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UPDATE 2-Brazil's Cyrela soars ahead of rival builders in race to revamp
May 14, 2013 / 9:36 PM / in 4 years

UPDATE 2-Brazil's Cyrela soars ahead of rival builders in race to revamp

* 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 (Reuters) - 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 Group.

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 deliveries.

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 turnaround.”

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 administrative expenses.

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 leverage.

$1 = 2.02 reais Editing by Edwina Gibbs, Guillermo Parra-Bernal and Matthew Lewis

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