The InvoCare Limited (ASX: IVC) share price is down 4% this morning after the leading Australian funeral business issued a trading update.
According to the company, a mild winter and benign flu season have combined to impact InvoCare. Putting aside the financial performance of InvoCare, this is of course a pleasing thing for the families of the elderly who may otherwise have passed away.
The company reported its half-year result a couple of months ago and said that funeral case volumes had been affected. If it continued the full-year result would be hurt, which appears to be the case as the trend has indeed continued.
State monthly data has shown that the number of Australian deaths has decreased by 5.9% in June to August, compared to the prior corresponding period. InvoCare management believe that September deaths declined even more.
InvoCare said that for every 1% decline in deaths equates to around $3 million of funeral revenue on an annualised basis. Each 1% decline also impacts the cemetery & cremation division revenue by $0.7 million.
Management spelled out that InvoCare has seen a decrease of around 2,000 funerals year-to-date compared to last year, which is a 5.8% decline in volume and $17 million decline in revenue.
A decline in funerals also means InvoCare finds it harder to achieve price rises. Even so, InvoCare has grown its market share despite the ongoing Protect & Grow strategy.
InvoCare reminded investors that it has acquired around $25 million of additional annualised revenue in recent months.
Martin Earp, the CEO of InvoCare, said "We indicated at the half year that the number of deaths was lower than trend, but not outside normal year to year fluctuations. However, trading during the winder period has seen the number of deaths decline in the order of up to 8% in key markets.
"This variation is very unusual and, despite improving market share, there will be an impact on our full year results. I am pleased to say our strong progress in the Protect & Growing strategy and in identifying and executing strategic acquisitions will contribute to long term sustainable growth."
Foolish takeaway
As I said at the start, this is actually good news that there were less deaths. And, sadly, the benign conditions have only delayed the inevitable – the amount of funerals may be a lot more than expected in the next year or two.
Over the long-term death volumes are still expected to grow by 1.4% per annum between 2016 to 2025 and then increase by 2.2% per annum from 2025 to 2050. It's currently trading at 20x FY19's estimated earnings – I will likely buy more InvoCare shares for the long-term growth due to the fall in share price.
