Welcome to the 3rd Quarter 2019 Service Corporation International Earnings Conference Call. My name is Sylvia, and I will be your operator for today's call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. Please note that this conference is being recorded.
I will now turn the call over to SEI Management. You may begin.
Hi, good morning, everyone. This is Debbie Young. I'm the Director of Investor Relations at SEI. We'd like to thank everyone for joining us today as we discuss our Q3 results. I'll quickly go over the Safe Harbor language and then we'll start with remarks about the quarter from Tom and Eric.
Any comments made by our management team today that state the company's or management plans, intentions, beliefs, expectations, projections or predictions 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 press release and in our annual report on Form 10 ks and other filings with the SEC, which are available on the Investor Relations section of our website located at investors. Scidash corp.com. Any forward looking statements that we make on this call are based on assumptions as of today, we do not undertake any obligation to update or revise any forward looking statements made during this call.
Today, we may also present both GAAP financial measures and non GAAP financial measures such as adjusted EPS, adjusted operating cash flow and free cash flow. A reconciliation of these non GAAP measures to GAAP measures is provided on our website in our presentation titled Non GAAP Financial Measures and in our earnings press release that was issued yesterday and which is also available on our website. With that out of the way, I'll now turn the call over to Tom Ryan, SCI's Chairman and CEO.
Thanks, Debbie, and thank you, everyone, for joining us on the call this morning. Today, as usual, I'll begin my remarks with a high level overview of the quarter, followed by a more detailed look at our funeral and cemetery operations, and then finally comment on our outlook for the Q4 of 2019. So, let's begin with an overview of the quarter. As you saw in our press release yesterday, adjusted earnings per share grew by $0.02 or nearly 6% to $0.37 per share. A solid performance in our funeral segment coupled with lower general and administrative expenses more than offset the decline in cemetery profits associated with lower cemetery revenue from completed construction projects.
On the cash flow front, we were pleased as we generated an impressive $209,000,000 of adjusted operating cash flow or 53% increase over the prior year quarter. Eric will provide more color on cash flow in his remarks. As we compare earnings to the prior year quarter, I would highlight a few things. We had a solid performance in our Funeral segment with operating profit increasing over 8%, driven primarily by higher funeral services performed in both our core funeral businesses as well as SEI Direct. In our cemetery segment, you may recall from our last quarterly call that I mentioned we expected cemetery revenue and profit pressure in the Q3 due to the significant amount of revenue recognized from completed cemetery development projects in the prior year quarter.
This anticipated completed construction revenue decline combined with a slight reduction in preneed cemetery sales production resulted in a 12% decline in cemetery operating profit for the quarter. Operating income was favorably impacted by almost $12,000,000 due to a reduction in general and administrative expenses. Most of this, about $8,000,000 was associated with a reduction in our long term incentive compensation plan expense. Recall in the prior year quarter, we had an unusually large increase in this expense associated with the performance unit plan that is tied to total shareholder return over a 3 year period. As our stock price significantly outperformed the relative peer group during the Q3 of 2018, we were required to adjust the accrual for all three plants to reflect the top quartile performance of our stock.
Now with a larger accrual and as our performance has since held its position and more closely tracked our peer group, our quarterly expense is normalized. Below the operating line for the quarter, we were negatively impacted by a slightly higher interest expense as well as a slightly higher tax rate. Now shifting to some more detail around the funeral operating performance for the quarter. From a top line perspective, we grew comparable funeral revenue by nearly $6,000,000 or 1.3% compared to the same period last year. This was primarily related to higher funeral services performed.
Core funeral revenues grew $3,700,000 or 1% over
the prior year quarter.
We were pleased that core comparable funeral volume continued to increase, growing 1.2% quarter over quarter. The core funeral sales average was essentially flat. When we look at the sales average before mix change, we are pleased to report an organic increase of more than 1% at the customer level. Offsetting this growth was an increase in the core cremation mix of 160 basis points. As we anticipated, this mix change is lower than we have reported in the last several quarters and is settling closer to our anticipated range of around 150 basis points.
Our non funeral home channel or SCI Direct continues to perform well. We continue to show solid growth and we're excited about the potential opportunities to continue to expand this channel. SCI Direct or non funeral home revenue grew 7% or almost $1,000,000 with strong increases in both volume and average. Recognized preneed revenues grew $1,100,000 or $3 Recall, this represents products sold on a preneed basis, primarily by SEI Direct that are delivered at the time of sale, resulting in immediate revenue recognition. From a profit perspective, operating profits grew an impressive $5,700,000 or more than 8% and operating margins increased 110 basis points to 16.5%.
I am proud of our team's continued focus on managing our variable and fixed costs, which allowed us to convert 100% of the revenue growth into profits. Finally, on funeral, total preneed funeral sales production, which gets deferred into our backlog grew almost 2% for the quarter. Keep in mind that we were up against a tough comparison as last year we reported a 13.6% increase in preneed sales compared to the Q3 of 2017. In the current quarter, preneed sales at our SCI Direct locations grew a strong 5%. Preneed sales at our core locations increased 1% over the prior year quarter.
We believe that we can deliver a solid growth rate in the coming Q4. Now turning to cemetery operations. As mentioned last quarter, we knew that top line cemetery growth was going to be challenging given the significant amount of revenue recognized from completed cemetery developer projects in the prior year quarter. During the Q3, total comparable cemetery revenue declined nearly $19,000,000 or just under 6%. While we did anticipate a cemetery revenue decline, this was slightly more than we had anticipated.
So, let's break down the components of cemetery revenue. First, the positive. We saw a $2,000,000 or 2.5% increase in atneed cemetery revenue as this revenue stream would correlate more closely with the funeral volume growth in the quarter with the additional benefit of favorable inflationary pricing. Additionally, we saw more than $3,000,000 or 5 percent increase in recognized pre need merchandise and service revenue. Volume is based on delivery, so again, correlated with funeral volume, with the additional benefit of trust fund income growth.
From a headwinds perspective for the quarter, the biggest contributor to the revenue decline was lower recognized preneed property revenue of $21,000,000 or about 14%. Additionally, we saw lower perpetual care trust fund income of $3,000,000 due to the timing of distributable capital gains. The recognized preneed property revenue decline of $21,000,000 was primarily associated with an anticipated decline in recognized revenue from completed construction projects, which takes previous quarter's sales production that was not recognized when sold, but recognized in the current period as it was constructively delivered. The most disappointing aspect of the quarter for us was the 2.3% decline in cemetery preneed sales production. Clearly, individual markets will ebb and flow from quarter to quarter based upon large sales timing, sales manager or significant counselor turnover, sales comp plan changes or even the weather.
These can cause temporary disruptions. Not to make light of the situation, but this is just part of the business we've chosen to use an old Heimer offline from Godfather 2. That is why I'm not going to make an excuse, only an observation and a commitment to get back to our 4% to 6% growth target. We have 3 cemeteries in 2 West Coast cities that have historically produced not only the largest cemetery sales production in the company, but it had a very high concentration in the Chinese consumer segment. On a year to date basis, just in these three cemeteries, our preneed cemetery sales production is lower by about $18,000,000 or over 20% of the segment.
If you add back just the Chinese production decline from the 2 markets year to date, it would take our company preneed cemetery sales growth from 0.2% growth to 3.3% growth, very close to our target range. Most of this decline is in the large sales category. These are the facts. The reasons why and when it will come back is where we shift from facts into speculation. Based on feedback from our customers, they are encountering challenges from more restrictive policies implemented by the Chinese government that have impacted movements of cash out of China.
This combined with the variety of ongoing political uncertainties, we believe has caused a pause in certain of the large sale consumers as near term access to their assets remains uncertain. We believe this uncertainty will subside. We just don't know when. In 2019, we've absorbed an $18,000,000 decline. If we can stabilize here, this alone should afford us the opportunity to get back to the 4% to 6% growth in 2020.
In the meantime, we're not sitting still. Our talented sales and operational management teams are focused on growing sales in our best in class properties with an abundance of tiered property available, utilizing our contemporary tools by continuing to grow our powerful sales teams. We do expect preneed sales production growth for the Q4. This should deliver low single digit growth for the year 2019 that is going to be short of our growth target. But it is our belief that we can return to 4% to 6 percent growth in 2020.
Following the cemetery revenue decline I've described, comparable cemetery operating profits decreased about $12,000,000 in the quarter and margins dropped 2 10 basis points to 28%. This is better than you would expect on the revenue decline and similar to the funeral segment was helped by effective management of our fixed costs. Shifting to our outlook for the remainder of the year, we remain comfortable with our annual earnings guidance of $1.90 to $2 that we may be on the lower end if we continue to experience headwinds with the Chinese consumer segment. As far as color for the Q4, we would expect continued growth in funeral profits on higher volume as well as better sales average and cremation mix trends. We would expect higher growth rates in preneed funeral sales versus the 9 months of 2019.
We would expect growth in both preneed cemetery sales production as well as improved cemetery profitability. We should continue to see the trend of lower corporate, general and administrative expenses, especially as the prior year Q4 had some one time costs associated with legal matters. This growth should be slightly muted by higher tax rate as compared to the prior year quarter. With that, I'll turn it over to Eric for his remarks.
Thanks, Tom, and good morning, everybody. I'm going to now give you some color on our strong cash flow results we have for the quarter and also talk about capital deployment during the quarter and then I'm going to touch on our financial position and outlook for the remainder
of the year. So first, let me
give you an overview of cash flow, which was a significant highlight for the quarter as you saw in the press release. We generated adjusted operating cash flow of $209,000,000 which compared to the prior year quarter was an increase of just over $70,000,000 Lower cash tax payments, lower cash interest from recent debt refinancing transactions, as well as higher and strong cash receipts were the key drivers for this increase. So let me give you a little more color on all three of those variables I just mentioned. First, recurring cash tax payments decreased $20,000,000 quarter over quarter, but through the 1st 9 months of the year, recurring cash tax payments are basically flat to the prior year at $57,000,000 We have also refined our 2019 estimates partly from lower pre tax income associated with the losses on early extinguishments of debt during the quarter as well as in tax planning. We now believe cash taxes for the full year will be approximately $75,000,000 compared to the $90,000,000 that I previously stated.
This reduction of the $15,000,000 year over year is the primary driver of the increased cash flow guidance that you saw in the press release. Also related to taxes, the adjusted effective tax rate for the quarter was 18.5%, which was higher than the 17.6% in the prior year, but certainly lower than what we had expected. This is primarily due to higher stock option exercise activity that occurred during the quarter than what we had expected. Looking ahead to the Q4, we anticipate the effective tax rate will be around 25% and this compares to the 4th quarter rate in 2018 of 20.5%. But despite this headwind, which is about $0.03 to $0.04 a share, we anticipate healthy earnings growth in the 4th quarter as Tom highlighted in his remarks.
Secondly, as it relates to cash flow in the quarter, cash interest payments decreased a little bit more than $8,000,000 primarily related to the refinancing transactions that we did in May of this year that has created a cash timing difference over the 2019 quarters. In addition to this timing issue, keep in mind when looking ahead to the Q4, we have executed certain financing transactions that should result in lower expected interest rates on our floating rate debt. First, as we continue to work to deleverage, we made open market debt repurchases in the 3rd quarter of our 7.5% notes due in 2027 that were purchased at favorable spreads over treasuries. Also during this quarter, we refinanced using our bank credit facility, our $200,000,000 notes that are due in 2020, which effectively replaces 4.5 percent debt with variable rate debt. We expect the Fed to continue reducing rates further, which in turn will reduce the rates we are paying now on our floating rate debt.
And then 3rd, we had very strong cash receipt activity during the quarter. While our preneed cemetery sales had a little dampening effect on cash receipts during the quarter, we did experience very healthy increases in both our funeral and cemetery at need cash receipts. Additionally, our ongoing efforts working with our preneed customers yielded strong results as we saw significant increases in our preneed installment collections over the prior year quarter. So moving on to free cash flow, maintenance and cemetery development CapEx combined, which again are the 2 components that we define as CapEx in our free cash flow calculation, was approximately $55,000,000 for the quarter or about $2,000,000 higher than the prior year quarter. Deducted these recurring CapEx items from cash flow, we calculated our free cash flow in the quarter to be $155,000,000 Year to date, our free cash flow calculates to nearly 3 $30,000,000 or a nice healthy increase of 9% over the prior year.
So now let's shift to capital deployment. We deployed just over $130,000,000 during the quarter to grow the company and return value to our shareholders as well as make some opportunistic open market debt repurchase that I just mentioned. This is a 20% increase from the $108,000,000 deployed in the prior year quarter. So in terms of breaking down the components, first, I'll mention that we did not close on any business acquisitions during the Q3, but we anticipate a solid Q4 of activity with good visibility into the acquisition pipeline. We remain confident in our guidance of $50,000,000 to $100,000,000 of acquisition capital being deployed for the year with about $32,000,000 already invested year to date.
During the quarter, we did have an investment of $35,000,000 in land for new cemeteries. And we mentioned this on our last quarter call that this represents the unique acquisition of some land in California that is adjacent to or even near 3 of our large cemetery in the Los Angeles market. This represents an exciting investment in our future in this market that is already a great producer for us and ensures that we continue to create cemetery offerings that appeal to the varying preferences in that market for many years to come. In the quarter, we also invested an additional $10,000,000 on newbuild projects, which included new funeral homes in Florida, Colorado, California, Georgia and North Carolina. In addition to the great returns that we normally get on these investments, we are excited to expand in these desirable markets.
Dividend payments in the 3rd quarter totaled $33,000,000 which represents an increase of 7% over the prior year. Next, we returned $23,000,000 of capital to investors in the form of open market share repurchases, which are approximately 485,000 shares at an average cost of 46.7 $3 per share. Our current number of shares outstanding is approximately 183,000,000 shares at quarter end and today we have about $385,000,000 of share repurchase authorization that is available to us. We also, as I said, repurchased almost $31,000,000 of our 7.5% notes due at 2027 in the open market during the quarter. Recall, we completed about $16,000,000 of these repurchases in the 2nd quarter, which resulted about $47,000,000 of these notes being repurchased year to date.
We view these particular notes as very attractive from a valuation perspective when evaluating their spread over the associated treasuries. But it's important to note that we use cash to retire this debt, which to further our efforts to decrease our leverage. Finally, we ended the 3rd quarter with leverage reduced about 3.8 3 times and substantial liquidity of $925,000,000 consisting of $195,000,000 of cash on hand and about $730,000,000 available on our new bank credit facility. So in closing, cash flow results continue to be strong. Through the 1st 9 months, adjusted operating cash flow has increased more than 7% and free cash flow by nearly 9%.
We expect to finish the year with a solid 4th quarter performance as well. We are increasing the midpoint of our cash flow guidance range by approximately $15,000,000 for the full year of 2019 and that again is on the expected lower cash taxes that I discussed earlier. So the previous guidance range of $550,000,000 to $610,000,000 becomes $575,000,000 to $615,000,000 of cash flow. This robust and steady cash flow, in addition to the liquidity over $900,000,000 that I just mentioned, sets us up nicely to deploy capital into the Q4. We have a number of good acquisition prospects in the pipeline as well as continued new build projects, all while funding the dividend and returning capital to our shareholders in the form of share repurchases.
So with that operator, that concludes our prepared remarks and we'll now turn it back to you for questions.
Thank you. We will now begin the question and answer session. And our first question comes from A. J. Rice from Credit Suisse.
J. Rice:] Hi, everybody.
A couple of questions, if I could ask. So in the cemetery business, you seem optimistic that we're going to see a bit of a rebound in the Q4. You're highlighting, it sounds like to me if I got it right, 2 issues, one being these Chinese intensive markets, Vancouver, LA, that you've experienced pressure and one being the recognition factor. I'm just trying to understand, are those related to one another? Is it your view that the recognition factor headwind will moderate in the Q4, but you're not assuming that the Chinese buyer issues will change?
Is that the way to think about it?
Yes, A. J, this is Tom. Exactly right. The construction piece of it really is the timing element. We knew the Q3 was going to be a tough comparison.
As we look at the Q4, the construction impact we would anticipate to be pretty equivalent or maybe slightly above the prior year Q4. And in our assumptions right now, we're just assuming that we continue to see some challenges around that Chinese consumer segment. If that were not the case, then we'd do better than probably where our head is right now. So, we believe it's temporary and we know it will fix itself one day. It's just hard to predict when that day is.
I think the positive thing, AJ, remember is we've taken the body blow of $18,000,000 If you project the Q4, it's probably over $20,000,000 of a decline. And if you can just stabilize that, 2020 looks pretty good. And if you can grow it, even better. Okay. Okay.
I guess I want to also ask on the capital EBITDA.
So you're in that 3.5% to 4%
to 4% to 4% to 3.8 times debt to EBITDA. So you're in that 3.5% to 4% range that you've traditionally talked about. 1, I guess, have you moved the range down for any reason, and so you're trying to get to a lower than that level of debt? And second, if you think interest rates are going down, I guess, I'm wondering why not wait and buy maybe that debt or is that driving your decision, I guess, to buy the debt as opposed to the equity?
A. J, this is Eric. So we're buying those notes really from a deleveraging play, although there is some savings obviously from an interest perspective. Ultimately, there is a pattern, if you remember last year, late in the year, we did a very large acquisition during the year, which is about $135,000,000 spend, which that coupled with other factors was kind of increasing our leverage towards the very high end of that 3.5x to 4x range. And we wanted to get it back kind of towards the middle.
And I do anticipate that this $383,000,000 will probably be back in the middle of the range of $3,700,000,000 to $3,75,000,000 in that area by the end of the year. We've not changed our opinion of 3.5 to 4 times, But we were purposely buying those notes, which appeared to us from a valuation perspective on spread to treasuries to be the most appealing notes that are out there from that valuation to try to go ahead and pick off from a deleveraging perspective. In addition to that, you're right that we did, for example, instead of taking the November 2020 notes and refinance them in the high yield market from fixed rate to fixed rate, we did make a play to take those on to the revolver, which we had significant capacity of. That's about a 4.5% to call it a 3.3% to 3.5% interest rate play, but that moves you to more of a floating rate debt as we continue to see things point in the direction of decrease in rates. So, the open market purchases with the deleverage in play, we're comfortable with the 3.5% to 4%.
We'll probably end of the year in the middle of that of 3.75%, but we did move some fixed rate debt to floating rate debt as well. And Ajay, I'd
just add on go ahead. Ajay, I was just going to say to add on what Eric saying, we as we get to the desired leverage level, I think you'll see 2020 be a little more aggressive as it relates to share repurchases compared to this year. This was a year that ends up pretty light and we can get back to more normalized activity there.
Okay. And then just my last question on Beacon, the initiative there. What's where are you at? What are you seeing? And any latest update on that?
So, the update on funeral is somewhat the same update because if you remember, as we've said before, we've shifted a lot of the resources to cemetery. So, in funeral, about 80% of the eligible contracts are being written 80% of the contracts that are being sold are eligible to be written on Beacon. And of those eligible contracts we're using it or utilizing the tool about 80%. That's really not new information, A. J, that's kind of stagnant, which you've seen before, because all of the movement and energy has been on developing the cemetery side of the Beacon equation.
And again, we continue to work on that, proficiently with our resources. We've described to you in previous calls that that's a much tougher integration of that due to the individualistic property at each and every one of those 450 cemeteries coupled with the substantial number of vendors and products that we sell that vary among all the different cemeteries as well. We continue to start the process to test it. I think by the end of the quarter, it was in maybe like 40 test sites and about to go into some more. But that's kind of the status where we are.
We continue to work very hard in the cemetery, but not much of a more of an update than that on the funeral.
Any time frame on rolling it out to cemetery, when you think you might actually formalize the rollout?
At this time, we're going to wait until we roll it out and start testing it to really understand it a little bit better before we do. I do anticipate some of the rollout to commence in 2020, but it's probably easily the back half, but I'm not ready really at this point to give you any type of quantification of that particular effect.
Okay. Thanks.
Our following question comes from Joanna Gajuk from Bank of America Merrill Lynch.
Good morning. Just to follow-up and clarify some of the comments about 2019. So you reaffirm your guidance and then you said if I guess the Asian population or the consumer purchases continue at this disappointing level, you're going to be towards the low end? Or are you saying that you're from guidance because you're going to assume steady, I guess, situation in those two markets? So can you just clarify exactly what do you how do you think about those 2 markets improving or stabilizing versus and what's included in your guidance?
Yes, Joanna, this is Tom. Thank you. Yes, I think what we're meaning is we've left you a pretty wide range for the Q4 obviously by maintaining it. So, I think if I do my math right, that was not a math major, dollars 0.60 to $0.70 would be the range. I think what we're saying is that if we continue to see challenges, which we're anticipating in the way we think about it in those markets, that we think is probably going to land in the lower part of that range versus the higher part.
Now of course, there's a lot of things moving back and forth, but that's our assumption if we continue to see challenges in those markets, which we're assuming. If those challenges were to lift, then I think we'd be more excited about getting to the middle or slightly higher than that part of the range.
Okay, that's helpful. And any, I guess, read what I guess been going on in these markets after that quarter? And I mean, in October, do you have any visibility, any changes in trends so far you see this quarter?
Well, again, I think what we're seeing is maybe slight improvements in those markets, but it's really too early to tell. We've really only got a month under our belt. And it's really again, a quarter is a full 3 months. So, I wouldn't say we're seeing anything that different, but I'd say in those parks in particular are doing pretty good in October and we feel pretty good about that. But I do think there's still a cloud, if you will, of uncertainty hanging over the consumer segment and understand why.
And so, I think it will be a challenge to get some of those to the finish line. But again, we believe it's temporary and these things will change and change our pace.
Right. And if I may, so I guess that leads me next, I guess, thought around next year outlook. I know it's early to give guidance and specific numbers and whatnot, but can you frame big picture headwinds, tailwinds for next year, that way we should think about it? I mean, you made a comment that you expect at least in the Seminary segment, those two markets to maybe stabilize and then you are focus on growing and going coming back to 4% to 6% growth, sales production in Cemetery segment. So any kind of comments you can make about how we should think about next year and maybe flagging any headwinds as in any comps or anything we should be thinking about for next year?
Thank you.
Yes, Joanna. I just feel I feel very confident about next year and a couple of reasons why. You'll recall, we implemented some the right things within our sales force. We did a couple of top things really starting in the second quarter. We raised our bonus targets for the first time in a couple of years based upon where we were within the comp plan.
We've put some gates around ensuring that we can charge interest on contracts, which we had a portion of our contracts for people who are not charging interest, which is a form of a discount in our minds. And so again, we were going to treat it as such if that were the case. And we also have we pay commissions and bonuses based upon business that's on salesforce.com. So, we had a couple of things that really needed to be done that were tough, that can be a bit of a distraction. You combine that with the fact that we're down 20% in these high sales of production markets.
We believe that's going to come back. We think we've taken the preponderance of the body blow. And then the last thing I think about is we've spent a lot of money on these new development projects, high end development projects. And so, we have the inventory on the ground to get out there and sell. And I have the highest level of confidence in our sales team and our sales management.
And so, I feel really good about 2020. I think we're going to get back on track and you guys are going to be pleased with the performance we can turn in.
All right. Thank you so much for the commentary.
You bet.
Our following question comes from Scott Schneeberger from Oppenheimer.
Good morning. It's Daniel on for Scott. Switching gears a little bit to funeral. Can you talk about your expectations for average revenue per service and volume as we look into the coming quarters here and maybe some perspective on flu season this year?
Sure. So, I think first of all, as it relates to the 4th quarter, it's our anticipation that we should see some slight volume growth in the quarter. Again, hard to really predict, but based upon what we saw last quarter and with the trends we're seeing in our markets, we expect that to happen. We've seen some favorable trends as it relates to average as far as getting better and better quarter over quarter. We'd expect that to continue in the Q4.
Again, not a significant change, but probably a positive growth as it relates to that. And I think as we look into the following year, we have some of the same expectations. The early feedback on the flu and again, it's really hard to tell, you only have what you're finding in the Southern Hemisphere, which is where all this starts. We anticipate it could be a bad flu season. I mean that I hope it's not.
I hope everybody's got their shot, but that could be an impact on the Q1. Once again, it will get muted throughout the year. So, it isn't something that is a big factor as the year goes on, but probably could impact the Q1 next year. And I think on the average front, we feel pretty good. We made some adjustments in markets to entry level cremation prices in our locations.
We took that below in 2019. We're not going to have a similar effect in 2020. So, as I think about pricing in 2020, I think it's a better trend than what we've experienced in 2019. So, we feel good about Q4 on a funeral perspective and I think we feel good about 2020.
Got it. Thank you. Funeral margin, can you provide some perspective on that as well as we look ahead and maybe leverage a little bit on the cost savings initiatives and how that could impact the longer term funeral margin profile?
Sure. So, as we've said, I think on our Investor Days and continue to believe, funeral margins are going to ebb and flow slightly, but they've been essentially flat for quite some period of time. I would tell you that I would expect that to continue to be the case as we go forward. There's only so much you can do with costs when you don't have significant revenue. If we trend at 1% or 2% revenue, that's going to be the case.
I do believe one day, we're going to see the impact of increased deaths associated with this demographic. When that demographic impact occurs and takes 1% to 2% revenue growth to closer to 3%, that's a pretty significant bump in our cash flows and earnings. I think if I compute that correctly, 200 basis point increase in our revenues drops about $0.07 or $0.08 to our earnings per share stream. So, not predicting that, don't think it's going to happen in 2020, but I don't think it's that far away either. And what can we do in the meantime?
We can underwrite businesses. We can capture more share through our preneed programs, which is what we're doing. We can compete more effectively by honing in our pricing, which is one of the things we anticipated and did in 2019. We're really readying, I would say, this platform for that event. And when it does, going to expand margins.
But in the meantime, I think I would think of funeral as maintaining around the annualized twenty percent margin as you think about going forward with growth that will be impacted by that demographic.
Got it. Thank you very much.
Our next question comes from Duncan Brown from Wells Fargo.
Hey, good morning. I just wanted to go back to the properties that you highlighted that were dragged on the cemetery side. Think you threw out an $18,000,000 number. Was that just in the quarter or was that a year to date number?
Duncan, that's a year to date number. I think in the quarter, it probably was closer to $7,000,000 is my recollection, but it's been consistent. We've seen it in 3 separate quarters. We probably began to see it in the latter half of I should say the latter half of the quarter, Q4 of 2018. So again, it doesn't make me feel any better, but I think the comp gets better as you get into 2020.
And if there were a cloud of uncertainty lifted and people felt more confident about accessing the money that they have, then they get back to thinking about these things. It's just it's really more of a psyche is the way we interpret a lot of this is it's kind of like when the stock market went down in 2,007, 2,008, not a lot of people want to run out and buy a new Ferrari. You pause and you wait and see what's going to happen and when you feel better, you reestablish your buying pattern. So, that's again, I think 2020, I bet on the upside versus the downside, but we don't know yet.
That's helpful. And not to get too specific, but is that 18, does that include just those 3 West Coast properties or also some of the impact? I know you highlighted last quarter there were some issues in the Vancouver market. What does that incorporate?
Yes, it's 3 cemeteries, 2 in Vancouver and a very large one in Los Angeles that really are focused on that Chinese consumer segment. So, it is literally 3 cemeteries in the 2 markets.
Okay, great. And then it sounds like it sounds like you might expect a robust M and A quarter in Q4. I was just wondering if you could provide any more color on what you're seeing and multiples changing at all and just any commentary on that would be helpful.
Sure. I think we are seeing still a pretty robust pipeline of activity, again, not large deals, but good deals. And I'd say the pricing is good. I mean, we probably see a little bit of an increase, but not a significant one. And again, we're going to be selective to buy the places that fit our strategy and we're going to pay the prices that shareholders expect the appropriate returns.
I think the other thing I would point out and it was in Eric's comments is we are very focused on building new locations and you're seeing a higher level of activity and I would expect that to continue because again, we can select where that is, demographics that are happening within cities. We can build a contemporary facility that's really designed for that consumer. So, I'd expect to see that trend continue. And while the IRRs aren't quite as high as an acquisition because of the 1st few years, you're really kind of building the business, What we're seeing is when you get out to years 3, 45 are some really nice growth trends. So, I think you'll continue to see us plant those seeds and have more spend in more locations that will be new facilities in markets where we've got a great management team.
Got you. Thanks. And last one for me. You mentioned the $35,000,000 of land you bought in California. I just wonder if you could share some early thoughts on the plans there, how we should think about the rollout for that new property of those new assets?
Yes. We're beginning plans right now to begin to develop sections of that cemetery. In any place, you've got permitting issues and initial investments. But as Eric, I think mentioned, we've got 3 other cemeteries around there, one of which had an inventory issue. We were getting to the point where we needed more land.
And so, it's really a perfect spot for us. It will probably touch a variety of these cemeteries consumer markets. One of the cemeteries specifically is focused on Jewish clientele. We've got an Armenian population that we've got a great robust program going with. And again, this is going to allow us to develop properties that are conducive to those consumers and what they want and allow us to continue to grow in LA for decades to come.
So, we're excited about putting it there. It's a big investment, but it's going to allow us to continue to grow in a very, very important market to us.
Great. Thanks.
We have no further questions. At this time, I'd like to turn the call back over to the SCI management.
I want to thank everybody for being on the call today. Happy Halloween. And it hurts me to say this, but congratulations to the Nats. I'm not going to say baby shark. See you next year.
Thank you.
Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.