May 2, 2017 / 11:24 PM / a year ago

UPDATE 1-Brazil's Cielo beats estimates despite revenue decline

By Guillermo Parra-Bernal and Alberto Alerigi Jr

SAO PAULO, May 2 (Reuters) - Cielo SA beat first-quarter profit estimates on Tuesday as rising financial gains helped offset declining revenue and income from receivable prepayments at Brazil’s biggest payment solutions firm.

Net income at Barueri, Brazil-based Cielo totaled 1.045 billion reais ($332 million) last quarter, down 1.7 percent from the fourth quarter. The result slightly beat an average consensus profit estimate of 1.039 billion reais compiled by Thomson Reuters.

Lower equipment rental fees and falling proceeds from the capturing and settlement of financial transactions drove revenue down for the first time in three years, Cielo said in a statement. Income from receivable prepayments felt the pinch of the central bank’s drive to slash borrowing costs in Latin America’s largest economy.

Revenue from financial investments climbed 34 percent in the quarter, helping bolster profit.

Still, net revenue tumbled 10.2 percent to 2.801 billion reais from the prior quarter, the steepest quarterly drop since at least 2009. The cost of rendered services plus operational expenses slumped a combined 12.4 percent in the same period.

Prepayment of receivables, through which Cielo helps retailers settle their commercial bills more rapidly, slipped for a third straight quarter to 648.6 million reais - the lowest since the third quarter of 2015.

Management will discuss results on a conference call with investors early on Wednesday.

Earnings before interest, tax, depreciation and amortization, a gauge of operational profit known as EBITDA, fell 5.3 percent to 1.322 billion reais, well below the consensus estimate of 1.727 billion reais.

At the same time, Cielo’s local processing unit posted 3.7 percent growth in financial transaction volume last quarter, slightly below a target of 4 percent to 6 percent. Costs and expenses shrank more than expected in the first quarter, while capital spending on new processing equipment equaled one-eighth of the 400 million reais budgeted for this year.

Chief Executive Eduardo Campozana Gouveia has focused on strict expense controls to stem the impact of aggressive competition and changes to Brazil’s payment industry rules.

$1 = 3.1505 reais Reporting by Guillermo Parra-Bernal; Editing by Andrew Hay

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