Service Corporation International heads into its third-quarter report with an odd disconnect. Last quarter, management sounded more confident than it had all year, pointing to stabilizing funeral volumes, compounding pre-need sales and a fatter cash flow outlook. The stock has fallen about 10% since then while the S&P 500 gained roughly 4%. The October 28 release, due after the close, is the first real chance to show whether the improving story was real or just a good quarter of talking points.
The Street expects earnings of $0.98 per share on revenue of about $1.11 billion. That would be EPS growth of roughly 12.6% on revenue growth near 4.9%, a healthy spread that depends on operating leverage rather than a surge in demand. The math fits management's framing of double-digit EPS growth in the second half. The full-year picture is more cautious. The company narrowed its 2026 range to $4.10 to $4.30 and kept the $4.20 midpoint. Consensus sits at $4.15, inside the range but below the midpoint. Analysts are not betting against the guide, but they are not giving management full credit either. A solid third quarter that keeps the midpoint in reach could close that gap.
The most important operating test is funeral volume. Core funeral services fell 6.6% in the first quarter against a tough flu comparison. The decline narrowed to 1.7% in the second quarter, with June slightly positive and July roughly flat. If third-quarter volumes come in around flat or better, the first-half weakness looks like a comparison problem rather than a trend. A slide back into meaningful declines would undercut the stabilization story. It would also add weight to management's own warning that post-COVID mortality normalization could weigh on 2027.
Margins are the bigger swing factor for earnings. Funeral gross margin fell to 18.5% in the second quarter, down 130 basis points from a year earlier and well below the 21%-plus posted in the prior two quarters. Management blamed temporary items. These included a cancellation reserve of roughly 200 basis points tied to a vendor transition, a shift toward insurance-funded pre-need that pulls selling costs into the current period, and a $5 million urn-delivery deferral that does not lap until the fourth quarter. Visible progress on the vendor-related reserve would support the claim that these pressures are fading. Another quarter stuck near 18% would make the second-half double-digit growth framing harder to believe.
On the cemetery side, pre-need production grew 8% in the second quarter after 10% in the first. Large sales approached $50 million. Continued high-single-digit production would confirm demand is intact, but much of it lands in backlog rather than current earnings, so cemetery margins near 33% may not move much. Updates on the cremation-in-cemetery rollout, which expanded broadly in July with full network coverage targeted for early 2027, would help investors gauge whether it can become a real growth lever. Management also raised adjusted operating cash flow guidance to a $1.085 billion midpoint and targets $750 million in free cash flow, helped by solar tax credits. Reaffirming those figures matters, as does any clarity on refinancing $137 million of 7.5% notes now coming due.
Sentiment has edged from mildly bearish before last quarter to roughly neutral. The stock, near $80.78, sits just above its 200-day moving average and closer to the bottom of its post-earnings range of about $76 to $91. The bar is not high. The central question is whether funeral margins begin recovering alongside steadier volumes. If they do, the confirmed $4.20 midpoint looks credible and the recent selloff looks overdone. If they don't, the earnings recovery management promised for the second half starts to slip.