* Cyrela profit jumps more than 50 pct as expenses decline
* Results at Brookfield, PDG, Gafisa, MRV disappoint
* Sector struggling with cancellations, cost pressure
(Adds analyst and executive comments, background on rivals'
performance, closing share prices)
By Asher Levine
SAO PAULO, May 14 Profit at Cyrela SA
outperformed rivals in the first quarter as Brazil's largest
homebuilder cut expenses and boosted sales during a tough period
for the sector.
Cyrela reported a 52 percent jump in first-quarter profit to
179 million reais ($88.6 million) as expenses dropped and
pre-sales rose. While profit missed the average estimate of 186
million reais by six analysts in the poll, management predicted
sales cancellations to fall in coming quarters.
Shares of Cyrela rallied on Tuesday while those of peers MRV
Engenharia e Participacoes SA, Brookfield
Incorporações SA, PDG Realty SA and Gafisa
SA - all of which reported earnings misses in recent
days - fell.
Cyrela's stock gains reflect growing enthusiasm by investors
for the plans by Chief Executive Elie Horn to bolster the
company's balance sheet.
"Cyrela continues to post the highest-quality numbers among
its peers," said Marcello Milman, an analyst with BTG Pactual
Local homebuilders have grappled with a mixture of
over-ambitious expansion plans, hefty cost overruns, higher
sales cancellations and poor management since 2011. They have
taken steps to reverse the situation, some with more success
than others. Efforts include shuffling management, cutting costs
and protecting cash by trimming launches and speeding
Adding an upbeat tone to the strong showing in earnings,
José Florêncio Rodrigues, Cyrela's head of investor relations,
said cancellations could fall to 10 percent of gross sales in
coming quarters from 12 percent now.
Bank of America Merrill Lynch analyst Guilherme Vilazante
said Cyrela is "by all measures, in the virtuous phase of the
Cyrela's shares closed up 4.5 percent at 18.07 reais in Sao
Paulo trading on Tuesday, their biggest rise since late March,
while Brazil's Bovespa stock index added 0.4 percent.
Shares of MRV and Gafisa dropped 6.7 percent and 4 percent,
respectively, while PDG traded flat. Brookfield reversed early
losses late in the session, gaining 2.3 percent.
Cyrela's stock premium to peers "seems warranted, as Cyrela
continues to carry out its restructuring process in an efficient
manner, positively impacting both profitability and cash flows,"
Credit Suisse analysts led by Guilherme Rocha wrote in an
investor note on Tuesday.
Results showed evidence that efforts to reduce the use of
third-party services and cut employee salaries are bearing fruit
at the company, leading to a 22.2 percent drop in general and
In contrast, cost overruns from legacy projects caused
worse-than-expected first-quarter losses at Brookfield and PDG,
while a spike in sales cancellations led to losses at Gafisa and
a profit miss at MRV.
Most of Cyrela's rivals are making efforts to pay down debt
as they strive to downsize operations and work their way back
into profitability. Cyrela generated a net 180.4 million reais
of cash in the quarter, allowing net debt to fall to 39.7
percent of shareholder equity.
In contrast, PDG burned 325 million reais in cash, bringing
the company's debt-to-equity ratio to 133 percent from 125
percent in the previous quarter.
MRV generated 62 million reais in cash, which brought its
net debt-to-shareholder-equity ratio down to 38.3 percent, among
the lowest of Brazil's major homebuilders.
Cyrela is still determining what to do with its additional
cash flow, Rodrigues told investors on a conference call on
Tuesday, adding that options may include an extraordinary
dividend, a share buyback, or the further reduction of debt
($1 = 2.02 reais)
(Editing by Edwina Gibbs, Guillermo Parra-Bernal and Matthew