Sabesp Profit Falls 41% as Debt and Costs Increase

By Brazil Stock Guide – Sabesp (B3: SBSP3; NYSE: SBS) reported a 41.2% decline in second-quarter adjusted net income as higher operating costs and a sharp increase in financial expenses linked to rising debt outweighed revenue growth.

Adjusted net income fell to R$1.15 billion from R$1.96 billion a year earlier. Reported net income declined 31.4% to R$1.46 billion, compared with R$2.14 billion in the second quarter of 2025.

Total reported net revenue, including construction activities, rose 13.9% to R$10.21 billion. Adjusted sanitation services revenue increased 6.7% to R$6.01 billion.

Financial Expenses Surge

Sabesp posted a negative financial result of R$1.02 billion, compared with a R$118 million loss a year earlier. The 759.4% deterioration reflected higher borrowing levels as the company accelerated capital spending.

Net debt increased to R$34 billion from R$23 billion a year earlier. On an adjusted basis, the negative financial result widened 809.6% to R$1.08 billion.

Adjusted pretax profit fell 42.6% to R$1.70 billion.

Operating Costs Rise 24.5%

Adjusted costs and expenses increased 24.5% to R$2.53 billion. Including depreciation and amortization, the total rose 26.6% to R$3.26 billion.

Service expenses climbed 39% to R$848 million, reflecting investments in new and refurbished customer-service centers, a new call-center provider, a dedicated customer-experience team and consumer marketing initiatives.

General expenses surged to R$157 million from R$15 million. The year-over-year comparison was affected by favorable court rulings and the termination of legal proceedings that benefited the second quarter of 2025 by about R$200 million.

Treatment-material costs nearly doubled to R$169 million. Sabesp attributed the increase to raw-material inflation, geopolitical instability and disruptions across global supply chains.

“Although these actions generated higher costs in the quarter, they represent investments aimed at improving service quality, customer experience and long-term operating performance,” Sabesp Chief Executive Officer Carlos Piani said.

Adjusted Ebitda Declines

Adjusted earnings before interest, taxes, depreciation and amortization fell 3.2% to R$3.50 billion. The adjusted Ebitda margin narrowed to 58% from 64%.

Reported Ebitda was little changed at R$3.91 billion, compared with R$3.89 billion a year earlier.

The adjusted figures exclude construction margins, financial assets, EMAE-related results and R$68 million in nonrecurring costs, mainly associated with the Jaguaré incident.

Adjusted earnings per share fell to R$0.33 from R$0.57. The calculation reflects a five-for-one stock split approved on April 28.

Tariff Increase Supports Revenue

Adjusted sanitation services revenue benefited from an 8.7% net pricing effect, driven by a 9.9% tariff increase.

Volume contributed 1.1% to revenue growth, supported by new customer connections and meter replacements. Milder temperatures and lower per-capita consumption had a negative 1.1% impact.

Changes in the customer mix reduced revenue by 3.1%, reflecting expanded access to social tariffs for low-income households and shifts among consumption brackets.

Total billed volume increased 0.8% to 1.108 billion cubic meters. The consolidated average tariff rose 9.4% to R$6.01 per cubic meter.

Residential volume grew 2.5% to 954 million cubic meters. Commercial consumption declined 2.3%, while industrial volume fell 6.8%.

First-Half Investment Reaches R$7.46 Billion

Capital expenditure totaled R$3.73 billion in the quarter, up 3.6% from the same period in 2025.

Sabesp invested R$2.68 billion in sewage projects, an increase of 4.8%, and R$1.05 billion in water infrastructure, up 0.6%.

First-half investment rose 15.6% to R$7.46 billion. Spending on water projects jumped 38.2% to R$2.29 billion, while sewage investment increased 7.8% to R$5.17 billion.

“Our transformation continues to advance as planned. We maintain our expectation of investing around R$20 billion in CapEx throughout the year,” Piani said.

The spending program is focused on expanding sanitation coverage, improving service quality and strengthening operational resilience.

Workforce Shrinks

Sabesp ended June with 8,914 employees, down 3% from 9,190 a year earlier. The average workforce declined 3.7% to 8,961 employees.

Savings from the smaller workforce were partly offset by a 4.4% wage adjustment.

For the first half, reported net income fell 11.2% to R$3.21 billion. Total net revenue increased 16% to R$20.17 billion, while reported Ebitda advanced 9.2% to R$7.99 billion.