Stronger euro hits Continental in Q1 2018

Sales within the Tire division at Continental failed to reach the previous year’s level during the first three months of 2018. Tire division sales declined 4.4 per cent to 2.64 billion euros during the quarter, however Continental calculates that they would have risen 1.0 per cent had exchange-rate effects and changes in the scope of consolidation not influenced the result.

During the three months to 31 March 2018, sales figures for passenger and light truck tyres were down slightly year-on-year for both the original equipment and aftermarket businesses. Continental shares that its OEM sales were affected by a one per cent drop in global car and light commercial vehicle production, and demand for replacement market car and light truck tyres also declined by one per cent during the first quarter of the year.

Sales figures for Continental’s commercial vehicle tyre business were five per cent lower than the high level achieved in Q1 2017. This decline occurred in spite of a one per cent increase in global commercial vehicle production during the first quarter of this year as well as a two per cent rise in global demand for medium and heavy commercial vehicle aftermarket tyres.

Adjusted EBIT for the Tire division decreased by 19.4 per cent year-on-year to €400.2 million euros, an amount that corresponds to 15.2 per cent (previous year: 18.0%) of adjusted sales.

Compared with the same period of the previous year, the Tire division reported a 21.7 per cent decline in EBIT to €395.5 million euros during the first quarter of 2018. The return on sales fell to 15.0 per cent (previous year: 18.3%).

Despite this year-on-year decline, Continental reports that the Tire division grew two percentage points faster than the market, which declined slightly at the international level.

Group-wide 4.3% organic sales growth

Although exchange rates and other headwinds held created negative effects amounting to 546 million euros, overall sales at Continental came to 11.01 billion euros, thus remaining at a similar level to the first quarter of last year. Organic sales grew 4.3 per cent.

The adjusted operating result of 1.06 billion euros was down 9.0 per cent on the previous year’s figure. Continental comments that this is due both to negative exchange-rate effects and to negative effects from inventory valuations amounting to 100 million euros. In total, the company expects related negative effects on earnings of around 150 million euros in the first half of 2018. Continental adds that it will not be able to offset this negative result by the end of the year. The adjusted EBIT margin in the first quarter of 2018 was 9.7 per cent (previous year: 10.6 per cent).

“Our first quarter was weighed down by strong exchange-rate effects in smaller markets in which our local production footprint is very limited,” commented Wolfgang Schäfer, chief financial officer at Continental. “We saw extreme fluctuations in exchange rates between currencies in these countries, coupled with the strong appreciation of the euro. This unusual situation weakened our natural hedge against exchange-rate effects. However, it is still the case that our EBIT margin is largely hedged against exchange-rate effects at the corporate level, as we produce and sell locally in many of our markets.”

Further details about Continental’s Q1 2018 financial results can be read here.