A new partnership, lingering money woes for Catholic cemetery operator

A view of gravesites in SS. Peter and Paul Cemetery in Springfield, Delaware County. StoneMor, the company that is leasing the Philadelphia area Catholic cemeteries, is facing financial and legal trouble.

The Archdiocese of Philadelphia's decision to lease its cemeteries to a for-profit company in 2013 stirred an outpouring of concern -- not just from Catholics arranging burials, but also from funeral home operators who complained about the firm's sales tactics. 

The company, StoneMor, has since faced financial trouble. Its stock price has plunged in recent months, and two chief officers have announced their departures. 

But on Wednesday it took a step that once seemed unlikely here: The Bucks County-based firm announced a partnership with Donohue Funeral Homes, a prominent operator with six homes in Delaware and Chester Counties.

Under the deal, StoneMor will steer Catholics seeking to prearrange their funerals to Donohue.  

“If we didn’t do this, somebody else was going to do it,” said Michael K. Donohue, president of Donohue Funeral Homes. “It was the right move not only for us, but for our families that we serve and the community in general.”

Wednesday's announcement was the latest twist in an arrangement that has roiled some Catholics and funeral directors for the last few years. Since taking over operation of the 13 Catholic cemeteries through a long-term lease, StoneMor has faced criticism about aggressive sales methods at a time when many clients are vulnerable.  

Rumors of the deal had been swirling for months among local players in the funeral home business. The news was seen by some as a desperate move by both parties.

“A lot of families already know who they’re going to be using as a funeral home," said Paul Cavanagh, a director at Cavanagh Family Funeral Homes in Delaware County and one of several directors critical of StoneMor. "And I don’t think StoneMor or the diocese coming out and trying to pin a ribbon on one funeral home over another is going to fool people or dissuade people from doing what they have traditionally done."

Donohue, for his part, said in an interview Wednesday that he has shared the same concerns about StoneMor as many fellow funeral directors.

“And I’d be lying to you if I said that I didn’t,” he said.

On Wednesday, Donohue's website still had a "consumer alert" from the state funeral directors' association, warning clients about StoneMor's sales tactics and characterizing the company as "intent on commercializing the sacred grounds of remembrance for faithful Catholics."

Donohue said StoneMor first approached him about a potential partnership a year ago, as funeral directors criticized StoneMor and worried that the company would build its own funeral homes on cemetery land.

“StoneMor’s not going anywhere, so it’s either they build a funeral home on the cemetery or we created a partnership like this,” Donohue said.

He did not, however, rule out the notion that he could partner with StoneMor to build a funeral home at one of the 13 Catholic cemeteries, located in the city and each of its four surrounding counties.   

“It’s definitely a possibility, an option, but it’s not something that we’re looking to do right now,” he said.

Donohue also said the deal didn't include any financial transaction. 

The partnership amounts to “an exclusive agreement with an insurance company” for pre-need funeral sales, said Bill Johnson, StoneMor’s national vice president of insurance.

Johnson said the agreement will provide better service to customers, because they can now purchase all of their pre-need sales -- from both the cemetery operator and the funeral home -- under one insurance policy.

"In my opinion it’s in the best interest of the customer to be able to pre-plan basically all in one place," Johnson said.

Johnson said StoneMor is not currently speaking with Donohue about building a funeral home. But such a development would be permitted under the 60-year lease with the archdiocese, for which StoneMor will pay the church $89 million over 30 years.

Church officials have said the arrangement will help the archdiocese recover from its own dire financial situation, and have continued to call it a positive relationship. In return, StoneMor, which manages 317 cemeteries nationwide, oversees about 7,000 burials a year at the Philadelphia Catholic cemeteries and sells plots, vaults, and caskets.

Funeral directors, meanwhile, have discouraged local Catholics from doing any preplanning with StoneMor, and criticized the company for practices such as burying empty vaults purchased before a person dies.

Burying empty vaults allows the company to access money that otherwise must be held in a trust until someone dies. It's a move that StoneMor officials have defended -- and even touted to investors as one way to bring in more money while facing a cash-flow problem.

This month, the company received a notice that it could be delisted from the New York Stock Exchange after failing to meet a deadline to file its annual report. StoneMor said it delayed its annual report because it was reviewing its historical revenue reports.

That delay comes after StoneMor's stock plummeted last fall when it cut in half its quarterly dividend to shareholders. The company is now facing a class-action lawsuit from shareholders who allege the company is playing a "financial shell game.”

CEO Larry Miller said in a January interview that StoneMor remains “a very, very, strong company.” On Tuesday, he announced his retirement. He did not return a message left Wednesday. 

Miller isn't the first top officer to depart in recent months; Sean P. McGrath, announced his departure as StoneMor's chief financial officer in January.