Continental financial results steady amid hurricane headwinds

Hanover, Germany — Calling the current business environment "challenging" may be an understatement. At least, from Continental AG's point of view.

"The current headwind is more of a hurricane for our industry and will not subside any time soon," Chief Financial Officer Katja Duerrfeld said in a statement.

Nevertheless, she contends, Continental is weathering the storm and positioning itself for smooth sailing once the choppy waters settle.

As such, the Hanover-based global supplier of auto parts including plastic and rubber seals, hoses and other functional parts is holding firm to its full-year financial guidance, with consolidated sales expected to come in between about $39.5 billion and $41.5 billion. The adjusted EBIT margin should fall in the 4.7-5.7 percent range.

Considerations taken into account in forming the full-year outlook include price increases for raw materials, semi-finished products, energy and shipping/logistics.

"Despite the challenges, we do however remain optimistic for the second half of the year," Duerrfeld said. "Why? We anticipate a rise in automotive production, and we have become more resilient. … We are discussing prices with our customers, and we are focusing on businesses with technologically advanced products. So we are maintaining our outlook for the current fiscal year."

Consolidated sales for the second quarter were up 13 percent compared to the year-ago period, coming in at $9.7 billion.

Adjusted EBIT for the quarter stood at $423.6 million, down about 20 percent from the $605.3 million during Q2 2021. This, Continental said, was above the reported EBIT of a loss of $170.2 million and mainly was due to accounting effects of around $381.8 million from the Automotive group sector as a result of high interest rates.

Other factors impacting EBIT included impaired assets of around $77.4 million as a result of the additional sanctions imposed on business in Russia.

Restructuring expenses of around $65 million were incurred in the ContiTech group sector in the quarter, primarily for the mobile fluid systems business area, which is the midst of transitioning certain production sites.

All of these factors also combined to impact the bottom line, as Conti reported a net loss of $259 million for the three-month period.

Year-to-date, Continental posted $19.31 billion in sales, with adjusted sales coming in $19.24 billion. This marks a roughly 10.6-percent increase over the year-ago period of $17.46 billion (sales) and $17.37 billion (adjusted sales).

EBITDA of $1.83 billion for the first half was down about 20 percent when compared to the $2.64 billion for the first half of 2021.

Capital expenditures increased in the sixth-month period and came in at around $1.02 billion, up more than 58 percent when compared to the $736.6 million spent in the first half of 2021.

The Tires group sector had a strong showing during the three months ended June 30, posting sales of $3.5 billion, a 17-percent improvement over last year's Q2 sales of about $3 billion. The adjusted EBIT margin for the group sector came in at 13.8 percent.

With sustainability at the center of its innovations, Conti is certain that its tire business will continue to thrive in the months and years ahead. The company touted tires made with polyester from recycled PET bottles, pointing to ContiRe.Tex technology that allows it to completely replace polyester conventionally used in tire casings. Three tire models feature the PET technology: PremiumContact 6, the EcoContact 6 and the AllSeasonContact.

Meanwhile, the ContiTech group sector performed well despite the weaker than expected auto production during the three-month period. Industrial hoses, conveyor belts and air spring systems helped to bolster results.

In total ContiTech recorded sales of $1.65 billion for the quarter — up 8.2 percent over Q2 2021's $1.54 billion — and an EBIT margin of 4.9 percent.

ContiTech also is poised for growth, both organically and through acquisition, particularly in North America. Continental is investing about $40 million to expand its industrial hose production in San Luis Potosi, Mexico. Expanding the capacity for these products will allow ContiTech to better serve the agricultural, construction, engineering and fluid transport end markets.

Meanwhile, Continental just closed on its acquisition of Wahpeton, N.D.-based WCCO belting, strengthening its presence in the conveyor belting arena, particularly for the ag industry.

The auto industry's transition to electric vehicles also is a bright spot for the company, which noted that it has secured more than 300 original equipment tire fitments for EV models. Overall, Continental's market share in the EV space is higher than it is for internal combustion engine vehicles.

"We are very pleased with our strong order intake in automotive, our high market share in tires for electric vehicles and the expansion of ContiTech's industrial business," Duerrfeld said.

The Automotive group sector has higher expectations for the second half of the year, especially with order volume rising. Conti said second-quarter orders were around $6 billion, up about 40 percent over the same period a year earlier.

Overall, sales came in at $4.43 billion, an increased 13.7 percent in the second quarter when compared to the same period last year ($3.92 billion). When adjusted for exchange-rate effects and changing in the scope of consolidation, the business sector posted organic sales growth of 7.7 percent, even as global auto production stagnated.

Adjusted EBIT of negative 2.3 percent matched that of Q2 2021.

When auto production picks up, Continental is confident in its ability to serve the market and further strengthen this business area.

"The market environment remained extremely challenging for automotive suppliers in the second quarter," Continental CEO Nikolai Setzer said in a statement. "At the same time, we are making significant progress in the development and marketing of our technologies, with a strong order intake in Automotive. This shows that we have the right strategy and positioning. Our most recent mobility study also supports this."