UPDATE 1-Brazil's PDG Realty books loss on tough turnaround

Fri May 10, 2013 10:37am EDT

* Homebuilder PDG posts worse-than-expected $37 mln Q1 loss

* Launching fewer units; focus on inventory, deliveries

* Shares outperform index as EBITDA turns positive

By Asher Levine

SAO PAULO, May 10 (Reuters) - PDG Realty SA, one of Brazil's biggest homebuilders, posted a worse-than-expected first quarter loss on Friday, as the company cut back new projects to focus on deliveries and unsold inventory.

PDG recorded a first-quarter net loss of 73.8 million reais ($36.9 million), down from a 32.5 million reais profit a year ago, worse than all estimates in a Reuters poll of analysts.

Hit by runaway construction costs after an ambitious expansion plan tripled the size of its operations in three years, PDG Realty cut back operations sharply in 2012 and laid out a three-year plan to return the company to profitability.

It re-evaluated the operational profit margins on its entire backlog late last year, leading it to recognize a net loss of 1.787 billion reais in the fourth quarter. Much of that was due to poorly controlled costs after the firm engaged third-party firms to handle a boom in construction projects launched in previous years.

"While we have restarted operational activity, our financial performance is still being very heavily impacted by the adjustment in construction costs," Chief Executive Officer Carlos Piani told analysts on a conference call on Friday. "We expect to see a bigger positive impact of the restructuring process in the second half of the year."

Earnings before interest, taxes, depreciation and amortization, a gauge of operating profit known as EBITDA, fell 24 percent from a year earlier to 137.9 million reais, missing the average estimate of 157.8 million reais in a Reuters survey, though up from an operational loss of 1.357 billion reais loss in the fourth quarter.

"Although most operating figures came in below expectations, EBITDA in positive territory supports management's comments about major adjustments having finished in 2012," Deutsche Bank analysts led by Esteban Polidura wrote in a Friday note.

Shares of PDG Realty rose 0.91 percent to 2.22 reais in early Friday trading, while the benchmark Bovespa index was down 0.86 percent.

Part of PDG's strategy include reining in new launches and accelerating deliveries in an effort to generate cash and pay down debt. Deliveries rose to 4,051 units in the first quarter from 3,800 units in the same period the year before. Launches fell to 1,765 units from 3,231 units in the year-ago period.

The company will continue to burn cash through most of the year, however, reaching a positive cash flow by 2014, executives said on the conference call.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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