Death has become more democratic, particularly over time and especially in America. Centuries ago Egyptian pharaohs received elaborate funerals and entombments which would cost  many millions of dollars by today’s standards. The typical Egyptian was fortunate to have a modest burial. Centuries later, bishops were sealed in crypts carved with their likenesses. Their congregations were filled mostly with people whose final resting places were unmarked, and who were buried without coffins and certainly without  rings or mitres.

Today, nearly all of the deceased receive some sort of burial or cremation even if it is paid for by the state. The cost of land and the current overcrowding in cemeteries, along with changes in perception, have made people consider cremation.  Cremations are less expensive than the cost of caskets and plots. John Ross, the executive director of the Cremations Association of North America, claims that a crematory fee is $1,400 which includes a modest urn. Bob Fells, acting CEO of the International Cemetery  and Cremation Funeral Association says that 36% of Americans who die now are cremated. That number is expected to rise to 56% by 2025, although it is hard to imagine how anyone could forecast a trend of that sort so precisely. Most of the funeral business will be decimated if the cremation trend does continue.

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Death, like so many other businesses, has been changed by the internet. Wal-Mart sells caskets online at a discount, sometimes as much as two-thirds of  their retail prices. They are shipped to funeral homes.  This competition is another factor that will erode the margins of the traditional funeral industry.

24/7 Wall St. analyzed  the death industry. Much of it is dominated by a few large companies. The tens of thousands of smaller firms that compete with these public corporations have been affected profoundly by their business practices and pricing. The firms that have started to change the industry through e-commerce will certainly leave a larger and larger mark on the sector as each year passes, transforming the American way of dealing with its dead.

Here is the 24/7 Wall St. Ten Companies That Control The Death Industry:

Hillenbrand, Inc. (HI)
> Interesting Fact: Sells 45% of caskets sold in the United States
> # of Employees: 3,200
> Most Recent Quarter Revenue: $212 Million
> Most Recent Net Income: $20 Million

Hillenbrand sells more than 800,000 of the 1.8 million caskets sold in the United States each year. In addition to this, the company sells cremation containers and urns. All of Hillenbrand’s funeral products are sold under their Batesville Casket Company brand, which was founded in 1906.

Service Corp. International (SCI)
> Interesting Fact: funeral and cemetery market share in North America of roughly 12%
> # of Employees: 13,087
> Most Recent Quarter Revenue: $533.2 Million
> Most Recent Net Income: $18.8 Million

Service Corp. International owns more funeral homes, cemeteries, and crematories than any other company in North America. At last count, the company operates 1,254 funeral service locations and 372 cemeteries in 43 states, Canada, Puerto Rico, and Germany.  SCI also sells a variety of merchandise including caskets, vaults, and urns.

Walmart (WMT)
> Interesting Fact: Caskets come with monthly payment terms
> # of Employees: 2,100,000
> Most Recent Quarter Revenue: $101.9 billion
> Most Recent Net Income: $3.6 billion

Walmart, the world’s largest retailer, helped begin the trend of selling low-priced caskets online. The company offers the $995 “Dad Remembered Steel Casket,” with “18 gauge steel high-gloss silver-blue finish.” Walmart is taking a share of the death care industry away from funeral homes and related companies.  According to the casket industry, the impact of the big box retailers is still small.  Other industry experts suggest otherwise.

As of December 31, 2007, Carriage Services operated 139 funeral homes in 25 states and 32 cemeteries in 11 states; and the company is based in Houston, Texas (that’s important, read on).  As of a week ago it is operating under a new CFO.  A month before that the company instituted a $5 million share buyback.  But if you look at the chart and action you might think that suddenly people are too financially strapped to die or are at least too strapped to pay for a decent funeral when they do die.  This has fallen from late-2007 highs of over $11.00 and shares are now challenging 52-week lows and with one more day like today would be back under $6.00.

This stock came back from the grave (no pun intended) after goingdown to essentially $1.00 at the lows of 2000 and 2001.  Before youstart throwing a reward party for it still being up over 400% look backinto the 1990′s and you’ll see that this used to be a $20.00 stock.What is interesting is that the company is still making money.  It isalso barely covered by Wall Street. 

If you have followed the funeral home sector very long you likelyknow that Service Corp. International (NYSE: SCI) recently made anoffer (around $881 million) to Jefferson, Louisiana-based StewartEnterprises Inc. (NASDAQ: STEI) which was rejected.  Stewart’scompany’s market cap is $751 million today.  Service Corp.International has a market cap of $2.51 Billion as of today and itsshares are only about 7% above 52-week lows.  Guess where Service Corp.is based…. Yep, Houston.

We wanted to look up some key data on Capital IQ as well.  Thecompany has board members that are well heeled in with investment andprivate equity funds as well.  Capital IQ does note that it has activetakeover defenses, so even the hint of any deal would have to be onewhere management either deemed friendly or one that the board wants.Here are some of Capital IQ’s Anti-takeover defenses listed:

• It has a classified board,
• directors can only be removed for cause,
• it takes 80% of shareholders needed to remove a board member,
• board members are indemnified, 
• it has an active poison pill provision with no weakening provision,
• it can issue blank check preferred stock,
• and insiders own a decent chunk of stock.

Carriage Services is far smaller in size than the others as itsmarket cap is a mere $119.5 million.  If the company wants to at leastput in an implied floor in the stock, there are at least a couplelarger companies the company could call to see if there’s any interest.

As far as the initial question if people are currently too poor inthe current environment, Service Corp.International on its websiteoutlines how about 13% of the company’s current revenues are economically sensitive.

Jon C. Ogg
July 18, 2008