Continental accelerates in Frankfurt, third quarter better than expected

(Il Sole 24 Ore Radiocor) - Strongly accelerating accounts for Continental on the Frankfurt Stock Exchange after posting a better-than-expected quarterly performance. The tyre and auto parts maker's stock gained more than seven points, besting the DAX 40 index. As traders note, the cutback plan initiated by the group, the increase in prices charged to customers and also the good demand for tyres paid off, despite a weak sectoral and macroeconomic environment. Continental posted third-quarter sales of €9.8 billion (-4%), adjusted EBIT of €873 million (+36%), 11% above analysts' consensus, with a margin of 8.9% (up from 6.3%) and net profit of €486 million (+63%), helped by the settlement reached with Vitesco Technologies on litigation costs, which resulted in €125 million in revenue. Adjusted free cash flow, on the other hand, fell by 30.6% to EUR 323 million.

The Automotive division "made progress thanks to measures taken to improve profits and aims to make further progress in its adjusted Ebit in the fourth quarter. The Tyres division, as in the second quarter, posted good adjusted Ebit thanks to improved business in Europe, driven in part by the encouraging start to winter tyre sales. Conversely, ContiTech's earnings were weakened by the continued weak industrial performance in Europe and North America,' a statement said. Continental "does not expect the industrial business to recover in the fourth quarter" and thus lowers revenue and profit targets for ContiTech.

"Consequently, the revenue outlook for the Continental Group as a whole is also lowered," says the company release. In contrast, the outlook for the Automotive and Tyres divisions is confirmed. Group sales for 2024 are now expected at EUR 39.5-42 billion, compared to the initial estimate of EUR 40-42.5 billion, reflecting the aexpectation of a decline in production of cars and light commercial vehicles this year compared to 2023. ContiTech in particular is expected to post sales of 6.2-6.6 billionfi versus 6.6-7 billion previously forecast, with an adjusted Ebit margin of 5.8-6.3% versus 6.5-7%. "As this period of weakness lasts longer than expected, we are studying additional measures to take account of the changing situation," cfo Olaf Schick said in this regard.

The group points out that it expects a higher tax rate, at 30% from 27% in 2023, and adds that there are also risks on the tax front in connection with tax investigations by the Italian authorities, as mentioned in the 2023 report, for which provisions have been made. For analysts at Jp Morgan Conti reported a good quarter despite weak end markets in the ContiTech division. According to Jefferies analysts, the group showed strength in tyres, and the decision to spin off the automotive division, announced in August, which should be implemented by the end of next year, is positive. The group announced a cutback plan in February, which includes the reduction of 7,150 jobs in administration and research.