October 26, 2016 / 1:17 PM / 2 years ago

UPDATE 2-Brazil's WEG books slipping profit, cuts investment

(Adds details of acquisition, analyst comment)

SAO PAULO, Oct 26 (Reuters) - WEG SA, Latin America’s biggest maker of electric motors, booked a slightly lower quarterly profit on Wednesday as effective hedging and slower investments offset a slump in industrial activity.

Net income slipped 3 percent from a year earlier to 257 million reais ($82 million), according to a securities filing, missing an average estimate of 273 million reais.

Shares of WEG dropped 0.6 percent in Sao Paulo trading, in line with the benchmark Bovespa stock index.

The company cut investments by nearly two-thirds to 49 million reais in the quarter, the lowest in more than five years, as it slowed capital spending overseas. Investments this year should be in line with depreciation, WEG said, scrapping an earlier target of 470 million reais.

“The projects for new electric motor plants in Mexico and China, however, did not suffer any significant changes besides the speed of execution and continued to represent the majority of our investments in fixed assets,” the company said in its earnings release.

WEG separately announced the acquisition of Vermont-based wind turbine business Northern Power Systems (NPS) for an undisclosed sum, following a collaboration that started in 2013.

“Although we can’t assess the financials of the acquisition, we consider it strategically positive because it will allow WEG to speed up the development of the new generations of wind turbines,” wrote Itau BBA analyst Renata Faber.

WEG’s third-quarter net revenue fell 12 percent from a year earlier, as a stronger Brazilian currency worsened a drop in foreign revenue.

Revenue in Brazil also fell 9 percent but the domestic share of total revenue rose to 44 percent, the highest proportion since the second quarter of last year.

WEG highlighted expectations of a gradual recovery in Brazil after a severe economic and political crisis, culminating in the impeachment of leftist President Dilma Rousseff.

“In the third quarter, the first after the political changes in Brazil, it was quite clear that we have overcome the trend of deteriorating business conditions,” the company said. “However, if the outlook and business environment are improving, it is also clear that the recovery of economic activity will be slow.”

Earnings before interest, taxes, depreciation and amortization fell 14 percent to 338 million reais. However, effective hedging and strong returns from cash investments led to a positive net financial result of 66 million reais, reversing a financial loss of 29 million reais a year ago.

$1 = 3.12 reais Reporting by Brad Haynes and Alberto Alerigi Jr.; Additional reporting by Bruno Federowski; Editing by Bill Trott

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