Continental downwardly revises 2018 guidance

Continental has updated its guidance for the 2018 fiscal year to reflect lower sales expectations, cost increases and warranty claims. The tyre maker and automotive parts and systems company now anticipates sales (including all expected negative exchange-rate effects) of approximately 45 billion euros rather than the previously forecast 46 billion euros. Expectations for adjusted EBIT margin have been revised from more than ten per cent to more than nine per cent.

The lower sales guidance for this year is primarily the result of two developments. First, the original equipment business has fallen short of expectations, especially in Europe and China in the Automotive divisions as well as in the ContiTech division. Second, weak demand in both regions’ tyre markets has led to lower sales expectations.

Development costs rose in the Automotive Group due to the high order intake, which reached a record level of more than 20 billion euros in the first half year. Additional burdens resulted from start-up costs in the ContiTech division as well as from higher costs in the powertrain sector due to the transition to products and systems for hybrid and electric vehicles. The company has responded by initiating measures to cut production costs. Furthermore, it is adapting its planned investments to the lower sales expectations.

For the third quarter of 2018, the company is currently expecting sales of about 11 billion euros and an adjusted operating result (adjusted EBIT) of more than 700 million euros for the corporation as a whole. The fourth quarter will also be affected by these factors.

The guidance for fiscal 2018 has been changed as follows:

Consolidated sales: about 45 billion euros (previously: about 46 billion euros). Note: This includes negative exchange-rate effects of about 1 billion euros. Sales guidance not including the negative exchange-rate effects: about 46 billion euros instead of about 47 billion euros as previously forecast.

Adjusted EBIT margin: more than nine per cent (previously: more than ten per cent)

Free cash flow before acquisitions (as well as before the outflow for the funding of the U.S. pension plans): about 1.6 billion euros (previously: about 2 billion euros)

Sales in the Automotive Group: about 27.5 billion euros (previously: about 28 billion euros). Note: This includes negative exchange-rate effects of about 500 million euros. Sales guidance not including the negative exchange-rate effects: about 28 billion euros instead of about 28.5 billion euros as previously forecast.

Adjusted EBIT margin of the Automotive Group: about seven per cent (previously: about 8.5 per cent). Warranty claims will reduce the reported and the adjusted EBIT by a total of 150 million euros.

Sales in the Rubber Group: about 17.5 billion euros (previously: about 18 billion euros). Note: This includes negative exchange-rate effects of about 500 million euros. Sales guidance not including the negative exchange-rate effects: about 18 billion euros instead of about 18.5 billion euros as previously forecast.

Adjusted EBIT margin of the Rubber Group: more than 13 per cent (previously: more than 14 per cent).

The other elements of the guidance from 2 August 2018, remain unchanged. Continental will publish the results for the first nine months of 2018 on 8 November.