Dying for Dollars

As the death-care industry booms and consolidates, Houston's Service Corporation International is leading the way

Like many others in the industry, Waltrip grew up in the funeral business. His father, Robert E. Waltrip, and his aunt, Mrs. S.P. Waltrip, founded Heights Funeral Home in 1926. When Robert L. was still in college, his father died, and he was called on to take over the business. He decided to expand shortly after assuming control at Heights, and he mortgaged his assets to build Waltrip Funeral Directors on Campbell Road. Waltrip found that he was able to operate several funeral homes at greater profit by sharing personnel, vehicles and infrastructure. By 1957 he owned three funeral homes, and the acquisition strategy had been born.

In 1969 Waltrip obtained long-term financing and began selling stock to the public. SCI was listed on the American Stock Exchange the following year, and in 1974, with some 300 funeral homes in the fold, SCI switched to the Big Board. The company grew sporadically in the 1980s while trying to define its niche in the market. It flirted with the casket business, the flower business and other sidelines before returning to its basic line of funeral homes and cemeteries.

Today, flush with cash, SCI has begun buying back some of its stock, and the company recently announced a dividend hike. SCI has sold $1.2 billion in pre-need contracts. Wall Street likes the company, and so do shareholders. The stock price rose by more than 40 percent last year, prompting one death-care analyst to call the increase a "spectacular outperformance" of the Standard & Poor's 500. The largest owner of SCI stock is J.P. Morgan & Co., with 7.4 percent of the company's common stock. Eagle Asset Management, a St. Petersburg, Florida investment company, is the second-largest holder, with 5 percent. (Racer A.J. Foyt, a board member since 1974, holds 11,000 shares.)

Brokerage houses and investment advisors are bullish. Analysts cite the rising death rate as well as demographic trends: some 35 million Americans are now over 65, and the fastest-growing segment of the population is that portion approaching 85 years of age. Says Dean Witter analyst Scott Mackesy, who has a "buy" recommendation on SCI: "The demographics are great for them. The 65 and over, the Medicare market, that's growing like crazy over the next 20 years. I don't know of anyone on Wall Street who is bearish or has a sell on SCI."

There's an old political saw that says, "Where you stand depends on where you sit." In the case of SCI, that could be modified to say, "When you die, what you pay depends on where you live." With 14 SCI funeral homes in the Houston area (among the 125 such firms listed in the Greater Houston yellow pages), one might expect that SCI's prices would be fairly uniform. Not so. In fact, depending on the service or product sold, the company may charge twice as much in one area as in another. After a visit to SCI-owned Houston Embalming Service at 34th and Ella, the variations in price seem particularly odd.

The "prep center," as it is known to SCI personnel, has no unusual external features, save for a long lattice fence that obscures the loading door from the street. A couple of black Chevy Suburbans with the familiar chrome emblems on the rear panel are parked nearby. Located about 50 yards away from the front door of Pat H. Foley & Co.

-- another SCI funeral home -- the low-slung tin warehouse is busy embalming SCI's clients 24 hours a day, seven days a week. All of SCI's Houston-area funeral homes have their embalming done at the prep center.

On a recent day Wallace McConahey, the manager at the facility, regretted that he couldn't take visitors through the embalming room. "We have four people being embalmed right now," he explained. McConahey and his staff do most of the heavy lifting for SCI in Houston. They are the ones who go out on the "first call" -- funeral parlance for "go pick up a corpse."

While independent funeral homes do their embalming on-site, SCI has reduced costs through "clustering." By sending all their bodies to the embalming center, SCI reduces the amount of manpower needed at each funeral home. Lower manpower costs mean higher profits. When a client dies, the call to pick up the body is transferred to the embalming center, where workers are ready to retrieve customers 24 hours a day. Once the client is brought back to the embalming center, the staff puts the body in a refrigeration unit until they receive permission to embalm. After permission is granted, the four licensed embalmers drain the blood from the body, pump in a mixture of preservatives and drive the body to the funeral home that will handle the service.

However, even though all of SCI's non-breathing customers pass through the prep center, the prices paid by living consumers vary widely. For instance, a funeral director at SCI's brand-new $2 million George H. Lewis at Champions Funeral Home on F.M. 1960 gave a price of $275 for embalming. The price list from SCI's Pat H. Foley facility shows that embalming costs $385. SCI charges customers at Pat H. Foley $110 more for embalming, even though that facility is about 20 miles closer to the embalming center than the new facility at Champions is.

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