Continental reaffirms tires guidance, sees raw-material costs climb

Second-quarter adjusted EBIT tops company-compiled consensus

Continental’s group adjusted earnings before interest and taxes rose to €570 million in the second quarter from €422 million a year earlier, a margin of 12.9%. The result exceeded the €539.4 million in adjusted EBIT, at a 12.2% margin, that a company-compiled consensus had projected on sales of €4.41 billion. Reported group sales fell 9.1% to €4.41 billion, which the company attributed mainly to its sale of the original equipment solutions business in February.

For the full year, Continental expects tires-unit sales of €13.2 billion to €14.2 billion ($15.19 billion to $16.34 billion) and an adjusted EBIT margin of 13.0% to 14.5%. Across the group, the company targets an adjusted EBIT margin of 12.0% to 13.5%, with sales projected in the same range as the tires unit.

Continental said it expects raw-material costs to climb substantially in the second half of the year. “For the second half of the year, however, we expect raw-material costs to increase substantially and have already taken steps to address this,” Chief Financial Officer Roland Welzbacher said.

Demand in the company’s key markets stayed subdued in the second quarter, Continental said. The North American replacement-tire market for passenger cars and light commercial vehicles fell 1%, global automotive production dropped around 1%, and the European replacement-tire market rose 3%. Continental said it benefited from higher sales of tires measuring 18 inches and above, positive effects from raw-material prices, a weaker currency, eased tariff impacts and cost discipline.

The results follow a series of divestitures. Continental has spun off and listed its Aumovio automotive unit, sold its original equipment solutions business and agreed to sell ContiTech, which manufactures products such as conveyer belts and materials for vehicle interiors. Chief Executive Christian Kotz said the company is in the final phase of its realignment as a pure-play tire manufacturer.

“Now, we are in the final phase of our realignment as a pure-play tire manufacturer,” Kotz said.

Last month’s agreement to sell ContiTech to private-equity firm Lone Star Funds values the business at around $4.6 billion and includes potential additional payments of up to $286 million. ContiTech will be reported as a discontinued operation going forward and is no longer included in the consolidated outlook. For the discontinued ContiTech operations, Continental expects sales of €4.2 billion to €4.8 billion and an adjusted EBIT margin of 7.0% to 8.5%.