UPDATE 1-Brazil builder MRV sees Q4 project launches speeding up

Tue Nov 12, 2013 10:56am EST

SAO PAULO Nov 12 (Reuters) - Brazilian homebuilder MRV Engenharia e Participações SA plans to increase the pace of new project launches in the fourth quarter and beyond as the company sells off existing inventory, Chief Executive Officer Rubens Menin said on Tuesday.

MRV, like many of its Brazilian rivals, has revamped management processes and cut costs over the past two years following an overly aggressive expansion. Part of its strategy has included cutting down on new project launches and selling down inventory to increase cash flow and reduce debt.

The company posted a 13.2 percent decline in quarterly profit from a year earlier late on Monday, although strong cash generation helped reduce debt levels and cancellations declined.

While most of the third quarter's sales came from existing stock, project launches "should begin to return to normal levels" in the fourth quarter and beyond, Menin said on a conference call with analysts to discuss earnings, adding that profit margins should grow over the next three years.

Shares of MRV rose 0.56 percent to 8.96 reais in afternoon trading in Sao Paulo.

MRV's gross margins remained stable from the previous quarter at 26.6 percent, but declined from 28.7 percent a year earlier. Return on equity (ROE) fell to 11.9 percent from 12.7 percent in the previous three months and 17.4 percent a year earlier.

"Even though there is still a significant way to go in order to fully restore profitability, these set of results were in the right direction, in our view," Credit Suisse Securities analysts led by Nicole Hirakawa wrote in an investor note on Tuesday.

The company generated 208 million reais in cash in the third quarter, helping lower its net debt-to-shareholder-equity ratio to 33.8 percent from 39.3 percent in the previous quarter. As a result, MRV remains one of Brazil's least indebted homebuilders.

Earnings before interest, taxes, depreciation and amortization, a gauge of operating profit known as EBITDA, fell 14.8 percent from a year earlier to 196 million reais.

In coming quarters, the company should generate cash at levels that exceed both net income and operational earnings, Menin said on the call.

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