Welcome to the Q3 2015 Service Corporation International Earnings Conference Call. My name is Ethan, 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 the SCI management team. You may begin.
Good morning. This is Debbie Young from Investor Relations at SEI. Hope everyone is doing well this morning. We have a lot of material to cover today, so I'll quickly begin with the Safe Harbor statement. The comments made by our management team today will include statements that are not historical and are forward looking.
These statements are subject to risks and uncertainties could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, those factors identified in our press release and in our filings with the SEC that are available on our website. In today's comments, we may also refer to certain non GAAP measurements such as normalized EPS, adjusted operating cash flow and free cash flow. Reconciliation of these measurements to the appropriate measures calculated in the course of GAAP is provided on our website and in our press release and 8 ks that were filed yesterday. So let's now begin with comments from Tom Ryan, SCI's President and CEO.
Thank you, Debbie. Good morning, everyone, and thank you for joining us on the call today. I'm going to begin my comments by giving you the highlights of the quarter, then a deeper dive into both funeral and cemetery operations. And finally, I'll give you some color on our updated outlook for the Q4 of 2015 as well as our preliminary outlook for 2016. Beginning with an overview of the quarter, we reported normalized earnings per share of $0.23 which was consistent with the prior year period and slightly below our internal expectations.
Recall that in 2014, we benefited from the Federal Trade Commission Divested Businesses that we didn't have in 2015. For the Q3, this headwind was about 0
point
of our share repurchase program and a lower tax rate had the anticipated effect of improving our earnings performance. Unfortunately, some things did not go our way. The approximate 17% devaluation of the Canadian dollar versus the U. S. Had a $0.01 negative effect on the quarter, impacting both funeral and cemetery margins.
Additionally, the 530 basis point negative swing in our trust fund performance during the quarter reduced our earnings per share by another penny, impacting both the funeral and cemetery segments. Finally, as we had anticipated, our strong first half funeral volume appeared to normalize and Q3 core volume was 2.2% lower versus 2014, putting pressure on comparable funeral margins. On the cash flow front, working capital improvements from higher cash receipts tied to our success in preneed cemetery sales production and the timing of a payroll funding more than offset a $25,000,000 increase in normalized cash taxes paid, allowing us to grow our cash flow from operating activities. We continue to deploy capital to enhance shareholder value during the quarter, utilizing just over $153,000,000 for share repurchases, returning $24,000,000 through an increased dividend, investing over $14,000,000 in cemetery inventory and using over $11,000,000 during the quarter for acquisitions and newly constructed funeral homes. Now for an overview of funeral operations.
When compared to the prior year, our Q3 comparable funeral revenues decreased by $3,600,000 I apologize in advance for the detail here, but in order to better understand what is happening within our funeral segment, you will notice on Page 3 of the earnings release, and please do follow along here if you have it in front of you, that we've broken out non funeral home matured pre need revenue on its own line item. We combined at need revenue and funeral home matured preneedrevenue arriving at core revenue. As you will see, core revenue and non funeral home matured preneedrevenues have very different growth trends. So the $3,600,000 decrease in comparable funeral revenues starts with a $10,400,000 decrease in our core revenue. This was offset by a $500,000 or 10% increase in non funeral home matured preneed revenue, AKA SCI Direct preneedcerning atneed.
A $2,900,000 or 13% increase in recognized preneed revenue, AKA SCI Direct product sales that get pre delivered and a $3,400,000 or 10% increase in other revenue, which primarily consists of general agency commissions earned from preneed insurance sales. The core revenue decline of $10,400,000 is a function of a 2.2% decline in volume and a 0.4% decline in the reported average. To understand what is happening with the average, let me restate the revenue decline another way. The decline in the Canadian dollar is responsible for $6,000,000 of the decrease. Trust returns are responsible for another $2,000,000 which leaves only a $2,400,000 decline in core revenues absent currency and trust earnings.
So we're achieving inflationary 2% pricing increases, offset by 40 basis points of increased cremation mix. My takeaway is that currency will fluctuate, trust income will do the same, but over long periods, we'll continue to contribute to growth in the average sale. The real question is, absent the currency and trust noise, how are we doing with the consumer? We are achieving inflationary price increases, offset by a 40 basis point cremation mix change, which we anticipated. Now look at non funeral home matured preneed revenue.
The product component of the contract was delivered at the time of sale and reflected as recognized preneed revenue. Now the trusted component of the service is being delivered upon death, the revenue recognized and cash distributed from the trust. You'll notice that we reported a 10% growth in funeral volumes here for the 3rd quarter. This favorable trend began to surface in early 2015 and we believe should continue, but remember at an average of about $900 per contract. This is the result of the success we have had in growing preneed sales in SEI Direct, whose contracts are averaging a shorter 5 to 6 year life that are now maturing and yes, we believe is taking share from our at need focused direct cremation competitors.
Now let's talk about funeral profits. With a $3,600,000 decrease in funeral revenues, funeral profits declined nearly $11,500,000 So what happened? Remember, the core revenue declined $10,400,000 Of that, dollars 6,000,000 was currency, which also impacts the Canadian cost structure. As our Canadian funeral margins are about 15% in the 3rd quarter, we lost $900,000 of profit to Trust revenues declined $2,000,000 and are 100% margin And our true core operational decline of $2,400,000 has a 60% incremental margin as it is driven by volume. So all in, our $10,400,000 core revenue decline negatively impacted our profits by $4,300,000 Next, our fixed costs in our Funeral segment run about $300,000,000 a quarter.
With a 2% inflation assumption, this would have a 6 $1,000,000 negative effect on funeral profits. And finally, we experienced over $6,000,000 of revenue growth from general agency commissions, SCI Direct product sales and services associated with our SCI Direct preneed contracts that are maturing. We are very proud of the trends in these businesses and we believe they will continue to grow differentially from the core business. The margins here run about 20% and so they contributed an additional $1,200,000 in profit for the quarter. These profits were largely offset by the timing of costs associated with our lead management and marketing programs.
So to summarize, we lost $6,000,000 of profit through inflationary fixed costs, an additional $4,300,000 from core revenue declines, including currency, trust income and case volume. This explains $10,300,000 of the profit decrease. Lower margin revenue gains from SEI Direct and General NC commissions were essentially offset by increased costs from preneed funeral sales, lead management and marketing costs. Speaking of preneed production, one of our core strategies for growing future market share, our comparable funeral sales production
grew more
than $10,000,000 or 5.4%. This is consistent with our annual guidance of low to mid single digit growth. Now let's turn to cemetery operations. Comparable cemetery revenue increased $9,500,000 or 3.8% over the prior year quarter, primarily due to higher recognized preneed revenue offset by the unfavorable effect of the Canadian dollar as well as lower trust fund income caused by a negative 5.30 basis point move in our trust fund performance. Excluding the $3,000,000 currency decline and the $1,400,000 decline in trust earnings, comparable cemetery revenues grew by $13,900,000 or 5.5%.
The primary reason for increased cemetery revenues was preneed sales production growth of $15,000,000 or 9.2%. Continued success in growing both the sales velocity and the average spend per contract was partially offset by the negative Canadian currency impact. Through the 1st 9 months of the year, total cemetery preneed production was up 14.5%, and this will be the 4th year in the last 5 that we've been able to achieve double digit percentage growth. Comparable cemetery profits increased $6,100,000 in the quarter and the margin percentage grew 150 basis points to 24.4%. So let's look at the components of cemetery profits.
Revenue from core operations, which are at need and pre need recognized cemetery production, grew nearly $13,000,000 And on this growth, we should have seen a 65% margin or an $8,500,000 increase in our profit. 2nd, the 1 point decrease in trust income has a 100% margin. And finally, we backlogged roughly $4,000,000 of cemetery sales, which we recognized and incurred a 20% selling cost, which negatively impacted profits by about $800,000 We expect these sales to convert to revenue over the next few quarters. The net effect of these three items resulted in a $6,300,000 projected increase in cemetery profits, which approximates a reported increase of 6,100,000 dollars Now regarding our Q4 2015 outlook. We have had a great year thus far in 20 15.
Cash flow is outpacing our forecast. Normalized earnings per share has grown $0.08 or 11%, which was accomplished despite losing the $0.08 contribution from the Federal Trade Commission Ordered Stewart divestitures. Taking the impact of these divestitures out of the 2014 phase, normalized earnings per share grew 0 point 24% year to date as Stewart Synergy's strong preneed cemetery sales and a shrinking equity base had their anticipated effects. As we think about the remaining 3 months of 2015, there are a couple of areas that we want to highlight. First, we would expect to see funeral volumes decline versus 2014 as last year we began to see the effect of a strong flu season.
Volume was up 1.8% in the Q4 of last year. So in the Q4 of this year, core volume could be down in the low to mid single digits. We believe somewhat offset by low single digit average growth in revenue per case, absent currency and mix and further helped by growth in SCI Direct, but at a lower average spend and gross profit. Also, we would expect a continued negative impact from currency as last year, the Canadian dollar was in the high 80s and today it sits around 76. In our Cemetery segment, while we're comparing to a very tough comparable number, we still expect to grow preneed sales in the high single digit percentage range.
We also will record a large amount of revenue from construction in the 4th quarter as it is the seasonal nature of the business. However, not quite as much as we did in the prior year quarter. Finally, do recall that during the Q4 last year, we had approximately $15,000,000 of trust income related to accelerated capital gains that we noted would not repeat. Therefore, we currently believe our 4th quarter normalized earnings per share will range between $0.36 $0.39 Excluding the $15,000,000 of accelerated trust income in the prior year, we would have reported $0.33 per share last year. So guidance is a 9% to 18% growth over that base.
Looking ahead positioned to deliver solid results. Our preliminary earnings per share guidance range is $1.24 to 1.36 dollars At the midpoint, we fall within the 8% to 12% range of growth we spoke to in our Investor Day presentation last February. Eric will cover cash flow guidance, which remains very robust and allows us to continue to grow the company and enhance the value of your shares. Just to give a little more color on the broad assumptions regarding the 2016 outlook. We believe total funeral revenues should grow in the 2% to 3% range absent currency fluctuations.
Comparable core revenues should grow in the 0.5% to 1% range as inflationary pricing with a slight headwind from mix should result in a low single digit average growth. We expect this to be slightly offset by a 1% to 2% reduction in case volume. I would expect the tough volume comparisons to be in the 1st and the second quarters. Non comparable revenue from 2015 acquisitions should add an additional 80 to 100 basis points of revenue growth in 2016. Non funeral home matured preneed revenue, recognized preneed revenue and general agency revenue should all grow in the mid to high single digit range.
This should enhance funeral revenue growth by 50 basis points to 80 basis points. As we've discussed before, funeral gross margin percentages should be relatively stable. So revenue increases should generate additional margin dollars in cash flow. We believe preneed funeral sales should continue to grow in the mid single digits. As it relates to cemetery, we anticipate that reported revenues will continue to increase in the mid single digit percentage range, led by preneed sales production growth in the mid to high single digit range modest growth in adenine cemetery revenues and slightly decreasing trust income as we recorded and withdrew approximately $10,000,000 of onetime capital gains in 2015 that do not anticipate to recur.
Therefore, our segment margin percentages, which normally grow in the 50 to 100 basis point range with this kind of revenue growth, should actually be just slightly higher as the missing trust income carries 100% margins. Still, we expect healthy increases in cash dollar margins for 2016. And finally, expect corporate G and A to be relatively flat for the year and in the lower $30,000,000 range on a quarterly basis. So to wrap it up, I just want to say thank you to our entire team for their hard work and helping to produce great results thus far, and we look forward to a strong finish in the Q4 of 2015. With that,
I'll turn the call over to Eric. Good morning, everybody. I'd like to start this morning by summarizing some key financial points that I think are important for everybody the Q3 well ahead of our expectations and slightly higher than prior year. Cash flow was primarily bolstered by favorable trends in preneed cemetery working capital that I'll touch upon in a few minutes when I get into the details. We also have a new expectation of lower normalized cash tax payments for the full year of 2015.
And as a result of this, coupled with the strong preneed cemetery working capital that I just mentioned, we are once again raising our full year 2015 guidance for adjusted operating cash flow to a range of $500,000,000 to $525,000,000 This cash flow strength, coupled with our favorable liquidity profile, has enabled us to execute a robust capital deployment program during the quarter, which included returning an impressive $177,000,000 to our shareholders through both dividends and share repurchases. Finally, our outlook for 2016 cash flow is in the range of $475,000,000 to 525,000,000 which continues to demonstrate the consistency and predictability of our cash flow stream at SCI. So with that, let's begin with the Q3 in terms of cash flow. And as you saw in our press releases, the adjusted operating cash flow grew $1,700,000 in the 3rd quarter to $125,000,000 as lower payroll funding and better working capital basically offset the expected increase we had in normalized cash taxes. So a little bit more color on this cash flow in the Q3.
Similar to what we disclosed last quarter, cash flow from operations increased despite contributions from FTC mandated Stewart divested properties in 2014 that we did not benefit from in 2015. This estimated impact in the quarter was $3,000,000 to $4,000,000 As we also highlighted for you last quarter due to the way the July 4 holiday fell this year, we benefited from lower payroll funding in this Q3 by about 19,000,000 dollars Also on a positive note, we have been seeing an upward trend in recent quarters of increasing cash receipts from preneed cemetery installment collections as a result of preneed cemetery While revenue recognition primarily occurred at the time of sale, many of these cemetery property sales are paid on installments over a 5 year period. In line with our expectations, normalized cash taxes during the Q3 increased $25,000,000 over the prior year. And maintenance and cemetery development CapEx for the quarter came in at approximately $37,000,000 So our calculation of free cash flow for the Q3, therefore, is $88,000,000 This is flat to the prior year, but again, well above our internal expectations as the greater benefit in working capital offset the increase in normalized cash taxes. So overall, a solid quarter for us in terms of our cash flow from our point of view.
Now shifting to look forward into the Q4 of 2015 as well as the full year of 2015, 1st in the 1st 9 months of the year, adjusted cash flow from operation has increased $39,000,000 or 10 percent to $425,000,000 So based on these strong year to date results so far, better working capital than previously expected related to preneed cemetery installment cash receipts and a revised lower estimate for normalized cash taxes, we are raising our guidance range for 2015 annual adjusted cash flow by $25,000,000 which equates to a new range of 500 dollars to $525,000,000 for the full year of 2015. This new guidance for the full year implies a cash flow range in the Q4 of $75,000,000 to $100,000,000 compared to the prior year amount of $123,000,000 But keep in mind that we have 2 significant headwinds in the 4th quarter. First, remember that last year we benefited from $15,000,000 of trust fund distributions when we received one time capital gains distributions from integrating Steward's Trust Funds. 2nd, we will also have a higher normalized cash tax payments with an expected $30,000,000 in the Q4 of this year versus no normalized cash tax payments in the Q4 of last year.
Despite this 4th quarter increase in normalized cash taxes over the prior year, we now believe that we'll end 2015 with about 1 $100,000,000 in total normalized cash taxes versus our previous expectation of 125,000,000 dollars Our recurring CapEx guidance expectation for the full year of 2015 is approximately $140,000,000 which set the high end of the range that we previously provided. This results in a higher expected range of free cash flow of $360,000,000 to $385,000,000 for the full year of 2015. Now let's shift to the Q3 going back and let's talk about our free cash flow deployment. To begin with, we finished the quarter with healthy liquidity of a little less than $385,000,000 consisting of $142,000,000 of cash on hand $242,000,000 of availability on our long term credit facility. This liquidity positions us well to strategically execute our capital deployment plans.
So during the quarter, we spent approximately $8,000,000 on 2 new acquisitions after including almost $4,000,000 of 1031 exchange funds, which are not reflected in our statement of cash flows. But both transactions have projected after tax IRRs in the mid to high teen percentages. Now for what we gave back to our shareholders. We returned an impressive $177,000,000 of value to our shareholders during the quarter, which by the way represents the most we have returned in a single quarter since 2,007. In addition to $24,000,000 in dividend payments, we also repurchased about 153,000,000 or 5,100,000 shares during the quarter.
Subsequent to the end of the quarter, we have purchased we have repurchased just over 620,000 additional shares for a total investment of approximately $17,500,000 Therefore, when you look at what we have done so far in 2015 through today, we have repurchased about 11 point 6,000,000 shares for a total investment of over $321,000,000 These repurchases are more than double what we said could be possible at the beginning of the year, and we are pleased that we have been able to be opportunistic at these share price levels. Currently, we have just over 196,000,000 shares outstanding and about $300,000,000 of remaining share repurchase authorization. So now let's shift to our outlook for 2016. And in 2016, we expect our adjusted operating cash flows to be in the range of 475 dollars to $525,000,000 Higher cash flow growth from our underlying funeral and cemetery operations will be more than offset by higher anticipated normalized cash tax payments. As we transition to become a full cash taxpayer in 2016, our preliminary estimate for normalized cash taxes in 20 16 is approximately $160,000,000 or a $60,000,000 increase compared to 2015 normalized cash tax payments of approximately $100,000,000 that I just mentioned.
Absent this growth though and normalized cash taxes, our adjusting operating cash flows are expected to grow a healthy 9% in 2016 when utilizing the midpoint of our current guidance range. And lastly, capital spending in 2016 for maintenance and cemetery development CapEx is expected to range from $140,000,000 to $150,000,000 slightly higher than our expected spend in 2015 as we continue to reinvest in our core businesses. So in conclusion, continue to have a healthy balance sheet and capital structure and of course tremendous liquidity, all of which adds to our flexibility to pursue opportunities that will drive value for our shareholders and our company. We are expecting continued strong cash flow in the remainder of this year and into 2016. We, both as shareholders and as management, consider this free cash flow stream to be both steady and predictable.
And I'm not sure there are any 2 better attributes a company can have when describing its cash flow strength. And we will deploy this cash flow to continue to deliver significant value for our shareholders in 2016. So operator, that concludes our prepared remarks. And now I'd like to shift it back to you for questions.
Thank you. We will now begin the question and answer And our first question comes from Chris Riggs from Susquehanna Financial. Chris, please go ahead.
Hi, this is Frank Lee on for Chris. Thanks for taking my question. Share repurchases are well above the target for the year and acquisitions seem to be in line. Could you provide some more color on how we should think about capital deployment in the Q4 and in 2016, specifically the mix of repurchases and acquisitions?
Frank, this is Tom. Thank you for the question. And I think specifically as it relates to 2014, I know that we have a transaction that we believe will close in the Q4. And so also I also think we're going to have a healthy amount of money that we're going to deploy towards share repurchase. So think of the acquisition spend being kind of in the middle, I guess, kind of high single digit $1,000,000 and then spending money on share repurchases otherwise.
As you think about 2016, my thoughts are and again, this changes from time to time. I'd say the pipeline is not as robust as it once was. And so as I think about the mix at this point in time, 2016 maybe a little heavier on the share repurchases versus opportunities to deploy cash for acquisitions. Having said that, I think we're building more funeral homes that are again on the plan for 2016. So we'll continue to grow future revenues through growing the businesses that we operate.
Okay, thanks. And then if I can, not sure if I missed this, but had you quantified what you Yes. I
Yes. I think when you think about the 4th quarter, because we lost close to a Q4. And so if you assume the Canadian rate stays the same, it began to slightly dip in the Q4 last year. So it probably won't be quite a penny, but it'll be somewhere between a $0.005 and a penny. And we're really forecasting the Canadian currency for next year to be stay where it is, if you will.
Again, that can change up and down. From a trust income perspective, clearly, we reset the bar in the Q3 by having a bad Q3, but the market's up 9% in October. So we got a little bit back and your guess is as good as mine on what's going to happen in 20 16, but we generally project for returns in the year to be kind of in the low to mid single digits as far as market returns. And again, those get adjusted based upon the realities of what the fluctuates in the market do. So that's the way we think about it and that's the way we modeled it when you think about 2016.
Okay. That's helpful. Thanks a lot.
And our next question comes from A. J. Rice from UBS. A. J, please go ahead.
J. Rice:] Thanks. Hi, everybody. Just maybe to follow-up on a couple of those earlier points. On the buybacks for 2016, is there I'm assuming you've factored in or in the EPS guidance for 2016, I'm assuming you've factored in the buybacks from 2015.
Have you assumed any level of buyback in your guidance for next year?
Yes, A. J, I think what again, we've got a range, so we've got kind of a low and a high thought on what's going to happen on buybacks. So I think the way to think about it is we've got a we have some buyback activity in there, but I would say not a historical trend that you've seen us do. So I do think there's some upside potential if and when we execute the buyback strategy. But again, remember, it will have a half year's effect, if you will, on 20 16 and probably really plant the seed for more earnings per share and cash flow per share growth in 2017.
So not a lot in there, but some.
Okay. And then just on the working capital benefit you're seeing from the better payouts of the installment sales on the cemetery side. Is that sort of the result of an initiative? Is that the result of different consumer behavior? And have you realized the full benefit of that?
Is where you're at now sustainable? Is there potential for more room? Give us a little more flavor on that.
Hey, Jay, this is Eric. I mean, what you've seen as I try to describe in my notes is a really good healthy increase in our cemetery sales production, especially what we call heritage or cemetery property. And as you know, where the accounting is, we're recognizing that revenue, but a lot of that was done at the time under installment contracts. And what you're really seeing is an increase of cash flows coming from those installment contracts, which are higher because of that sales production. So it's really a function of what do we think of the levels of sales production that will dictate the installment contracts and the cash receipts coming in later.
You've seen some really healthy increases in cemetery sales production in the first half of the year. There were up mid double digit team percentages and no way are we projecting that type of increase to continue. So I think it will kind of moderate, but it was very nice in terms of a tailwind for us for cash flow for this quarter and probably into the Q4 as well.
A. J, this is Tom. I'd just add to piggyback on what Eric is saying. When you think about this sales production growth, we get some of it for lack of a better way of saying it to the external world, from internal sales. So you think about an internal sale, that customer that used to come in the cemetery, they generally paid more upfront cash.
They generally weren't extending as much payment terms. But as we've been able to grow our cemetery through the outside sales force, that outside sales force is bringing a customer that may or may not have come in before. And they tend to finance over periods of time. So I think the mix of people that are utilizing that financing tool continue to increase. And so to Eric's point, I think those receivables are out there and we'll continue to grow that aspect of our business.
Okay. And maybe last, I know you said in the prepared remarks and you mentioned on that first question, the de novo activity maybe is on a little bit of an upswing as well as it's been a long time, so I think I've heard you say you're buying cemetery land. Could you just give us some flavor for is that a one off or is that something that we're likely to see more of?
Yes. Well, I think on the cemetery, it's generally one off because we just don't have a lot of those situations. But I think what you will see going forward and the things that are in the pipeline is we've got approvals to build funeral homes, sometimes on combination facilities and cemeteries, sometimes on parcels of real estate that we believe demographically are the right place to be. So we've got quite a few of those on the drawing board and then planned and probably to the tune of 9 or 10 that I'm aware of that is again increased activity relative to the past. So I think you're going to see more of that, but more related to the funeral side of the business versus the cemetery.
Okay. All right.
Thanks, A. J.
And our next question comes from John Ransom from Raymond James. John, please go ahead. Hi, good morning. And I'm sorry,
I was pinging back and forth on a couple of calls. So I apologize if I missed this. But did you say last year was obviously a big flu season. If flu is a more normal season this year, do you have just a ballpark estimate of what that might do to your atneed funeral volumes?
Hey, John, this is Tom. And yes, I think again, it's hard, John, to project that. I would just tell you this, that in my mind, if you model 1% to 2% down for the year, the way I would expect it to roll in is that you could see, call it, a 3% or 4% decline in the Q1, maybe into the first half of the year, which again, you'd make back a lot of that with flat to slightly up in the back half. Again, I think if history tells us that's probably a trend line, the truth is we don't know. I think the way we're looking at it is you can have a pretty tough comp, particularly in the Q1, less so in the second.
And then obviously, the Q3, we'd expect to be a little more favorable comp based upon what we saw here.
Okay, great. And do you think we've gotten to a new plateau with respect to your preneed business and the lack of cash burn that we saw so far? Is that the new normal?
No. I think again, I think we've really seen some good traction on some of the stuff we've done in the printing world in terms of good production, getting down payments and then seeing the tailwind that will last, as I said, 3 to 5 years for that. But I think it was a little bit more than what we expected, John, is what I said. And so I'm going to wait a quarter or so to fully opine if this is the new normal. But my gut is we're starting to see some traction, but probably not as good as we saw this quarter.
Is your mix of trust versus a third party insurance still kind of consistent with what it has been?
Yes.
Okay. Thanks a lot. That's all I had. Thanks.
And our next question comes from Duncan Brown from Wells Fargo. Duncan, please go ahead. Hey, good morning.
When you think about 2016 guidance, are there any additional maybe Stewart opportunities or is most of that or all of that been realized?
Hey, Duncan, this is Tom. I think what we've got in place almost and again, we're always trying to find new ways that don't just apply to Stewart to enhance our cost structure and our efficiencies. But I'd say from a Stewart synergy perspective, they're all in place and there should not be a real incremental piece in 2016. Having said that, on the revenue side, as you think about cemetery development, we're constantly looking at cemetery plans and developing new levels of inventory, new tiers of inventory. We have not got around to every Stuart cemetery and developed the right levels of inventory, the right tiers of inventory.
So I think we believe there's opportunity to create value and create synergies for the Stuart Cemetery that probably gets into 2016 and even into 2017. But again, these numbers are probably in the low single digit $1,000,000 opportunities as the years go on. So we're excited. There's much more to do. And we're constantly looking at ways to enhance value for our consumers and drive profitability for our shareholders.
Okay. That's fair. I appreciate that color. And then also on the 2016 guidance, would love to get any thoughts that you have on wage inflation pressure that you're seeing on that and just any have you seen any changes on that front or expect anything?
Nothing outside the normal. I think, again, we're a people oriented business and it's important for us to for our employees to be engaged in what they're doing and doing the right thing. But I'd say we're not seeing anything that trend wise that we hadn't seen in the last 2 or 3 years.
Okay, great. Thank you.
Thanks, Doug.
And we have no further questions at this time. I would like to turn the call back over to the SCI management team.
I want to thank everybody for being on the call today and we look forward to reporting back to you guys in February, our Q4 and final 2015 numbers. Thanks again for being on the call.
Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.