Good morning, everyone. Thank you all for joining us today. I'm Scott Schneeberger , the Senior Business Services Analyst at Oppenheimer. It's our pleasure to have from Service Corp, its Treasurer and Director of Investor Relations, Aaron Foley, to speak on the company's investment story. We're drawn to Service Corp's leading position in the funeral services and cemetery offerings industry, its opportunity to capitalize on the favorable demographics of an aging baby boomer population, and its strategy to provide pre-need contracts to gain advanced market share and garner a backlog to build its trust fund portfolio. We'll be using a fireside chat format. I'll ask Aaron some high-level questions upfront to get us an overview of the business, and then later in the session, I'll facilitate audience questions. So feel free to send in your questions, and I'll get those to Aaron toward the end of this.
Getting started now, Aaron, could you please discuss Service Corp's overall business model and strategy? Thanks.
Thanks, Scott. Good morning, everyone. Thanks for having me here. You know, when I think about just at a very high level, our strategy is really kind of three things. It's grow revenue. It's leveraging our scale, and it's allocating capital, and kind of those three strategies, which I'll get into more, really help create the foundation of our 8%-12% earnings growth framework that we've really had in place since the mid-2005 or so type range all the way through our current outlook for the next several years. Obviously, 2021 and 2022 have been impacted by COVID, and so those are driving some more normalization back to a normal trend, but kind of getting back to your question specifically, growing revenue, really trying to identify ways to provide our customers with the products and services that we believe that they want.
While this is an industry that has been around for eons, it still is in the process of evolving and trying to make sure that we are doing what we can to remain relevant with our consumers, and part of that is really helping to drive those pre-need sales, as you mentioned earlier, creating we've got a sales force of about 3,500-3,600 counselors who are out there meeting with families and really trying to put in place plans for their end-of-life planning. That's a strategy. Part of it, too, is on the funeral side, predicated on something we can't even control, and that's really around funeral volumes. Pre-COVID, that had been trending probably in the low single-digit growth rate. During COVID, we've seen just huge increases.
But as we see some moderation in that going forward, we kind of expect to be back in that low single-digit growth rate as we look to 2024 and beyond, really driving the funeral revenue top line there. On the cemetery side, it's really a lot more of a pre-need business, if you will. And so that's really where we've got a lot of our sales counselors focused on selling the inventory, the cemetery inventory that's being created, the tiered property strategy that we've been putting in place at our cemeteries over the last 15 years or so. And that's really what's been helping us to drive average, honestly, on the cemetery side. Our entry-level consumers are able to come in and purchase a homogeneous plot if that's what they're looking for. But we've got all the way up through private estates and bench estates, hedge estates.
We've got all the way up to private mausoleums that families can come in and we can construct for them, and so we've put a lot of capital behind developing the tools for our counselors to be able to use that you've seen over the last several years, whether it be through digital, through back-office technology, to just all contribute to helping to grow off of the elevated cemetery pre-need base that we're currently operating with, so that's really growing the revenue. Leveraging our scale means that we have the capital and size to be able to deploy that capital to those tools and technology to help us increase that growth. We've got the capital to, or the size, if you will, to get the best pricing on casket purchases, monument and marker purchases, outer burial containers.
We've got some of the best pricing on vehicle purchases for limousines and other type vehicles out there. Not only that, also with this pre-need that we're driving, we've got the scale to put in place on the trust side, some LLCs to be able to pool funds to be able to generate better returns because of lower cost structures that we have in place because of the amount of assets that we do have under our trust portfolios. Similarly, with our insurance provider that we work with, we're the largest pre-need insurance consumer, if you will, selling to our customers. So the general agency revenue that we're able to earn, as well as the accretion on those contracts, the combination of those economics are going to be some of the best in the industry as well.
So that's really helping to drive that 8%-12% earnings growth framework through the efficiencies that are gained there and really helping to drive margins. And kind of all of those components then come together into how we're allocating that capital. And we're then to drive that 8%-12%. And we've got a history from 2005 to today of shrinking our equity by more than half over that time, buying back our shares. And some have kind of deemed it a slow LBO type approach that we've been following and really trying to allocate the capital to reduce our equity to a point to really be able to take advantage of the demographic wave that we expect to come through when baby boomers really begin to impact our business. We've also been in an acquisition type mode over the last 15 years as well.
We've bought back some of our largest competitors over that time, Alderwoods in 2006, Keystone in 2010. We've also Stewart Enterprises was our last biggest acquisition that we did back in December of 2013. And kind of since then, we've been identifying mostly mom-and-pop operators to really drive acquisitions. You've also seen us increase the capital allocation toward new build opportunities as well, new funeral homes. And more recently, you've seen us really even expanding a little bit more into the new build of new cemeteries. And so all of that combined really has helped to establish that 8%-12% earnings growth framework. Really, from 2005 to 2019, that earnings growth was trended higher than that. I think that on a compounded basis, we were between 14% and 15%. Again, as I mentioned earlier on, COVID's created some volatility over the last several years.
But with 2023, we're guiding to $3.60. It's a step down from 2022, which was still being impacted by COVID. But as we look forward to 2024 and beyond, we think us following this strategy is going to help us get back into that kind of 8%-12% earnings growth framework.
Great. Thanks for the overview and getting us started with that, Aaron. Let's dig in a little bit in specifics. So looking closer at at-need funeral and cemetery businesses, growth has been elevated during COVID or had been. Please discuss recent funeral volume trends as well as share perspective on the broader timing of demographic tailwinds now that we're moved past COVID. Thanks.
Sure thing. Thanks, Scott. So in February, we kind of came out saying our expectations for funeral volumes for 2023 were going to be down in the mid-single digits. We have our crystal ball, which I would say is no better than really anyone else's crystal ball. But the way that we kind of came up with that expectation was we took our 2019 volume that we had in place kind of on our last normal volume year. We grew that really at around 1% of those volumes. We added in acquisitions that we've done since that time. We took out divestitures that we have done during that time. Those are the three kind of numbers that we kind of have, I would say, stronger parameters around and comfort with, as well as actually COVID figures during that time, the historical COVID figures.
We had a relatively good sense of what those COVID amounts were. We then, particularly for 2022, had two other components that were a little bit more difficult to wrap your head around completely, and one is pull forward. In our estimation of pull forward for those deaths that had occurred in 2020, 2021, and 2022 that were above normal, those had to have come from somewhere in the future, and we've modeled that out to be, I think in 2023, we were expecting or in 2022, we'd modeled about 17,000 or so. 2023, we're modeling probably closer to 19,000 or 20,000 of a pull forward headwind, and then the last component relates to these excess deaths that we keep hearing folks talk about. CDC has defined them as such using that terminology.
But these are the deaths because of a lack of mental health or a lack of physical health, where during the pandemic, people were less inclined to go to doctors to get checked out. And so stage one cancer discoveries may have been made had they gone during this time. But unfortunately, when they go to the doctors now, it's stage four. Diabetes has gotten more out of control. Heart health has really gotten out of control as well. On the mental health side, alcoholism, drug overdoses, suicides, that has all been on the increase as well. And then at least driving around Houston here where we're headquartered, it just seems that on the roads, people are driving so much more aggressively.
So it's just a different dynamic that's out there that, based on our modeling and kind of putting all these pieces and parts together and then seeing truly where our volume was in 2022, we got spit out this excess death component, which is driven by those factors. As we were thinking about 2023, we said, well, we expect at some point that those excess death factors will begin to moderate, that people will get back on track with their healthcare, that being back in society, hopefully more in line and mental health issues will abate to a certain degree, and so while we expect them to come down, we don't expect them to come down to zero, so we kind of came, we landed somewhere right in the midpoint on those excess deaths for 2023.
Those are all the components that we pulled together to come up with our full year 2023 numbers, looked at some more normal seasonality, I would say, in the volume expectations for 2023, kind of comparing back to 2019, 2018, and as we saw the first quarter unfolding, I would say that our expectations were exceeded on the funeral volume side during the first quarter. I would say that our mid-single digit decline expectation for the full year 2023 remains, but I would say versus February, it's probably moderated some to the better as a result of the activity that we saw in the first quarter. Now, you also mentioned the baby boomers and the impact of those, and when are we going to see those coming through our numbers, and anecdotally, talking to some of our funeral directors, they'll say, you know, this volume feels different.
You know, we do feel like it's baby boomers. As you look at that generation, the oldest baby boomer right now is 77 years old. And the average age of death that occurs is around 82 years old. And so looking at the births in the U.S., looking at immigration from other countries, kind of where these cohorts stand associated with the most recent census data that is available, and kind of seeing how that trend of the baby boomer generation increased in births, it really, in the first couple of years of the baby boomer generation, they really hadn't ramped up to that kind of really high level that you think of with the baby boomers.
But all that pulled together, I would say it's kind of our expectation that the baby boomer impact is really not going to start happening until the latter part of this decade, probably closer to 2029, 2030 type range. And at that point, I wouldn't expect that you're going to see a hockey stick go from low single digit growth up to 6% or 7% growth per year. I think that low single digit growth may trend closer to low to mid-single digits, so one to two percentage points higher than what we historically had been seeing. But then I think that that dynamic is going to exist in this industry for about a decade, that you're going to see that elevated growth on a year-over-year basis occurring through the end of 2030, early 2040s.
Obviously, not obviously, but what we have been doing at SCI, as I mentioned, is allocating capital to reduce that size of that equity, going into our facilities and making sure that we are structured in a way to be able to handle the volume as it comes through. I do think that the COVID experience that the world has gone through really went to go pressure test that theory and the model that we've got in place. I think that our system and our structure really kind of passed that with flying colors. So I think that we're ready.
We're going through every five years or so. We go through a customer segmentation analysis just to make sure, again, and remaining relevant to our consumers, that we're providing the type of service that our families are looking for and making sure we're in front of them when they need us most. Oh, I can't hear you, Scott.
My apologies there. Yeah, I've been doing that. I got to keep it off because I keep forgetting. Yeah, funeral revenue per service, Aaron, that rebounded strongly post the social distancing era of COVID. This metric's been trending above 2019 levels for the past two years. Can you discuss the drivers and provide long-term perspective on where you see this metric going?
Sure. So I would say that the rebounding strongly in 2021 and really moving into 2022 to a certain degree was really us getting back to providing the level of products and services that had existed pre-COVID. And so during COVID, as you mentioned, there was a period where because people weren't able to come in, they weren't able to use our facilities. They really didn't need the flowers. They didn't need the catering. And so we really kind of saw that drop off on both of the burial and the cremation side of things. And fast forward to today, that's kind of all back in line. That's really kind of been in line for the past year, year or so.
I would say what we've been seeing really toward the latter part of last year and through this year, and honestly, we expect it to continue to a certain degree into this year, are some inflation pricing power that exists in the business. Since I've been here, I've always heard that the business has inflationary pricing power. I don't think most of us have ever really seen an inflation environment that we're living through now. But it's coming to fruition, and so as you look at the first quarter and really the fourth quarter, this dynamic occurred as well.
The average at our funeral home location kind of coming out before taking into account anything related to cremation mix or trust fund income or currency movements, that figure has actually grown in a mid-single digit kind of space at maybe 5%-6%, whereas pre-inflationary environment, that had been growing at maybe 2%-3%. And so we're seeing an elevation in the amount of price increase from an inflationary price perspective. And that is being driven by the environment that we're in.
We have a centralized team here at SCI, a pricing team, who goes out to each and every location that we have once a year and evaluates the market that they're operating in, of course, taking into account the level of facility and products and services that we're providing versus the competition and evaluating to say, are we priced at, above, or below kind of where we should be? We will make pricing changes accordingly.
And kind of what we've been seeing too over the last year or so is with the inflationary environment that we've been in, if these markets are seeing pricing pressure, they're coming to this pricing team and saying, "Hey, look, this is the environment that we're in." And we say, "Okay, that's fine, but we've got to figure out how to pay for it." And you're seeing that the pricing power exists to accommodate that. So that 5%-6% growth is, though, being haircut by the cremation mix that we're seeing during the first quarter. I would say that that cremation mix shift of about 200 basis points was probably a bit higher than normal. And that really is more relating to an anomalously low first quarter of last year.
If you look at the second, third, and fourth quarter of 2022, it's kind of more back in line and more in step with what we saw during the first quarter of this year. Another thing is the currency mix in Canada. The US dollar has gotten stronger. We've got about 7% of our business up there. And so that's creating some amount of a headwind. And then finally, the trust fund income. We just, during 2022, saw some volatility in the markets. And the impacts on our trust funds are helping to create some headwind to that pricing increase as well. And so I think as we look forward to 3Q through 4Q, those headwinds, particularly from cremation, and I think as well from both currency as well as trust fund income, will be abated to a certain degree as well.
And I think some concern may be too how elastic or inelastic is the consumer to these price increases. And what you have to keep in mind is the U.S. funeral market. There are 22,000 funeral homes out there. So it's a very competitive market, and there are generally relatively low barriers to entry into this market. And so I don't think that we feel like we've got the power in the funeral market to really push pricing however we like. Hence the discipline that we had over the last several years and only growing at the low single digit type percentage. But the inflationary environment that we are seeing, the rest of the 22,000 funeral home operators are also seeing.
And so we're kind of all in this environment of having to manage to these cost pressures, which is what is giving the opportunity for us to increase prices like this.
Sounds good. Let's discuss funeral pre-need sales. That's been trending strongly. Please address the drivers of recent performance. Discuss how you're positioned competitively to gain advanced market share via pre-need sales, and then provide long-term perspective on growth in this category at Service Corp and maybe some discussion of reversion from the pull forward as it has been strong. Might we see this significantly slowing? Thanks.
Sure. So there was a lot in that question. But I think that a lot of the strength that we're seeing in kind of the near-term funeral production that we've seen is really a testament to kind of our sales and marketing team efforts to really go out and identify ways to get not only more, but better leads put into the system. We've been using data analytics to better target our marketing efforts, whether it be through direct mail or through seminars or even through our websites. We've been incorporating technology in our websites to really be able to tailor the experience for people who come to the websites. Let's say they're a veteran and have looked at veteran-type things in the past. And our websites are structured in a way to be more veteran-oriented for that customer who comes in and looks at those.
And so I think the generation of those. We've seen an increase in leads from these marketing efforts on a year-over-year basis. And particularly too with seminars. Seminars during COVID had just gone away to nothing. And now, as they're getting back in mainstream and getting up to speed, we're seeing. We've always seen really good delivery on those. And so I think the culmination of all those, as well as our sales teams more fully utilizing Salesforce.com and tracking that detail and data really down to the counselor level to determine who's more hungry for sales, let's say, who's better at managing seminar leads versus direct mail leads, really targeting those leads and feeding those to the appropriate counselors in that way. That has all gone to help to drive these production figures better, specifically on the funeral side.
I think as pre-COVID, we kind of always had this expectation that the pre-need funeral would grow in the mid-single digit type range. I think that that's still kind of our expectation looking forward, that the pre-need funeral over the longer term is going to trend back in line with that mid-single digit type growth perspective. Now, you asked the question about pre-need market share and utilizing that to really help drive our revenue. The data in this industry is extremely difficult to find and really develop analysis around to really gain a good understanding of how some of these things that we're doing may be driving the business one way or another. I would say that it's our expectation that what we're doing with our pre-need funeral selling strategy is securing some amount of market share gain.
And some of the factors that I think that indicate that are, if you go back 10 years ago, about 35 out of every 100 services that we performed had some type of pre-need backing them up. If you fast forward to today, about 40 out of 100 now have some type of pre-need contract backing them up. And I think it would be kind of naive for us to say, "Hey, look, all of these pre-need contracts that we're putting into place are incremental to the business." I think that there's quite a bit of cannibalization of our at-need business that is taking place. Essentially, we are putting pre-needs in place on customers that would be coming to us at some point in the future anyway.
But there's still some margin that we think we are truly out there locking in this business for the future benefit of SCI and ultimately growing our market share. And so I think over the longer term, it remains to be a strategy that will stand behind. And obviously, the economics that have helped support, whether it be on the trust or the insurance side, all in really kind of lend themselves to be a strategy that it makes sense for us to continue to put our shoulder behind and drive, build the backlog. Right now, it's about $14 billion. And it gives us a level of comfort to know that we've got this business kind of already in place for us.
Excellent. Thanks. I'm going to swing it over to cemetery pre-need sales, and that's historically been a P&L growth driver, more real-time than funeral pre-need sales. If you could discuss, excuse me, discuss the drivers of strong growth you've experienced over the past few years. It's been spotty recently, but in cemetery pre-need sales, and then the outlook for this year and longer term, given we did have the disruption of the pandemic a couple of years ago, that would be great to get that in context. Thank you.
Sure. So a lot of the drivers on the cemetery side are similar to the funeral as it relates to generating leads, pushing them through the Salesforce and being able to capitalize on that capital that we've put into place. And honestly, those dynamics are truly the foundation for why we think where we stand today at our $3.60 earnings midpoint exceeds where we would have been had we grown 2019, which was $1.90 a share at 10% for each and every year, the midpoint of our earnings growth framework. We would have been at $2.80 in 2023. Instead, we're at $3.60. 75% of that $0.80 delta really relates to benefits or really changes in structure and approaches around our pre-need selling efforts on the cemetery side, really helping to evaluate or establish this higher production base that we're now operating off of.
The other quarter of that $0.80 delta being us deploying capital, the excess capital during this timeframe to share repurchases, which has really helped to reduce the denominator on that, and so as we think about some of the dynamics that have impacted volume during the COVID years, there's an aspect that also impacts cemetery pre-need sales, and what I mean by that is you've got a husband or a wife who's passed away, and they get interred, you're more likely than not going to see the remaining spouse or partner also want to go ahead and pre-need so they can be interred close to their loved one, and so as the volume declines, you're going to see some aspect of a decline there as well.
As we look forward to 2023 versus 2022, we came out with an expectation at the beginning of the year that we would be in a low single-digit increase for cemetery pre-need during the year. On a normal basis, we would expect our cemetery pre-need production to be growing at mid-single digits. And that headwind is partly because of the COVID impact that we were losing a stronger COVID year in 2022 versus 2023 being kind of a more normalized trend. But then on top of that too, we had some aspect of 2022 had elevated large sales that came through on the cemetery side, as Tom mentioned on the call. That predominantly was in the first quarter. And what we saw was a first-quarter cemetery large sale figure of maybe $30 million-$35 million over the past four or five years. During 2022, that jumped to $65 million.
When we came to 2023, we were back in that $35 million kind of range. That $30 million headwind, we knew it and we expected it. What occurred during the first quarter, which was something we didn't expect, was this weather that we saw on the West Coast, and specifically at some of our larger cemeteries. One is Rose Hills, which I know, Scott, you've been to, you and Daniel. You go into this park and it's just impressive, just the level of inventory and the level of infrastructure and development that is occurring. During the first quarter, we were expecting to have one of those large projects completed, which would then give rise to our sales counselors having the ability to tangibly show customers, "This is the inventory we have on hand that really would help production.
That unfortunately has gotten deferred until May, that opening." So we expect a large amount of those sales to be made up. But I would say that we're probably not expecting all of them to be made up during the year versus our expectations. And so what we'd indicated back in February was a low single-digit growth in cemetery pre-need. I think fast forward to today, looking at the trends and where we are, we're probably now expecting a flat to low single-digit growth. So it's nuanced, but a little bit lower than what our plans initially have been on that front.
Thanks. Great. I'm looking at the question queue, and we're actually running low on time. There is another question that I had, and it actually coincides with what I'm seeing in queue, and that it relates to free cash flow. So we only have a couple of minutes here, and let's wrap with this one. I only have this one other question. Service Corp has historically been a strong free cash flow generator. If you could share how you view free cash flow over coming years and how you allocate free cash, that kind of captures everything of what's remaining in the question queue here too. Thanks.
Sure. So I think one of the bigger components, obviously operating cash flow, I think we're going to have a step change, not step change, but a lower cash from ops expectation in 2023 versus 2022. As we look forward to 2024 and beyond, we expect to kind of get back into that normalized cash from ops growth perspective as we get back into that 8%-12% earnings growth framework. The next component relates to the CapEx that we're spending. We spent $335 million of maintenance CapEx in 2022. As we look forward to 2023, we expect that number to drop to $300 million. So that'll be a natural increase to free cash flow as well. I think we're going to try to probably stay in that $300 million range here over the next several years.
But that's kind of the trajectory and trend that we're expecting as we look out that we're going to be back to a growth type basis in that free cash flow. And it's going to be consistent and strong, and we expect it to continue to be as we look forward to when we started benefiting or being impacted by the baby boomer generation.
Excellent. Thanks. Well, that wraps us up on time. And Aaron, thank you. A great overview. Learned a lot here. Thanks, everyone, for listening in. We appreciate your attention. And Aaron, thanks again. Take care, everyone.