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SABESP Q2 Earnings Beat Estimates, Fall Y/Y on Higher Costs - Analyst Blog

Companhia de Saneamento Basico do Estado de Sao Paulo or SABESP ( SBS ), continued with its weak performance for the second consecutive quarter. The company reported a year-over-year decline of 16.4% in net income for second-quarter 2014.

Net income came in at R$302.4 million (US$135.6 million) versus R$361.7 million (US$175.6 million) in the year-ago quarter. Earnings were R$0.44 or US$0.19 per American Depository Receipt (ADR). The bottom line of US$0.19 per ADR surpassed the Zacks Consensus Estimate of 16 cents.

Revenues

SABESP generated net operating revenues of R$2,754.2 million (US$ 1,235.1 million), down 1.5% year over year. The decline in top line was due to lower revenue generation from water supply and sewage collection and treatment businesses, partially offset by an increase in construction and other services revenues.

Billed water and sewage volumes inched down 1.8% year over year to 898.3 million cubic meters. Of the total volume reported, roughly 56.9% represented water variation and about 43.1% came from sewage.

Water connections crept up 4.1% and sewage connections rose 5.1% year over year. Exiting the quarter, the company served 25.1 million customers for water and 22.1 million for sewage.

Margins

SABESP's operating costs increased 5.7% year over year and represented 66.4% of net operating revenues versus 61.9% in the year-ago quarter. Gross margin decreased by 450 basis points (bps) to 33.6%. Selling and administrative expenses rose 38.7% year over year, representing 17.6% of net operating revenues.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) dropped 27.4% year over year to R$661.7 million (US$296.7 million), while EBITDA margin fell 860 bps to 24%.

Balance Sheet

Exiting second-quarter 2014, SABESP had cash and cash equivalents of R$1,823.7 million (US$829 million), down 8% from R$1,982.5 million (US$840 million) in the preceding quarter. Loans and financing climbed 4.9% sequentially to R$9,180.8 million (US$4,173.1 million).

Cash Flow

In the first-half 2014, SABESP generated net cash of R$1,277.9 million (US$558 million) from its operating activities, down 9% as against the year-ago comparable period. Capital spent on purchasing tangible assets soared a whopping 556% to R$52.1 million (US$22.8 million).

Outlook: In 2014, SABESP plans to spend nearly R$2,642 million as part of its $12.8 billion investment plan for 2014−2018. Of the $12.8 billion, the company intends to spend roughly 41.4% on water projects and the rest on sewage projects.

SABESP, by 2020, aims to add new water connections of nearly 1.2 million and sewage connections of 1.7 million.

With a market capitalization of $6 billion, SABESP currently carries a Zacks Rank #4 (Sell). Some better-ranked companies in the sector include Consolidated Water Co. Ltd. ( CWCO ), Connecticut Water Service Inc. ( CTWS ) and Northwest Natural Gas Company ( NWN ). While Consolidated Water and Connecticut Water Service sport a Zacks Rank #1 (Strong Buy), Northwest Natural Gas Company holds a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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