German tire maker Continental said it remained on track to meet full-year expectations in its tires business, despite warning of a substantial increase in raw-material costs in the second half of the year.
The company's key markets continued to suffer from subdued global economic activity in the second quarter, with the North American replacement-tire market for passenger cars and light commercial vehicles falling 1% and global automotive production also dropping around 1%.
The European replacement-tire market increased by 3% though. The company said it benefited from higher sales of tires measuring 18 inches and above, positive effects from raw-material prices, a weaker currency and eased tariff impacts, as well as cost discipline.
"For the second half of the year, however, we expect raw-material costs to increase substantially and have already taken steps to address this," said Chief Financial Officer Roland Welzbacher.
Continental has been working through a strategic reset that has seen it shed various business units as it seeks to focus on its key tires business. It has spun off and listed its Aumovio automotive unit, sold its original equipment solutions business and agreed to sell its ContiTech unit that manufactures products like conveyer belts and materials for vehicle interiors.
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. As a result, ContiTech will be reported as a discontinued operation going forward and is no longer included in the consolidated outlook.
"Now, we are in the final phase of our realignment as a pure-play tire manufacturer," said Continental Chief Executive Christian Kotz.
Continental expects to report sales in its tires unit this year of between 13.2 billion and 14.2 billion euros ($15.19 billion-$16.34 billion) and an adjusted earnings before interest and taxes margin of 13.0% to 14.5%. For the group as a whole, the margin is seen at 12.0% to 13.5% with sales targeted within the same range as the tires unit.
For the discontinued operations of ContiTech, Continental expects sales of 4.2 billion to 4.8 billion euros and an adjusted EBIT margin of 7.0% to 8.5%.
The company reported second-quarter group adjusted EBIT of 570 million euros, up from 422 million euros a year earlier, with a margin of 12.9%. Sales fell 9.1% to 4.41 billion euros, mainly as a result of the company selling its original equipment solutions business in February.
A company-compiled consensus had seen adjusted EBIT of 539.4 million euros with a margin of 12.2% on sales of 4.41 billion euros.
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