Funeral Home Chain Says Its Profit Outlook Is Good : Services: Service Corp. International says its costs are fixed. If mortality rates rise, it contends, it is in an excellent position.

The biggest funeral home operator in the nation is bullish about business, even as the economy slips into a recession.

“No matter what happens, people will bury their dead. The funeral and casket may be less, but they will take care of the body,” says Samuel Rizzo, chief financial officer of Service Corp. International.

The Houston-based company is the largest owner and operator of funeral homes and cemeteries in the United States and Canada.

Unfortunately for funeral-services companies, people have been living longer in the United States. But Rizzo said that should change, since the population is aging in a hurry.

“The fastest-growing segment of the U.S. population is over 85 years old. What does that do for us? There is a reserve inventory out there for us to take care of,” he said, adding:

“If mortality rates ever turn up, (our profits) go out of sight. Our downside is so limited. Our chances of not catching an upswing in mortality in an aging population are small. Naturally, we will get it when it occurs.

“Our business is a fixed-cost business. Once we own a funeral home and 30 limos, it makes no difference how many people we run through. More money drops to the bottom line, since expenses don’t rise.”

Service Corp. specializes in what outsiders might see as bizarre ways to prosper in a recession.

In addition to the funeral business, it operates the nation’s biggest publicly owned chain of pawn shops and a major used-car dealer group.

“Pawn shops are recession-resistant. People have to eat and sleep and drive to work, and we have the first two taken care of with the pawn shop company and the last one covered with used cars,” Rizzo said.

The pawn shops have taken such items as lawn mowers and even hot air balloons as collateral, in addition to jewelry and guns.

Analysts and investors agree with Rizzo’s rosy assessment of his product lines.

Dean Witter analyst Todd Richter, among others, rates Service Corp. “a buy.” The stock is trading about $19 a share, up from a low this year of $13.125.

The funeral services industry is a highly fragmented one, with about 22,000 funeral homes in the United States--most of them small, family-owned businesses.

Homes inspire incredible customer loyalty. Families use the same ones for generations. Ethnic groups frequent the same home, as do people with the same religious affiliations.

Price is usually not a consideration. The only state where people shop to get the best price for a funeral is Florida, Rizzo says.

“Normally, a funeral is not done for economic reasons,” he said.

Service Corp. owns or operates about 475 funeral homes in the United States. It is located in states with the largest populations of elderly--Illinois, New York, Florida, Texas, Arizona and California.

It also operates about 130 cemeteries, where plots can be presold or bought “at need.”

The company recently reported that third-quarter operating earnings doubled to 28 cents a share from 14 cents a year ago.

Rizzo said Service Corp. is likely to earn $1.25 a share in 1990--a figure in line with analysts’ estimates.

In 1989, it earned $53.6 million, or 97 cents a share, from operations, excluding a $98-million charge for discontinued businesses. Revenue was $518.8 million.

Service Corp. also owns Provident Services Inc., the only bank specializing in funeral-industry loans, Rizzo said.

The bank was created because it is difficult for funeral directors to borrow for expansion, to buy cemeteries or even hearses, because few bankers understand how to evaluate the risks associated with the businesses, Rizzo said.

“How can a funeral director explain the lack of risk in owning a cemetery?” he asked.