Bear Market for Brazilian Builders Deepens as Cyrela Cuts Revenue Forecast

Brazilian homebuilders extended a so-called bear market as Cyrela Brazil Realty SA Empreendimentos e Participacoes (CYRE3) tumbled after cutting its sales forecasts, adding to concerns that rising borrowing costs will hurt housing demand.

Cyrela, Brazil’s biggest real-estate company by revenue, fell the most since October 2009, dropping 6.5 percent to 15.15 reais at the 4:15 p.m. New York time close. The BM&FBovespa Real Estate (IMOBBV) Index slipped 0.5 percent to 908.90 and is down 21 percent from an October high. The measure first entered a bear market, defined as a drop of at least 20 percent, on Jan. 28.

Homebuilders are leading declines on the benchmark Bovespa index this year, with Cyrela down 30 percent, as accelerating inflation spurs the central bank to increase borrowing costs. Policy makers raised the benchmark interest rate twice since January to 11.75 percent, and will boost it to 12.5 percent this year, according to a central bank survey published today.

Cyrela slashed its forecast for sales this year by 8.3 percent to a maximum of 7.7 billion reais ($4.6 billion), and next year by 17 percent to as much as 8.9 billion reais, according to March 11 and November 2009 regulatory filings. The reductions were greater than estimated by Credit Suisse Group AG.

‘Superior Size’

“Cyrela has been long regarded as the benchmark in the sector, given its superior size and leading profitability track record,” Marcello Milman, an analyst at Credit Suisse in Sao Paulo, wrote in a note to clients yesterday. “The new guidance shows Cyrela growing less and with lower margins.”

The company also cut its estimates for margins on earnings before interest, taxes, depreciation and amortization to a range of 15 percent to 19 percent this year, and 18 percent to 22 percent in 2012. That compares to a previous forecast for both years of 20 percent to 24 percent. Credit Suisse said the cuts were a surprise.

Rossi Residencial SA (RSID3), the sixth-biggest Brazilian homebuilder, dropped 0.6 percent to 13.52 reais, paring a loss of as much as 4 percent intraday. Gafisa SA (GFSA3), the third-biggest, fell 1.2 percent to 10.15 reais after earlier slipping 3.3 percent.