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Rossi, MRV Gain as Earnings Exceeded Estimates: Sao Paulo Mover

Rossi Residencial SA and MRV Engenharia e Participacoes SA rallied after the Brazilian homebuilders reported quarterly earnings that exceeded analysts’ estimates for the first time since 2011.

Rossi gained 5.6 percent to 3.03 reais at the close of trading in Sao Paulo, the highest in seven weeks. MRV advanced 7 percent to 7.83 reais. It was the best performer on the BM&FBovespa Real Estate Index, which dropped 0.8 percent.

Rossi posted second-quarter adjusted net income of 46.4 million reais ($19.8 million), according to a regulatory filing yesterday. That’s almost double the average estimate of eight analysts for net income of 23.9 million reais, according to data compiled by Bloomberg. MRV’s profit of 141 million reais beat the average estimate of 93.5 million for the quarter, the data show.

“Rossi’s second-quarter results support our buy rating on the stock, based on expectations of cash flow and earnings improvement, which could be substantial,” Marcello Milman and Gustavo Cambauva, analysts at Grupo BTG Pactual, wrote in a note to clients today.

While Rossi and other Brazilian builders are backpedaling from lower-income homes after overestimating the profitability of subsidized projects aimed at families earning less than 5,000 reais a month, MRV said it has benefited from selling about 90 percent of its homes through the government program, called “My House, My Life.”

“We have almost no competition in our segment in the cities we are in,” the company said in its second-quarter earnings statement. “We have consolidated our position as the biggest national player of the My House, My Life program.”

Belo Horizonte, Brazil-based MRV showed “encouraging cash generation,” Citigroup Inc. analysts Dan McGoey and Paola Mello wrote in a note to clients.

Rossi has lost 33 percent this year while MRV dropped 35 percent. The benchmark Ibovespa has slipped 17 percent in 2013.

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