Sabesp (SBS) Q3 2026 earnings review
Sabesp operating profit rises 14%, but debt costs cut net earnings
Sabesp, the water and sewage utility for São Paulo State, grew operating cash profit through higher tariffs and staff cuts, but rising interest bills pulled net profit down. Core service revenue, excluding construction, financial asset adjustments and its new power unit EMAE, rose 9% from a year ago, while operating profit before depreciation and amortization (Ebitda), excluding one-offs, climbed 14% as payroll dropped by a fifth. Chief executive Carlos Augusto Leone Piani accelerated capital spending to R$4.5 billion to meet universal coverage targets, and the borrowing needed to fund that construction pushed net profit excluding one-offs down 14%.
| Core service revenue, excluding one-offs | R$5,958M +9.0% from a year ago |
|---|---|
| Operating cash profit (Ebitda), excluding one-offs | R$3,648M +13.8% from a year ago (61% margin) |
| Net profit, excluding one-offs | R$1,107M -13.8% from a year ago |
| Capital spending | R$4,528M +13.8% from a year ago (R$44.2B backlog) |
⚖️ Verdict: 🟢 Bullish
The story got better because post-privatization tariff phase-ins and last year's voluntary buyouts are lifting operating margins even during a rainy quarter that hurt water usage. Sabesp also surpassed its 2024–2026 regulatory targets for new water and sewage connections ahead of schedule and locked in R$44 billion of contracted construction backlog. One caution: net debt climbed 34% in nine months to R$37 billion, and provisions for unpaid customer bills doubled despite a costly commercial overhaul.
The question now is whether operating profit from higher tariffs and new connections can outrun the interest and depreciation bills from Sabesp's debt-funded construction boom. If rate phase-ins and lower bad debt outweigh financing costs, net profit will start growing alongside Ebitda; if Brazilian interest rates stay high as debt builds, interest expenses will absorb the operating gains. Fourth-quarter sewage treatment connections and net financial expenses will provide the next test.
🐂 Bull Case
Higher Water Tariffs and Staff Cuts Lifted Operating Margin
Sabesp provides water and sewage services across São Paulo State, and its privatization rules allow it to phase in higher rates while trimming state-era overhead. Sales from core sanitation services, excluding construction, financial asset adjustments, one-offs and its new power unit EMAE, rose 9.0% from a year ago to R$5,958 million.
Higher tariffs and past buyout programmes drove operating profit before depreciation and amortization (Ebitda), excluding one-offs, up 13.8% to R$3,648 million. That lifted the Ebitda margin by 2.6 percentage points to 61%, even though the utility was "partially offset by rainier weather conditions, which affected consumption patterns and resulted in an unfavorable customer category and consumption-band mix", Sabesp said.
- Net tariff prices: up 7.7% from a year ago, as a 10.6% rate phase-in outweighed tariff reforms
- Billed volume contribution: up 2.1%, with 2.2% from new connections offset by 0.4% from rainy weather
- Payroll and benefit costs, excluding one-offs: R$538 million, down 21.4% from a year ago and down 3.5 percentage points of core revenue by our math
- Total employees: 9,057 at quarter end, down 2.7% from a year ago after three voluntary dismissal rounds
What to watch: the next annual tariff adjustment and quarterly payroll expenses in early 2027. If payroll stays near R$540 million a quarter while warmer summer weather restores residential water usage, operating margins will expand further.
Network Expansion Beats Water Targets and Locks In R$44 Billion Backlog
"Our first priority is universalization, delivered safely, followed by the continued improvement of our customers’ experience," chief executive Carlos Augusto Leone Piani said. Universalization is Sabesp's contractual commitment under its 2024 concession agreement to bring water and sewage coverage to nearly all residents across 371 municipalities by 2029, measured by regulatory milestone targets called the U-Factor.
The utility spent R$4,528 million on capital upgrades this quarter, up 13.8% from a year ago, bringing nine-month spending to R$11,986 million. By September, Sabesp had reached 118% of its 2024–2026 U-Factor target for new water units and 103% for new sewage units, though units connected to sewage treatment stood at 89% and rural sewage connections lagged at 71%. Contracted construction backlog reached R$44.2 billion after the group signed Waves 2 and 3 of its expansion plan.
What to watch: fourth-quarter sewage treatment connections and the bidding outcome for Wave 4, which covers the São Paulo metropolitan area. Reaching 100% on the sewage treatment target by year-end is required to avoid regulatory penalties and keep the 2029 schedule on track.
🐻 Bear Case
Rising Debt and Interest Bills Cut Into Net Profit
Sabesp is borrowing heavily to fund its construction programme, because operating cash flow does not cover a R$12 billion nine-month capital bill. Consolidated net debt — total borrowings minus cash and financial investments — climbed 34.1% over the first nine months of 2026 to R$37,254 million, pushing net debt to 44% of total capital from 40% at the end of December.
That borrowing carries a steep cost in Brazil, where the benchmark interbank rate (CDI) sits near 13.54% and links to R$40.6 billion of the utility's swapped debt. Net profit excluding one-offs fell 13.8% from a year ago to R$1,107 million, "mainly reflecting a weaker net financial result, as 3Q25 benefited from a non-recurring R$1.5 billion gain from court-ordered payments (precatórios), while interest expenses increased on a larger debt balance associated with the financing of our accelerated investment program", Sabesp said. Even after stripping out last year's court payment gain, the net financial expense excluding one-offs worsened by 74.0% to R$1,312 million, and depreciation rose 36.8% to R$732 million as new plants entered service.
What to watch: quarterly interest paid on the cash flow statement, which jumped 57.0% from a year ago to R$1,513 million this quarter. If borrowing costs continue growing faster than operating cash profit, interest bills will consume the operating gains from tariff hikes.
Electric Power Costs and Unpaid Customer Bills Rose Faster Than Sales
Piani highlighted service improvements from Sabesp's new Commercial Plan, noting that customer complaints through critical channels fell 51% since March 2026 and agency waiting times dropped 70%. The company wants this commercial overhaul to modernize billing, upgrades and collections across its retail base.
The financial statements show the overhaul is pressuring near-term costs while customer defaults rise. Executing the Commercial Plan reduced Ebitda by R$179 million this quarter, and the allowance for doubtful accounts — the provision for unpaid water bills, excluding one-offs — more than doubled from a year ago to R$159 million (up 1.3 percentage points of core revenue by our math) due to aging customer balances. At the same time, electric power costs jumped 37.2% to R$415 million (up 1.4 percentage points of core revenue) on inflation and new nuclear sector charges.
What to watch: the allowance for doubtful accounts and past-due receivables in the fourth-quarter report. If customer bad debt stays near R$160 million a quarter after the Commercial Plan rollout, the billing upgrades are not turning better service into cash collections.
👓 Other Themes
Power Utility Takeover and R$2.6 Billion Shareholder Payout
Sabesp completed its takeover of São Paulo power generator EMAE in September to gain "Advanced water integration ensuring security of supply" around the Guarapiranga and Billings reservoirs, paying R$1,429 million in cash plus R$126 million in stock across 2026 and adding R$150 million in third-quarter electricity revenue. In October, Sabesp also agreed to buy the remaining 55% of waste treatment affiliate Attend Ambiental, and on November 5 the board approved R$2,637 million in interest on equity payouts (50% of adjusted net income).
💲 Other KPIs
Total billed volume edged up 1.1% from a year ago, as a 1.4% rise in residential usage outweighed a 3.3% drop in industrial volume. Over the first nine months of 2026, total volume rose 0.6% to 3,303 million cubic meters. The average tariff rate across all customers rose 6.8% from a year ago to R$6.07 per cubic meter.
Total customer receivables (current and non-current, net of bad-debt provisions) shrank 14.6% from the end of December 2025, by our math. The drop came from municipal accounts, which fell by nearly half after Sabesp collected all R$814 million of its recognized court-ordered municipal debt payments (precatórios) during the first nine months of 2026, including R$144 million in the third quarter.
Cash generated from operations after interest and tax payments fell 33.0% from R$3,173 million a year ago, by our math. Pre-interest operating cash flow slipped 12.1% to R$3,989 million because last year included large municipal court-ordered debt collections, while cash interest paid rose 57.0% to R$1,513 million on a larger debt balance.
❓ Key Questions
Why does Sabesp not publish financial or capex outlooks?
Sabesp has R$44.2 billion in contracted construction backlog and R$21.2 billion in investment commitments due within one year, yet provides no annual revenue, margin or capital spending targets. Investors need a formal 2027 spending and borrowing plan to judge when free cash flow turns positive.
How will Sabesp close the sewage treatment gap by December?
As of September, Sabesp had reached 89% of its 2024–2026 U-Factor target for connecting units to sewage treatment, and only 71% for informal and rural sewage units. What specific plant completions in the fourth quarter will bring that metric to 100%?
When will the Commercial Plan stop hurting operating profit?
Executing the Commercial Plan reduced third-quarter Ebitda by R$179 million while provisions for unpaid customer bills doubled to R$159 million. How many more quarters will the rollout cost that much, and when will it reduce bad-debt write-offs?
What will the seven new solar consortiums save on power?
Electric power expenses jumped 37.2% from a year ago to R$415 million this quarter. Sabesp formed seven 15-year solar leasing consortiums during the period for self-production of electricity, but did not disclose when they start generating or how much they will cut power bills.