To Our Shareholders:
Taking care of the funeral and cemetery needs of individual families is our most important responsibility. The dedication and professionalism with which we carry out this responsibility is one reason Stewart Enterprises has been so successful over the years. We continued this record of success in 1998.

Among the highlights of our business performance last year were the following:

  • Revenues increased 22%, to $648.4 million from $532.5 million in fiscal 1997. Revenues were two and a half times the amount recorded just five years earlier.

  • Earnings increased 32%, to $92.2 million from $69.7 million in fiscal 1997; and earnings per share (diluted) increased 21%, to $.94 from $.78.*

  • Our gross margin for all of our businesses for fiscal 1998 rose 70 basis points, to 30.2% from 29.5% in 1997; and operating margin rose 110 basis points, to 27.7% from 26.6%.*

  • Total market capitalization increased 23%, to $3.2 billion from $2.6 billion in fiscal 1997.

  • In April 1998, we completed a $200 million offering of 6.4% Remarketable and Redeemable Securities, and effected a two-for-one stock split.

  • We acquired 162 businesses -- our highest annual number ever -- for an aggregate purchase price of more than $266 million. Through these acquisitions, we entered the states of Illinois, Nevada, New York and Iowa in the United States; the countries of France, Belgium and the Netherlands in Europe; and the country of Argentina in South America.

* Excludes a nonrecurring, noncash charge of $76.8 million ($50.3 million, or $.51 per share, after-tax) recorded during the second quarter of fiscal 1998 in connection with the vesting of the Company's performance-based stock options. Earnings and earnings per share for fiscal 1997 exclude an after-tax charge of $2.3 million, or $.03 per share for the cumulative effect of change in accounting principles.

More Families Served
Last year, Stewart Enterprises served more than 190,000 families (on an annualized basis), an increase of 40,000 families from the previous year. This growth was achieved through our successful acquisition program as well as the creation of several new businesses as part of our internal growth strategies.

Three of last year's acquisitions were especially significant because, together, they added over 20,000 families to our customer base. Cocheria Parana, S.A., with 18 funeral homes, is the largest funeral company in Buenos Aires, Argentina. PLM Services Funeraires, a French company, operates 36 funeral facilities; prior to joining Stewart, it was the largest private funeral firm in France. The third acquisition, the San Diego Cemetery Association, has five stand-alone funeral homes and two combination operations (funeral homes on cemetery grounds), and is a major provider in the southern California market.

In last year's annual report, we discussed a number of initiatives that we had launched to promote growth and to make our operations more efficient. The growth initiatives included entering the alternative-services arena and forming operating partnerships with third parties. The initiatives to improve operations included the development of information technology and the establishment of a Shared Services Center. As you read this annual report, you will learn of the progress we have made in these and other areas. Among the accomplishments of 1998, we opened four alternative-services firms and signed four new operating-partnership agreements. We also opened five funeral homes and developed a new cemetery.

During 1999, we will again concentrate on these key internal growth strategies: the establishment of operating partnerships; increased participation in the cremation market through alternative-services firms; the development of combination operations; and the construction of stand-alone funeral homes and the creation of stand-alone cemeteries. We plan to pursue operating partnerships with organizations that own cemeteries, including religious, nonprofit, fraternal and municipal entities. With respect to the cremation market, we will seek to gain market share by adding alternative-services firms and by marketing full-service cremations in combination with traditional funeral services and memorials. In 1999, we expect to maintain our annual program of building three new funeral homes at existing cemeteries. Additionally, we think there are good opportunities for stand-alone facilities in newly developed and rapidly growing communities.

We also will continue to seek out acquisition candidates, both domestically and internationally. There are some 22,000 funeral homes and 9,600 cemeteries in the United States alone, and 85% of them are still independently owned. These independents generate 75% of domestic industry revenues. We believe that because of the industry's fragmentation, the acquisitions environment remains quite attractive.

The high quality of our people is what enables us to consistently deliver superior services, products and value as we expand our operations. Our management team continues to provide excellent leadership. Last year, we promoted several of our executives in recognition of their skill and expertise. Kenneth C. Budde was promoted to president of the Corporate Division and chief financial officer. He succeeded Ronald H. Patron, who now serves as chief administrative officer and executive consultant to the CEO. Charles L. Tilis was promoted to president of the Central Division to succeed Gerard C. Alexander, who is now executive vice president of special corporate projects and is focusing on operating partnerships. Finally, Thomas B. Briers, formerly regional COO, moved to our new European headquarters in the Netherlands to oversee our operations in Spain, Portugal, Belgium, the Netherlands and France.

There are more than 10,600 employees worldwide on the Stewart team, and each of them plays an integral role in our business. Their caring commitment is the main reason families turn to us time and time again. Throughout this report, you will read excerpts from letters we have received from some of the families we have served. We hope that you will find their expressions of appreciation as satisfying and humbling as we did. From the funeral director who arranges the service to the groundskeeper who maintains the cemetery, from the sales representative who answers prearrangement questions to the family service representative who provides aftercare, we are a team serving families. . . one at a time.

January 29, 1999

Pictured L/R: Joseph P. Henican, III, Frank B. Stewart, Jr., William E. Rowe

Frank B. Stewart, Jr.
Chairman of the Board


Joseph P. Henican, III
Vice Chairman of the Board
Chief Executive Officer


William E. Rowe
President
Chief Operating Officer

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