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SABESP (SBS) Q2 Earnings Lag, Fall Y/Y on Higher Expenses
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Companhia de Saneamento Basico do Estado de Sao Paulo or SABESP (SBS - Free Report) reported disappointing second-quarter 2017 results with net income declining 58.4% year over year. Earnings per share came in at R$0.49 versus R$1.17 reported in the second quarter of 2016.
Considering the American Depository Receipt equivalent of earnings per share, the bottom line was 15 cents, below 33 cents in the year-ago quarter and the Zacks Consensus Estimate of 25 cents. The poor year-over-year performance was due to a rise in selling and administrative expenses as well as incurrence of exchange loss versus gain recorded in the year-ago quarter.
Revenues
Net operating revenues (including construction revenues) in the quarter inched up 1.6% year over year to R$3,494.6 million ($1,088.7 million). However, the top line came in below the Zacks Consensus Estimate of $1.19 billion.
The top-line growth was driven by tariff hike and rise in billed water and sewage volumes. Also, absence of bonus granted under the company’s Water Consumption Reduction Incentive Program contributed to the year-over-year growth. These positives were partially offset by the suspension of Contingency Tariff and 13.1% fall in construction revenues. The company’s billed water and sewage volumes increased 2.7% year over year to 903.6 million cubic meters. Of the total volume reported, roughly 56.3% represented water variation and about 43.7% came from sewage.
The company’s water connections grew 2.6% and sewage connections rose 3.1% year over year. Its client base included 24.8 million customers for water and 21.4 million for sewage at the end of the second quarter.
Margins
SABESP’s margin profile improved in the second quarter. Operating costs fell 1.1% year over year while represented 64.1% of net operating revenues. Gross margin came in at 35.9%, up from 34.1% recorded in the year-ago quarter.
Selling and administrative expenses represented 14.5% of net operating revenues versus 10.1% in the year-ago quarter.
Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) was R$1,065.5 million ($331.9 million), down 4.6% year over year. EBITDA margin fell 200 basis points to 30.5%.
Balance Sheet & Cash Flow
Exiting the second quarter, SABESP had cash and cash equivalents of R$1,367.6 million ($414.4 million), down from R$1,983.8 million ($633.8 million) at the prior-quarter end. Borrowings and financing dipped 0.1% sequentially to R$10,282.8 million ($3,116 million).
In first-half 2017, the company generated net cash of R$1,487 million ($467.6 million) from its operating activities, increasing 8.1% from the year-ago period. Capital spent on the purchase of tangible assets totaled R$10.9 million ($3.4 million), down 42.7% year over year.
Outlook
SABESP plans to spend nearly R$13,879 million for improving its services, including approximately R$7,098 million on water, R$5,423 million on sewage collection and R$1,358 million on sewage treatment during the period 2017−2021.
For 2017, capital spending planned is approximately R$2.3 billion.
Companhia de saneamento Basico Do Estado De Sao Paulo - Sabesp Price and Consensus
With market capitalization of $6.5 billion, SABESP currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the Utilities sector include Fortis Inc. (FTS - Free Report) , Connecticut Water Service, Inc. and SJW Corporation (SJW - Free Report) . While Fortis sports a Zacks Rank #1 (Strong Buy), both Connecticut Water Service and SJW Corporation carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Fortis’ earnings estimates for 2017 and 2018 were revised upward over the last 60 days. Also, the company pulled off an average positive earnings surprise of 10.99% in the last four quarters.
Connecticut Water Service performed well in second-quarter 2017, delivering a positive earnings surprise of 7.35%. Its earnings are predicted to grow 6% in the next three to five years.
SJW Corporation’s earnings estimates in 2017 and 2018 improved in the last 60 days. Financial performance was better-than-expected in three of last four quarters, with an average positive earnings surprise of 23.90%.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
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SABESP (SBS) Q2 Earnings Lag, Fall Y/Y on Higher Expenses
Companhia de Saneamento Basico do Estado de Sao Paulo or SABESP (SBS - Free Report) reported disappointing second-quarter 2017 results with net income declining 58.4% year over year. Earnings per share came in at R$0.49 versus R$1.17 reported in the second quarter of 2016.
Considering the American Depository Receipt equivalent of earnings per share, the bottom line was 15 cents, below 33 cents in the year-ago quarter and the Zacks Consensus Estimate of 25 cents. The poor year-over-year performance was due to a rise in selling and administrative expenses as well as incurrence of exchange loss versus gain recorded in the year-ago quarter.
Revenues
Net operating revenues (including construction revenues) in the quarter inched up 1.6% year over year to R$3,494.6 million ($1,088.7 million). However, the top line came in below the Zacks Consensus Estimate of $1.19 billion.
The top-line growth was driven by tariff hike and rise in billed water and sewage volumes. Also, absence of bonus granted under the company’s Water Consumption Reduction Incentive Program contributed to the year-over-year growth. These positives were partially offset by the suspension of Contingency Tariff and 13.1% fall in construction revenues.
The company’s billed water and sewage volumes increased 2.7% year over year to 903.6 million cubic meters. Of the total volume reported, roughly 56.3% represented water variation and about 43.7% came from sewage.
The company’s water connections grew 2.6% and sewage connections rose 3.1% year over year. Its client base included 24.8 million customers for water and 21.4 million for sewage at the end of the second quarter.
Margins
SABESP’s margin profile improved in the second quarter. Operating costs fell 1.1% year over year while represented 64.1% of net operating revenues. Gross margin came in at 35.9%, up from 34.1% recorded in the year-ago quarter.
Selling and administrative expenses represented 14.5% of net operating revenues versus 10.1% in the year-ago quarter.
Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) was R$1,065.5 million ($331.9 million), down 4.6% year over year. EBITDA margin fell 200 basis points to 30.5%.
Balance Sheet & Cash Flow
Exiting the second quarter, SABESP had cash and cash equivalents of R$1,367.6 million ($414.4 million), down from R$1,983.8 million ($633.8 million) at the prior-quarter end. Borrowings and financing dipped 0.1% sequentially to R$10,282.8 million ($3,116 million).
In first-half 2017, the company generated net cash of R$1,487 million ($467.6 million) from its operating activities, increasing 8.1% from the year-ago period. Capital spent on the purchase of tangible assets totaled R$10.9 million ($3.4 million), down 42.7% year over year.
Outlook
SABESP plans to spend nearly R$13,879 million for improving its services, including approximately R$7,098 million on water, R$5,423 million on sewage collection and R$1,358 million on sewage treatment during the period 2017−2021.
For 2017, capital spending planned is approximately R$2.3 billion.
Companhia de saneamento Basico Do Estado De Sao Paulo - Sabesp Price and Consensus
Companhia de saneamento Basico Do Estado De Sao Paulo - Sabesp Price and Consensus | Companhia de saneamento Basico Do Estado De Sao Paulo - Sabesp Quote
Zacks Rank & Keys Pick
With market capitalization of $6.5 billion, SABESP currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the Utilities sector include Fortis Inc. (FTS - Free Report) , Connecticut Water Service, Inc. and SJW Corporation (SJW - Free Report) . While Fortis sports a Zacks Rank #1 (Strong Buy), both Connecticut Water Service and SJW Corporation carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Fortis’ earnings estimates for 2017 and 2018 were revised upward over the last 60 days. Also, the company pulled off an average positive earnings surprise of 10.99% in the last four quarters.
Connecticut Water Service performed well in second-quarter 2017, delivering a positive earnings surprise of 7.35%. Its earnings are predicted to grow 6% in the next three to five years.
SJW Corporation’s earnings estimates in 2017 and 2018 improved in the last 60 days. Financial performance was better-than-expected in three of last four quarters, with an average positive earnings surprise of 23.90%.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>