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Sao Paulo, Brazil-based Companhia de Saneamento Basico do Estado de Sao Paulo, or SABESP (SBS - Analyst Report) reported an increase of 31.3% in its net earnings as compared with the year-ago quarter. Earnings per share were R$0.69 (or 30 cents per ADR) in the quarter, up 30.2% year over year.

Revenues

SABESP generated roughly R$2,772.4 million (US$1,216.0 million) in net revenue in the quarter, up 2.3% year over year. It was driven by demand for higher water supply, sewage collection and treatment.

Billed water and sewage volume in the third quarter 2013 went up 2.0% year over year to 925.0 million cubic meters. Of the total volume reported, roughly 57.6% represented water variation and about 42.4% 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 was at 25.0% versus 25.8% in the prior year quarter. Water volume produced decreased 0.5% year over year; water connections crept up 2.7% and sewage connections rose 3.4%.

Margins

SABESP’s cost of sales in the quarter increased 3.1% year-over-year and represented 59.2% of total revenue versus 58.7% in the year-ago quarter. Gross margin was at 40.8%. Operating expenses, including selling and administrative, decreased 24.7% year-over-year and represented 10.8% of the total revenue.

Adjusted EBITDA in the quarter was around R$1,041.9 million (US$457.0 million), up 15.5% year over year with a margin of 37.6%.

Balance Sheet

Exiting the third quarter 2013, SABESP had cash and cash equivalents balance of approximately R$1,828.8 million (US$820.1 million), up from R$1,669.1 million (US$748.5 million) in the previous quarter. Loans and financing increased 1.4% sequentially to R$8,379.2 million (US$3,757.5 million).

Cash Flow

SABESP’s net cash generated in the quarter increased 34.8% to R$753.1 million (US$330.3 million). Capitals spent on purchase of property, plant and equipment increased 16.3% to R$3.6 million (US$1.6 million).

Following its third quarter 2013 earnings announcement, SABESP maintained its position as one of the largest water and sewage services providers in the world, serving roughly 24.5 million customers for water and 21.3 million for sewage.

SABESP currently holds a Zacks Rank #5 (Strong Sell). Other companies to watch out for in the industry are Middlesex Water Co. (MSEX - Snapshot Report), with a Zacks Rank #1 (Strong Buy)., Two others - American Water Works Company, Inc. (AWK - Snapshot Report) and California Water Service Group (CWT - Snapshot Report), each carry a Zacks Rank #2 (Buy).
 

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