Continental Gains After Car-Parts Returns Turn Positive
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Continental AG shares rose after improving returns at its struggling car-parts unit, which the German company may spin off in its biggest-ever restructuring.
The division’s adjusted earnings before interest and tax margin climbed to 2.4% in the second quarter, from -0.5% in the same period last year, after Continental cut costs and renegotiated prices with customers. The company still lowered several of its annual forecasts on a weak European automotive market.
The new outlook “is not as bad as feared,” Citi analysts led by Sanjay Bhagwani said in a note Aug. 7, citing positive momentum from improvements in the second quarter.
The German manufacturer this week unveiled plans to possibly carve out and list the automotive unit, which makes products including brakes and automated driving systems. The move would upend the structure of one of Europe’s largest parts makers, leaving it with the more profitable tires and ContiTech industrial divisions that together account for roughly half of group sales.
Continental shares rose as much as 5.3% in Frankfurt. The stock is still down around a quarter this year, valuing the company at around 11.3 billion euros ($12.3 billion).
Parts suppliers are under pressure as automakers temper production to adjust to slowing demand for electric vehicles. ZF Friedrichshafen AG plans to eliminate about a quarter of its workforce in Germany by 2028 to deal with the EV shift.
Continental on Aug. 7 said it sees group revenue of as much as 42.5 billion euros this year, down from as much as 44 billion euros, as carmakers in Europe cut production.
Its automotive business, which employs around 100,000 people, has been struggling with significant investment requirements and waning demand. Higher interest rates are weighing on buying, and auto sales remain below expectations in China.
Continental slightly revised down sales expectations for the unit on weakness especially in Europe, where it sees the car market contracting as much as 6% this year. It also lowered its operating profitability expectations for the business.
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Next steps for the auto division include increasing the share of business from Asian customers, achieving savings of more than 150 million euros this year and reducing production costs by 1% of sales by the end of 2025, according to an investor presentation published Aug. 7.
Long known for its tires, Continental has built up the auto-parts division with a string of acquisitions starting in the 1990s. Its ContiTech division makes products including conveyor belts, industrial hoses and specialized vehicle interiors.
During the second quarter, Continental’s adjusted Ebit margin rose to 7%, from 4.8% in the same period last year, after the manufacturer implemented cost cuts and renegotiated prices.
The Hanover-based company recently said that its efficiency measures will have a greater impact on profit in the second half of the year.
