Brazil's Hypermarcas beat profit estimates on revenue, taxes

Reuters

SAO PAULO, Nov 2 (Reuters) - Hypermarcas SA, thelargest Brazilian maker of generic drugs and personal careproducts, beat analysts' estimates for the third quarter afterrevenue rose faster than expenses and a surge in financialexpenses was offset by a smaller tax burden.

The São Paulo-based company, the owner of Bozzano shavingfoam brand and Engov hangover pills, earned 80.2 million reais($36 million) in third-quarter profits, compared with 68.4million reais a year earlier, according to a securities filingon Saturday. A Thomson Reuters poll of seven analysts predictednet income of 66.7 million reais for the company.

The results underpin Chief Executive Officer ClaudioBergamo's success in tightening Hypermarcas' sales policy toprotect margins, putting a lid on costs and expenses and cuttingthe company's debt. Hypermarcas, whose shares are up 20 percentthis year, has benefited from the emergence of over 35 millionlow-income Brazilians into employed consumers who are using moreof their income to buy shampoos, generic drugs and nail polish.

"Despite the quarter's good result, there's a lot of workthat needs to be done - the company will seek to generate morevalue for its shareholders by capturing more synergies in itstop- and bottom-line, in a gradual, consisting and persistingway," the filing said.

Net revenue rose 12 percent on an annual basis, reaching1.11 billion reais in the third quarter, after the launch of newproducts and following tighter sales and discounts terms withretailers and distributors. The number slightly surpassedexpectations of 1.1 billion reais in the Reuters poll.

Marketing expenses, often used as a gauge of capitalexpenditures for Hypermarcas, jumped 21 percent to 216.7 millionreais.

Sales, general and administrative expenses posted a combinedincrease of 3.8 percent to 247 million reais, compared with 238million reais in the same period of 2012. Non-operating income,or a difference between income from investments and financialexpenses, posted a shortfall of 114 million reais - more thantwice the negative 55 million reais result a year earlier.

The company's tax burden fell to 28.5 million reais in thequarter, from 75.8 million reais a year earlier, bolsteringearnings, the filing showed.

Earnings before interest, tax, depreciation andamortization, a gauge of operational profitability known asEBITDA, reached 248.2 million reais in the quarter, slightlyabove the estimate of 245.5 million reais for EBITDA in thepoll. Compared with the same period a year earlier, EBITDA rose9.5 percent.

But operational cash flow, which Bergamo has pointed to as akey indicator of the company's performance, slipped in the thirdquarter to 169.6 million reais from 233.9 million reais a yearago. The indicator, which in 2012 surged in the wake ofBergamo's plan to lower discounts to clients and cutHypermarcas' needs for working capital, may remain stable orimprove next year, the filing said.

The company this week approved a plan to repurchase as muchas $300 million of the outstanding $750 million in global bondsand a stock buyback that, at current prices, could reach 62million reais. Those efforts, especially the bond buyback, aimto help protect Hypermarcas from the impact of potential swingsin Brazil's currency, the real, the filing added.

Hypermarcas said on Friday that it hired investment banksCredit Suisse Group, Bradesco BBI, Itaú BBA and brokerage XP Investimentos Ltda to manage theshare buyback.

Management plans to discuss results with investors in aconference call on Monday.

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