UPDATE 1-Brazil's Gafisa surprises with profit, sees comeback on track

Sat Aug 11, 2012 12:16am IST

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* Net income of 1 mln reais breaks string of losses

* Focus on deliveries boosts revenue, margins, cash flow

* Shares jump 10 pct as CEO says turnaround is on track

By Brad Haynes

RIO DE JANEIRO, Aug 10 (Reuters) - Brazilian homebuilder Gafisa posted an unexpected second-quarter profit on Friday as its focus on delivering older units boosted revenue and helped reduce debt levels.

Gafisa shares climbed 10 percent in Sao Paulo trading on signs the builder had turned the corner on a string of losses by slashing new projects and recovering from cancelled sales.

"The company is focused on generating cash flow and reducing debt as we enter a new phase of profitability," Chief Executive Alceu Duilio Calciolari told analysts. "It will take time to fully recover, but we believe we are on the right track."

Gafisa reported net income of 1 million reais ($497,500), according to a securities filing, compared with a net loss of 31.8 million reais a year earlier. Four of five analysts in a Reuters poll expected a net loss in the quarter.

The homebuilder delivered 38 percent more finished units in the quarter than a year earlier, as it concentrated efforts on executing delayed projects. New housing starts dropped 60 percent from a year earlier as Gafisa overhauled its low-income Tenda unit and cut back geographic expansion in other units.

Rising deliveries, land sales and the securitization of future revenue allowed Gafisa to generate positive cash flow in the quarter of 231 million reais.

Gafisa's positive cash flow and subsiding debt levels offered investors further evidence it was reinforcing its financial position after a troubled construction cycle. Analysts expect disappointing results from rival Brazilian homebuilders in the coming week as falling sales and cost overruns erode profits after years of poorly controlled growth.

Shares of Gafisa rose 10 percent to 3.42 reais in afternoon trading to a nearly three-month high but still recovering from a 17 percent loss so far this year.

"Even with the improving results, we think the company still has a long road ahead of it to consolidate the recovery of its financial position," wrote analysts from Planner Corretora in a note to clients.

FINISHING OLD BUSINESS

Revenue rose 6 percent from a year earlier to 1.04 billion reais, boosted by more deliveries and land sales worth 97 million reais.

Units from 2009 and earlier accounted for 40 percent of Gafisa's revenue, down from nearly 60 percent in the prior quarter, as the builder moved on from delayed projects, which have eroded Gafisa's profitability with runaway costs.

"Already we're seeing better profit margins as we finish with those older projects, and we expect to see margins continue to improve gradually going forward," Chief Financial Officer Andre Bergstein said on the call with analysts.

Of nearly 5,000 Tenda units whose sales contracts were scrapped due to customers' credit troubles, the company resold 62 percent in the first half. Management said Tenda was also handing off more contracts to banks, reducing the risk of more such cancellations.

CEO Calciolari said the company was also making progress in arbitration regarding the price at which it will buy out partners in its most profitable unit, the higher-income Alphaville. After about a month in arbitration, Calciolari said he expected the case to be resolved in six to nine months.

Gafisa's earnings before interest, taxes, depreciation and amortization, a gauge of operating profit known as EBITDA, rose 92 percent from a year earlier to 149 million reais in the second quarter, beating a forecast of 98 million reais.

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