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Brazil builder MRV misses profit forecasts in first quarter

SAO PAULO, May 14 (Reuters) - Brazilian homebuilder MRV Engenharia e Participacoes SA missed profit expectations for the first quarter due in part to sales cancellations, although it managed to continue generating free cash flow while cutting debt.

Belo Horizonte, Brazil-based MRV said on Wednesday that profit rose 2.7 percent to 81 million reais ($36.8 million) in the quarter on an annual basis. Still, the result fell short of estimates of a 114 million reais profit in a Reuters poll of five analysts.

The company, which focuses mainly on the low-income market, remained hampered by sales cancellations in the quarter, which rose about 0.1 percentage points on an annual basis to 21.3 percent of total sales value. The figure was down from 24.1 percent on a quarterly basis, however.

"We don't envision a reduction in cancellations in coming quarters," co-Chief Executive Officer Rafael Menin told Reuters on Wednesday. Cancellations as a percentage of sales should begin to decline once the company enacts a new system that finalizes new sales only after the customer has secured financing, he added.

MRV, like other Brazilian homebuilders, has struggled with cancellations and cost overruns after a very aggressive expansion in recent years. Analysts say the company is now one of the healthiest in the sector after raising prices and stepping up efforts to boost margins.

The company generated 56 million reais in free cash flow in the first quarter, well below the 162 million reais it generated in the previous three months. MRV said problems in the payment transfer system from state-run mortgage lender Caixa Economica Federal were to blame.

Still, net debt fell to the equivalent of 29.5 percent of shareholder equity from 30.4 percent in the previous quarter. MRV remains one of Brazil's least indebted homebuilders, according to Thomson Reuters data.

Gross margins rose to 26.4 percent from 26.2 percent in the previous quarter and 26.1 percent a year earlier. Return on equity on a trailing 12-month basis declined to 10.5 percent from 10.6 percent in the previous three months and 13.1 percent a year earlier.

Earnings before interest, taxes, depreciation and amortization, a gauge of operating profit known as EBITDA, rose 2.4 percent from a year earlier to 132 million reais, short of the average analyst estimate of 178 million reais.

($1 = 2.20 Brazilian reais) (Reporting by Asher Levine and Juliana Schincariol; Editing by Ken Wills)