Continental Cuts Tire Sales Outlook on Softer Europe Demand

Continental AG cut its sales outlook for the year on weakening markets for tires in Europe and North America.

(Bloomberg) — Continental AG cut its sales outlook for the year on weakening markets for tires in Europe and North America. 

The company expects consolidated sales of as much as €44.5 billion ($48.8 billion), down from an earlier forecast of as much as €45 billion, it said Wednesday. It left other sales and margin predictions unchanged. 

Continental’s automotive business posted sales growth across its five units this quarter, but adjusted EBIT continues to lag due to inflationary pressures, currency effects and logistics costs. The company is exiting one of its German car part plants due to declining demand from automotive clients and the site’s excessive costs.

Shares were up 1.6% at 10:13 a.m. in Frankfurt.

Continental fell short of analysts’ expectations last month when it pre-released second quarter results after freight costs and currency effects weighed on margins at its car-parts unit. The company said Wednesday it is still negotiating price agreements with customers to cope with inflation.

The German supplier, which sells tires, automotive components and industrial materials, is having to adapt as carmakers shift to electric vehicles. In addition to higher costs for materials, labor, energy and logistics, Continental is also working through investigations about its role in the 2015 diesel-emissions cheating scandal, the fallout from a cyberattack and quality control problems in its unit making industrial hoses.

What Bloomberg Intelligence Says:

Continental’s lower replacement tires view provides a somber reminder for a tougher 2H outlook for the sector, though as it’s the last of the European tire makers to report 2Q earnings, this is likely already influencing sentiment. The company’s trim to its tire division’s 2023 sales guidance may shave as much as 5% off of consensus to the low end of the range, based on our calculations.

— Gillian Davis, BI industry analyst

Sales volumes in tire-replacement markets are forecast to shrink by as much as 2%, with weakness in Europe and North America dragging on the outlook. 

The company said its partnership with Aurora to bring self-driving trucks to the US market by 2027 was a major contributor to the auto unit’s order intake of roughly €8.6 billion in the second quarter, and additional partnerships could follow.  

“We are looking carefully on whether we enter partnerships to boost our technologies,” Chief Financial Officer Katja Duerrfeld said in an interview. “We are looking if there is anything else that could help and support our business growth.”

The company plans to share an update on mid-term strategy at an investor event later this year or early next.

(Updates with CFO comments in penultimate paragraph.)

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