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SABESP Reports Q3 Loss; Revenue Hike Offset by High Costs

Companhia de Saneamento Basico do Estado de Sao Paulo or SABESP SBS reported disappointing results for third-quarter 2015, with net loss amounting to R$580.1 million (US$164.8 million). The bottom line also compared unfavorably with net earnings of R$91.5 million (US$40.3 million) generated in the year-ago quarter.

Loss per share came in at R$0.85, as against R$0.13 per share of earnings in the year-ago quarter. The bottom line was equivalent to a loss of 24 cents per American Depository Receipt ("ADR"), lagging the Zacks Consensus Estimate of 1 cent earnings by a large extent.

Revenues

SABESP's net operating revenue totaled R$3,197 million (US$908.2 million) in the quarter, up 13.2% year over year. The top-line performance was driven by tariff hike and increase in construction revenues, partially offset by adverse financial impact from the Water Consumption Reduction Incentive Program as well as a fall in billed water and sewage volumes.

Billed water and sewage volumes decreased 5.8% year over year to 840.8 million cubic meters. Of the total volume reported, roughly 56.3% represented water variation and about 43.7% came from sewage.

SABESP's water connections grew 2.6% and sewage connections rose 3% year over year in third-quarter 2015; while its client base included 25.5 million customers for water and 22.7 million for sewage at the end of the quarter.

Margins

SABESP recorded a 13.9% year-over-year increase in operating costs, representing 70.7% of net operating revenue versus 70.3% in the year-ago quarter. Increase in operating costs offset the revenue improvement, causing the gross margin to fall by 40 basis points (bps) to 29.3%. Selling and administrative expenses in the quarter represented 9.5% of net revenue.

Adjusted earnings before interest, tax, depreciation and amortization ("EBITDA") in the quarter increased 21.7% year over year to R$903.1 million (US$256.6 million), while EBITDA margin grew 190 bps to 28.2%.

Balance Sheet & Cash Flow

Exiting third-quarter 2015, SABESP's cash and cash equivalents increased to R$889.9 million (US$217 million) from R$803 million (US$255.7 million) at prior-quarter end. Loans and financing increased 14% sequentially to R$11,659.8 million (US$2,843.9 million).

In the first nine months of 2015, SABESP generated net cash of R$1,853 million (US$588.3 million), down 7.7% year over year. Capital spent for purchasing tangible assets decreased 74.2% year over year to R$21.9 million (US$7 million).

Outlook: SABESP plans to spend nearly R$13.5 billion for improving its services, including R$5.6 billion on water, R$5.1 billion on sewage collection and R$2.8 billion on sewage treatment during 2015−2019. Of the total planned investment, the company will spend roughly R$2.4 billion in 2015.

With a market capitalization of $3.2 billion, SABESP currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the utility industry include American Water Works Company, Inc. AWK , Artesian Resources Corp. ARTNA and The York Water Company YORW . All these stocks carry a Zacks Rank #2 (Buy).

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SABESP -ADR (SBS): Free Stock Analysis Report

YORK WATER CO (YORW): Free Stock Analysis Report

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ARTESIAN RES (ARTNA): Free Stock Analysis Report

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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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