Reuters: Hot Stocks: UPDATE 3-Brazil builder Gafisa's weak results, outlook feed concerns

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UPDATE 3-Brazil builder Gafisa's weak results, outlook feed concerns Mar 12th 2013, 17:45 Tue Mar 12, 2013 1:45pm EDT * Worse-than-expected qtrly loss triggers 5.8 pct share drop * Legacy projects to keep hurting profitability through 2014 * CEO says debt stabilized, Tenda division turning around * Company has lost a net $510 mln in two years (Adds CEO and analyst comments, financial details, stock price, adds RIO DE JANEIRO to dateline) By Brad Haynes and Juliana Schincariol SAO PAULO/RIO DE JANEIRO, March 12 (Reuters) - Brazilian homebuilder Gafisa SA plans to accelerate investments and return to profitability in 2013, executives said on Tuesday, even as a worse-than-expected quarterly loss heightened concerns about a challenging recovery. The net loss Gafisa posted in the fourth quarter was worse than the most pessimistic forecasts in a Reuters poll of analysts, as cost overruns, canceled contracts and higher selling expenses continued to weigh on results. The company's share price fell as much as 5.8 percent in Sao Paulo trading, its biggest drop in more than two months, as investors grew frustrated with promises of a turnaround at a company that has lost a net 1 billion reais ($510 million) in two years. "Weak financial results almost across the board coupled to uninspiring 2013 guidance should not bring much support to stock performance in the short term," wrote real estate analyst Guilherme Rocha of Credit Suisse Group in a note to clients, adding that Gafisa was "still far from turning around." The grim outlook reinforces doubts surrounding Brazilian homebuilders, which have struggled to finish a construction cycle dogged by soaring costs, customers' eroding creditworthiness and recent signs of cooling demand. Chief Executive Alceu Duilio Calciolari said Gafisa had put systems in place to prevent more budget overruns and lost sales, pointing to recent debt reduction as evidence that the company was poised for growth. "We're adjusting the direction of the company now for a moment of generating more results, more value," Calciolari told analysts on a conference call, adding that the principal focus in 2012 had been generating cash to bring down debt levels. LEGACY PROJECTS STILL WEIGH Total debt dropped to 95 percent of shareholder equity at the end of December from 118 percent a year earlier, and executives said they planned to keep debt levels stable in 2013. Gafisa also said it aims to invest more heavily in increasing business this year, with plans to launch housing projects worth between 2.7 billion reais and 3.3 billion reais this year, after cutting launches by 16 percent to 2.95 billion in 2012. But legacy projects that have suffered from poorly controlled budgets and scrapped sales contracts will continue to hurt earnings, as deliveries of those units are likely to continue into 2014, the company said. Gafisa said it expected earnings before interest, taxes, depreciation and amortization, a gauge of operating profit known as EBITDA, to rise to between 12 percent and 14 percent of net revenue this year, from 11.9 percent in 2012. The guidance was below a prior Credit Suisse estimate of 15.5 percent for 2013. With tighter credit standards and cost controls in place in the low-income Tenda unit, Calciolari said the struggling division was ready to begin launching projects again in the first half of this year. Executives said they were aiming for gross margins of 28 to 30 percent for Tenda projects, compared with the 13 percent margin for projects delivered last year. Unprofitable Tenda projects and provisions for possible cancellations contributed to a net loss of 99 million reais in the fourth quarter. Estimates in a Reuters poll of analysts ranged from a profit of 45 million reais to a loss of 27 million reais. The company had reported a quarterly net loss of 819 million reais a year earlier due to climbing construction costs and lost sales contracts after customers' credit profile worsened. The company posted a loss of 20.1 million reais before interest, taxes, depreciation and amortization, compared with an average forecast for a positive EBITDA of 142 million reais in the Reuters survey. Still, Gafisa generated free cash flow of 381 million reais in the quarter, up from 149 million reais in the prior quarter and a cash burn of 200 million reais a year earlier. Operational cash flow reached 1.04 billion reais in 2012, beating the company's target of 600 million reais to 800 million reais. Gafisa shares were down 5.6 percent at 4.04 reais on Tuesday afternoon, off an earlier low at 4.03 reais. ($1 = 1.96 Brazilian reais) (Additional reporting by Walter Brandimarte in Rio de Janeiro; editing by Lisa Von Ahn, Chizu Nomiyama, Nick Zieminski and Matthew Lewis) Link this Share this Digg this Email Reprints

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