Stewart Enterprises, Inc.
Stewart Enterprises, Inc.
Sales: $433.4 million (1996)
Stock Exchanges: NASDAQ
SICs: 7261 Funeral Service and Crematories
With over 300 funeral homes and more than 120 cemeteries, Stewart Enterprises, Inc. ranks among the largest and fastest-growing companies in the so-called “death care” industry. A program of growth through acquisition that began in the 1970s, gathered steam in the 1980s, and was running full-out in the 1990s built the company from a small Louisiana cemetery operator into a multinational funeral management firm. In the five fiscal years from 1992 through 1996, Stewart’s sales increased at an average annual rate of more than 30 percent while net income growth, at nearly 38 percent, outran even that rapid pace. Furthermore, Stewart’s stock price increased by a cumulative 334 percent from its initial offering in 1991 to October 31, 1996. Like many of its dozens of subsidiaries, Stewart Enterprises continued to be managed by descendants of the founding family. Chairman Frank B. Stewart Jr., a grandson of the founder, controls nearly 40 percent of the company’s voting rights.
Early Twentieth-Century Origins
The company was founded in 1910, when Albert Stewart acquired three New Orleans-area cemeteries and embarked on a renovation program. The business grew modestly over its first two generations of management, diversifying into the construction of mausoleums, vaults, and crypts for its own use and later selling them to other cemetery operators. A major mausoleum first developed by the Stewarts in New Orleans in 1949 would expand over the ensuing four decades to serve as the final resting place for 31,000 of the city’s citizens. Reflecting an industry-wide division between cemetery operators and funeral home managers, the Stewarts remained focused on cemetery ownership and management throughout their first 60 years in business. In 1969, the company was still chugging along with its original three cemeteries.
Although it remained a strictly local, family business, Stewart was an early innovator in the industry. For example, it beat many of its rivals into the “pre-need” side of the business in the 1950s, nearly two decades before its leading competitors got into the segment. Pre-arrangement of funerals and interment would prove mutually beneficial to the Stewarts and their customers. Clients could make their funerary preferences known to their loved ones in advance, thereby freeing relatives from difficult decisions during the mourning period. Furthermore, customers purchased their cemetery plots and memorials at current prices and could even avail themselves of installment payment plans, rather than leaving the expense to be settled by their estates. Stewart benefited by not only locking in future business and market share, but also by increasing current cash flow. By the mid-1990s, the company’s backlog of preplanned funeral and interment services totaled six times its 1995 volume.
Industry-wide Consolidation Begins in 1960s
The death care industry entered a period of transition in the 1960s, when Service Corp. International emerged as North America’s first funeral home conglomerate. The consolidation—albeit gradual—of the industry echoed the evolution of several service industries from a multitude of fragmented “mom and pop” type operations into national organizations. Several industry-wide trends fostered the consolidation movement. Some owner-operators grew weary of complying with— or hiring attorneys to deal with—ever-increasing state and federal regulation. Others who found that none of their children were interested in learning and owning the family business began to seek out mergers.
Not surprisingly, the timing of Stewart’s first major acquisition also reflected a generational shift in management. According to a 1993 investment analysis of Stewart by Johnson, Rise & Co., several founding members of the company passed away in the mid-1960s, making way for a new generation of young, aggressive managers led by Frank Stewart, who took the helm in 1967 at the age of 31. Under his leadership, the company acquired New Orleans’s most reputable cemetery, Metairie Cemetery, in 1969. The purchase reflected what would become one of the company’s most fundamental growth criterion, that acquisitions be “heritage properties.” The incorporation of Stewart Enterprises, Inc. one year later integrated the family’s holdings.
Stewart Hits Acquisition Trail in 1980s
Nearly a decade would pass before Stewart embarked on a major growth program. The company applied several simple, yet well-considered principles in pursuit of expansion. Realizing that it could not easily supplant the long-established reputations of local funeral homes and cemeteries with its own “brand,” Stewart favored acquisitions over the establishment of new funeral homes and cemeteries. He described this particular dynamic to Joseph R. Mancuso of the Center for Entrepreneurial Management in a 1997 interview for YourCompany.” Our business is a community business. Owners of funeral homes and cemeteries often are respected individuals who have served families in their neighborhoods for years—sometimes for generations. That’s why buying well-established, reputable, family-operated businesses, rather than building companies from scratch, has been a great way to expand into local markets.” Stewart’s strategy was to purchase the biggest and best facilities in a given metropolitan area, using clustering to effect marketing and administrative economies. Affiliates would, for example, share transportation fleets and crematorium and embalming facilities.
The company made its first foray outside the New Orleans market in 1979, when it acquired one of the industry’s largest and most prestigious properties, Dallas’s Restland Memorial Park and Funeral Home. Stewart expanded at a relatively moderate pace over the course of the ensuing decade, increasing from five cemeteries and one funeral home to 33 funeral homes and 26 cemeteries throughout the southeastern United States by 1989. At that time, annual revenues totaled $96.8 million. Consolidation paid off handsomely for the company, enabling it to earn pretax profit margins that nearly doubled the industry average.
Stewart did not rely on acquisitions alone to drive its growth during this period, however. The family’s decades of experience in cemetery management proved significant. As noted in a 1996 report by Interstate/Johnson Lane, the Stewarts found that “customer loyalty is stronger with a cemetery where family members are buried than with a funeral home.” Stewart parlayed this concept into increased market share by building funeral homes on its best cemetery properties in the 1980s. Besides offering “one-stop-shopping/’ the combinations helped both operations to grow more quickly. By the end of 1996, over two-fifths of Stewart’s cemeteries had on-site funeral homes.
IPO Presages Exponential Growth in 1990s
Stewart made its initial public offering in October 1991 with shares starting at $17.75. The company used the proceeds to jump-start its acquisition program, multiplying the number of facilities in its portfolio sevenfold, from less than 60 in 1990 to 425 by the end of 1996. The program took Stewart international in 1993, when it purchased a Puerto Rican funeral home. The company bought the Gayosso group of six upscale funeral homes in Mexico in 1994, entered Australia in 1995, and penetrated New Zealand in 1996. Stewart’s biggest single acquisition to date came in 1996, when it purchased Urgel Bourgie, a Canadian group of 77 funeral homes and five cemeteries with a particular concentration in the province of Quebec. On the domestic front, the company began to expand from its southeastern stronghold into the West and Midwest. By the end of 1996, the company had properties in 23 states, up from just six at the time of its IPO.
Notwithstanding the breakneck pace of acquisitions made by Stewart and its two primary rivals, the death care industry remained highly fragmented in 1997. According to the 1994 Survey of Funeral Home Operations quoted in Raymond James & Associates’ early 1997 evaluation of Stewart, the Louisiana company and its top four publicly traded competitors only accounted for one-fifth of domestic industry revenues, while more than four-fifths of the nation’s 22,000 funeral homes and 9,600 cemeteries remained privately and often family-owned.
At Stewart Enterprises, we are committed to maintaining a total death care perspective of quality service to individual families in their own communities by offering funeral, cemetery, cremation and memorialization products and services. We intend to maintain and enhance the decentralized, autonomous management structure that remains sensitive to local customs and provides the incentive for so many top-quality professionals to join our ranks. We intend to maintain our leadership in sales of prearrangements and development of combination operations. We will continue our emphasis on enhancing profitability at the level of each individual business, while maintaining a global vision to our acquisition program. We always uphold the value of quality service to families set out by our founders. We will continue to grow globally while we serve locally. It is a formula that has worked quite well since 1910 and promises to work even better as we move into the next millennium.
These statistics were promising, in that they implied plenty of room for continued consolidation, but there was no question that competition for the choicest properties in each metropolitan area would intensify in the years to come. Those concerns grew somewhat more pressing in 1997, when Service Corp. International, the $2 billion leader of the death care industry, mounted a hostile takeover of second-ranking Loewen Group. If completed, the merger would place Stewart a far-distant No. 2, at less than half a billion in annual revenues, in comparison to Service Corp.’s $3 billion.
These modest caveats went largely unnoticed in the mid-to-late 1990s, however. The price of Stewart’s stock increased to $34.25 per share by mid-1996, and when splits were taken into account, the shares had grown more than 300 percent from their offering price. Total revenues more than tripled, from $130.3 million in 1991 to $433.4 million in 1996, while net income quintupled, from $9.4 million to $51.3 million.
Acme Mausoleum Corp.; Cemetery Management, Inc.; Griffin Leggett, Inc.; Highland Memorial Cemetery, Inc.; Holly Hill Memorial Park, Inc.; Holly Hills, Inc.; Hopson Mortuary, Inc.; International Stone & Erectors, Inc.; Investors Trust, Inc.; King-sport Cemetery Corp.; Lake Lawn, Metairie Funeral Home, Inc.; Lake Lawn Metairie Funeral Home (Joint Venture); Lake Lawn Park, Inc. (94%); Lakewood Memorial Park, Inc.; Lassila Funeral Chapels, Inc.; Legacy One, Inc. (94%); Les Enterprises Stewart (Canada) Inc.; Metairie Cemetery Association; Mont-lawn Memorial Park, Inc.; Mount Olivet Cemetery, Inc.; Nashville Historic Cemetery Association, Inc.; Pasadena Funeral Home, Inc.; Restland Funeral Home, Inc.; Rocky Mount Memorial Park, Inc.; Rose Haven Funeral Home & Cemetery, Inc.; Royal Arms Apartments, Inc.; St. Bernard Memorial Gardens, Inc.; St. Vincent De Paul Cemetery Association; S.E. Acquisition of California, Inc.; S.E. Acquisition of Oregon, Inc.; S.E. Acquisition of Sacramento, California, Inc.; S.E. Australia, Inc.; S.E. Mid-Atlantic, Inc.; S.E. South-central, Inc.; Stewart Resource Center, Inc.; Stewart Services, Inc.; Victor V. Desrosier, Inc.
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—April Dougal Gasbarre