SABESP (SBS) Q4 Earnings Up Y/Y On Sales & Margin Growth

Companhia de Saneamento Básico do Estado de São Paulo - SABESP (NYSE:SBS) yesterday reported its financial results for the fourth quarter and full year 2018. Results were disappointing, with net income declining 35.3% year over year to R$612.6 million ($188.5 million) in the quarter.

Earnings per share were R$0.90, down from the year-ago tally of R$1.39. Considering the American Depository Receipt (ADR), equivalent of earnings per share, the bottom line was 28 cents, below 42 cents in the year-ago quarter.

For 2017, the company’s net income declined 14.5% year over year to R$2,519.3 million ($789.7 million). Earnings were R$3.69 per share or $1.16 per ADR versus R$4.31 per share or $1.23 per ADR in the previous year.

Revenues Up Y/Y

In the quarter, SABESP’s net operating revenues (including construction revenues) were R$4,018.3 million ($1,236.4 million), up 3.4% year over year.

For 2017, the company’s net operating revenues increased 3.6% year over year to R$14,608.2 million ($4,579.4 million). The improvement in revenues was primarily driven by favorable impacts from the tariff-adjustment and tariff-repositioning index, the increase in billed water and sewage volumes and the absence of bonus granted in 2016 under the Water Reduction Incentive initiatives. However, these were partially offset by lower construction revenues.

Billed water and sewage volumes in 2017 grew 4.3% year over year to 3,693.1 million cubic meters. Of the total volume reported, roughly 56.2% represented water variation and 43.8% came from sewage.

The company’s water connections jumped 2.4% and sewage connections rose 3% year over year. Its client base included 24.9 million customers for water and 21.6 million for sewage at the end of 2017.

Margin Improve

SABESP’s costs, administrative and selling expenses in the quarter grew 8.5% year over year to R$2,038.1 million ($627.1 million) and represented 50.7% of the quarter’s net operating revenues versus 48.3% in the year-ago quarter. Construction costs declined 15.9% year over year to R$914.6 million ($281.4 million). It represented 22.8% of net operating revenues, down from 28% in the year-ago quarter.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were R$1,394 million ($428.9 million), up 15.3% year over year. Adjusted EBITDA margin grew 360 bps to 34.7%.

Balance Sheet & Cash Flow

Exiting the fourth quarter, SABESP had cash and cash equivalents of R$2,283 million ($689.7 million), up from R$2,101 million ($664.9 million) at the prior-quarter end. Borrowings and financing declined 1.4%, sequentially, to R$10,354.1 million ($3,128.1 million).

In 2017, the company’s net cash generation from operating activities totaled R$3,301.9 million ($1,035.1 million), representing an increase of 9.9% from the previous year. Capital spent on the purchase of tangible assets was R$18.9 million ($5.9 million), down 31.5% year over year.

Outlook

In the 2018-2022 timeframe, SABESP plans to spend nearly R$17,294 million for improving its services. Of this, approximately R$7,120 million will be spent on water, R$7,732 million on sewage collection and R$2,442 million on sewage treatment.

Companhia de saneamento Basico Do Estado De Sao Paulo - Sabesp Price, Consensus and EPS Surprise