SAO PAULO Feb 27 Brazilian homebuilder Gafisa
SA expects a measure of profit margin to rise
by 2 percentage points this year as it continues to sell off
older, less profitable projects, its chief executive officer
said on Thursday.
According to CEO Duilio Calciolari, higher returns from
newer projects will help boost adjusted gross margin, or the
difference between revenue and cost before accounting for
certain other costs, this year. Gafisa's adjusted gross margin
was 31.2 percent in 2013, up from 24.4 percent in the prior
"The phase-out of all the old projects we had with low
margins is practically complete," Calciolari said on a
conference call with analysts to discuss quarterly earnings.
"New projects will begin to have a more relevant presence,
making our expectations for operational improvement quite
Gafisa has also been working to rein in expenses, cut debt
and refocus on key markets since 2012 after a rapid expansion
into untried regions led to huge cost overruns, sales
cancellations and big quarterly losses.
Shares rallied on expectations that Gafisa is beginning to
reap the benefits of a dractic turnaround it implemented more
than a year ago. Free cash flow, or how much earnings reamins
after payments to bond and shareholders, rose in the wake of
strong unit delivery, a rise in Tenda units transferred to banks
and reduced sales cancelations.
Shares of Gafisa were up 4.47 percent to 3.27 reais in
afternoon trading in Sao Paulo.
Net income came in at 921.3 million reais ($393.7 million)
in the fourth quarter, up from a 101.4 million reais loss a year
earlier. While Gafisa's quarterly results were heavily
influenced by a one-time 1.5 billion reais income from the sale
of its Alphaville unit, analysts were encouraged by a sharp rise
in cash generation independent of the transaction.
Cash generation "was a very positive surprise," wrote Credit
Suisse Securities analyst Nicole Hirakawa in a client note.
"While we are expecting the company to be more in cash neutral
terrain for 2014, the fourth quarter's cash generation, coupled
with higher sales speed, decreasing sales cancellations and
better margins, indicates operations could be more oiled than
Chief Financial Officer Andre Bergstein confirmed that cash
generation should be neutral in the year, while warning that
cancellations should rise in the first quarter due to a jump in
project deliveries in the fourth quarter. By the second quarter
cancellations should eventually settle back below the level seen
in the final three months of 2013, Bergstein said on the call.
The company should launch 5,000 units in its low-income
segment Tenda division in 2014, and reach an annual rate of
8,000 to 10,000 units in three years, Calciolari said, adding
that he sees a stable market for homebuilders as Gafisa works to
recover market share.