Bloomberg News

Bovespa Erases 2012 Advance as Homebuilders Plunge on Earnings

May 15, 2012

The Bovespa (IBOV) index fell, erasing this year’s advance, as Brazilian homebuilders plunged after reporting earnings that trailed analysts’ estimates.

MRV Engenharia & Participacoes SA was the worst performer on the gauge after saying first-quarter net income declined 24 percent. PDG Realty SA Empreendimentos & Participacoes and Rossi Residencial SA also tumbled. Oil producer OGX Petroleo & Gas Participacoes SA fell to a seven-month low after reserve estimates at its first development fell short of investors’ expectations.

Of the 56 companies on Brazil’s benchmark stock index that have reported first-quarter earnings, at least 30 trailed analysts’ estimates, according to data compiled by Bloomberg.

The Bovespa dropped 2.3 percent to 56,237.97 at the close in Sao Paulo. The gauge is down 0.9 percent this year. Fifty- eight stocks fell today while 9 rose. The real weakened 0.3 percent to 2.0019 per dollar at 5:30 p.m. local time.

“Overall, corporate earnings in the first quarter were a bit worse than expected,” Joao Pedro Brugger, who helps oversee 70 million reais ($35 million) at Leme Investimentos in Florianopolis, Brazil, said in a phone interview. “Companies are facing slowing demand, as the economy cools, but they still need to deal with increasing costs, such as labor costs, since wages keep rising. This is a particularly serious problem in the real estate industry, which is very labor intensive.”

MRV, PDG Plunge

MRV plunged 15 percent to 9.43 reais. Net income of 116 million reais in the first quarter missed the average estimate of adjusted profit of 173.8 million reais, according to a Bloomberg survey of five analysts.

PDG Realty (PDGR3) tumbled 9.8 percent to 3.67 reais. Rossi sank 7.8 percent to 5.96 reais.

Cyrela Brazil Realty SA Empreendimentos e Participacoes, Brazil’s second-biggest homebuilder, slid 0.8 percent to 14.20 reais after earlier rising as much as 4.5 percent. The company said net income increased to 118 million reais from 74 million reais a year earlier, beating the average estimate for an adjusted profit of 115 million reais among nine analysts surveyed by Bloomberg.

OGX, the oil company controlled by billionaire Eike Batista, slumped 7.8 percent to 12.03 reais, the lowest since October 17. At Tubarao Azul, where OGX boosted output to 23,500 barrels a day yesterday after adding a new well, the company calculates total recoverable reserves of 110 million barrels over the project’s lifetime. The figure was smaller than expected by Bradesco Corretora, analyst Auro Rozenbaum said in a phone interview.

CCX Carvao da Colombia SA, Batista’s coal unit, will start trading in Sao Paulo on May 25, Chief Executive Officer Leonardo Moretzsohn said today on a conference call. CCX is being spun off from Batista’s MPX Energia SA, which fell 7.7 percent to 48.51 reais.

Bovespa’s Valuation

Brazil’s benchmark equity measure earlier gained as much as 0.8 percent as cheap valuations lured investors. The gauge trades at 9.5 times analysts’ earnings estimates for the next four quarters, the cheapest since January 16, data compiled by Bloomberg show.

“If the equity market hasn’t been doing particularly well recently, it’s because the external outlook is making people avoid riskier assets,” Alexandre Ghirghi, a portfolio manager at Metodo Investimentos, said by phone from Sao Paulo. “We don’t see long-term investors in the market now, very few people are buying shares and planning to hold on to them for some time.”

Emerging-market stocks declined for a third day as Greek Pasok party leader Evangelos Venizelos said the country will hold elections, deepening concern Europe’s debt crisis will worsen and curbing demand for riskier assets.

The Bovespa has fallen 18 percent since this year’s high on March 13 on concern about Europe and on speculation the slowdown in China, Brazil’s biggest trading partner, may be deeper than expected.

Trading volume was 7.8 billion reais in stocks in Sao Paulo yesterday, data compiled by Bloomberg say. That compares with a daily average of 7.2 billion reais this year through May 14, according to data from the exchange.

To contact the reporter on this story: Ney Hayashi in Sao Paulo at ncruz4@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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