Brazil's Hot Economy Boosts Sales

NEW YORK (TheStreet) -- Brazil's economy expanded 9% in the first quarter and is expected grow by 7.2% in 2010, according to the country's central bank. Brazil's hot economy, accompanied by low inflation, boosted domestic companies' sales during the second quarter. Ultrapar Participacoes (UGP), Companhia Siderurgica Nacional (CSN) (SID), and CPFL Energia (CPL) posted earnings surprises for the quarter and noted Brazil's robust economy as the prime reason.

Ultrapar is a leading conglomerate with businesses in fuel distribution (Ultragaz/Ipiranga), chemicals (Oxiteno) and storage for liquid bulk (Ultracargo). In August 2008, Ultrapar acquired Chevron (CVX) Texaco's fuel distribution business in Brazil.

Ultrapar's sales and net earnings zoomed 55% and 54%, respectively, in the second quarter compared with a year earlier period. "Our businesses continue to reap the benefits from a more favorable economic environment, highlighting the improvements in Oxiteno's earnings this quarter," said Chief Executive Pedro Wongtschowski.

CSN, an integrated steel producer in Brazil, reported a net profit BRL 894 million, up 167% from the BRL 335 million reported for the second quarter of 2009. Robust demand for steel on the country's hot economy led to a 45% increase in sales volume in the domestic market compared to a year earlier. In addition, CSN is better placed than its international counterparts due to larger vertical integration that protected the company from increasing raw material costs.

CPFL, the country's biggest non-state utility company, reported a 33% increase in second-quarter profits to BRL 384 million from BRL 289 million from a year earlier period. Meanwhile, earnings surpassed the the BRL 373 million consensus estimates of analysts. Ramp up in the industrial production during the quarter on Brazil's robust economy boosted electrical consumption. In addition, the company reduced costs by 5.3% and paid 7.4% less for energy it resold to customers.

Meanwhile, Brazil power company Companhia Paranaense de Energia (Copel) (ELP) reported an increase in operating revenues by 6.8% compared to a year earlier. Increase in expenses led to a decline a 53.2% fall in second-quarter profits.

However, Brazil's chemical industry is still facing difficult times in the global markets due to cost-efficiency and demand growth rates in China and the Middle East. Braskem (BAK), the country's leading chemical company, reported net profit at BRL 45 million as against the BRL 1.15 billion a year earlier. Drastic reduction in profits is attributed to the increase in debt-service costs. Financial expense for the quarter stood at BRL 771 million compared to the BRL 1.5 billion reported in the year-ago period.

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