SABESP Earnings Miss Est, Gain Y/Y


Sao Paulo, Brazil-based Companhia de Saneamento Basico do Estado de Sao Paulo, or SABESP’s (SBS) financial results for the fourth quarter and full year 2012 were impressive. Earnings per share came in at R$8.39 (US$8.61 per ADR) in 2012, representing an improvement of 56.2% year over year.

Result, however, was much below the Zacks Consensus Estimate of US$3.85 per ADR.


Net revenue generated in the year was roughly R$10.8 billion (US$5.5 billion), up 8.2% year over year, driven by higher water supply, sewage collection and treatment, and construction revenue.

Billed water and sewage volume in 2012 went up 2.7% year over year to 3,628.3 million cubic meters. Of the total volume reported, roughly 57.7% represented water variation and about 42.3% came from sewage. The increase in billed water and sewage volume was due to higher number of connections and acceleration in consumption.

Water loss rate in 2012 stood at 25.7% versus 25.6% in the prior year. Water volume produced increased 2.2% year over year; water connections crept up 2.6% and sewage connections rose 3.5%.


SABESP’s cost of sales and services, as a percentage of revenue, plummeted 60 basis points to 60.1% in 2012. Gross margin came in at 39.9%. Operating expenses, including selling, administrative and other expenses declined 7.2% year over year and represented 13.4% of the total revenue.

EBITDA in the year was around R$3,605.2 million (US$1,848.8 million), up 12.2% year over year with a margin of 33.5%.

Balance Sheet

Exiting the fourth quarter 2012, SABESP’s cash and cash equivalents stood at R$1,921.2 million (US$937.2 million), up 8.1% from R$1,777.7 million (US$888.9 million) in the previous quarter. Loans and financing, net of current portion increased 5.9% to R$7,701.9 million (US$3,757.0 million).

Cash Flow

SABESP’s net cash generated in the year fell 14.0% to R$2,336.2 million (US$1,139.6 million). Capitals spend on purchase of property, plant and equipment also declined 78.7% to R$30.6 million (US$15.7 million).

Following its 2012 earnings announcement, SABESP maintained its position as one of the largest water and sewage services provider in the world, serving roughly 7.68 million customers for water and 6.13 million for sewage.

SABESP currently holds a Zacks Rank #3 (Hold). Other stocks to watch out for in the industry are Aqua America Inc. (WTR), with a Zacks Rank #1 (Strong Buy) while American States Water Company (AWR) and American Water Works Company, Inc. (AWK), both carry  Zacks Rank #2 (Buy).

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