Oct. 29 (Bloomberg) -- Continental AG, Europe’s second- largest auto-parts maker, posted its fourth consecutive quarterly loss, burdened by an impairment charge and lower sales of components such as fuel injectors.

The third-quarter net loss was 1.04 billion euros ($1.5 billion), or 6.14 euros a share, compared with net income of 2.4 million euros, or 1 cent, a year earlier, the Hanover, Germany- based manufacturer said today in a statement. Sales fell 9.4 percent to 5.34 billion euros.

The company, also Europe’s second-largest tiremaker, took a charge of 876 million euros at its three automotive divisions to “clean up financial risks.” Continental racked up 1.9 billion euros in losses over the previous nine months as the recession plunged the auto industry into its worst crisis in decades.

“With wide-ranging one-off effects, we have tackled weighty risks to our bottom line,” Elmar Degenhart, who took over as chief executive officer Aug. 12, said in the statement.

Global car sales will probably fall 10 percent this year, according to research firm IHS Global Insight. The slump has prompted Daimler AG and other car manufacturers to trim parts orders as they cut production.

Bond Sale Considered

Continental is considering selling junk bonds in addition to a planned stock sale as it prepares to refinance 3.5 billion euros of debt due in August, people familiar with the situation said earlier this month. Continental said today it aims to complete a share sale of 1 billion euros to 1.5 billion euros as well as refinancing talks by the end of the first quarter.

Net debt was 9.46 billion euros at the end of September, or 1.34 billion euros lower than a year ago. Continental has “no interest” in selling large units to raise money and intends to keep the tire and car-parts units together, Degenhart said.

“Cash flow for Continental is crucial,” said Hans-Peter Wodniok, an analyst with Fairesearch in Frankfurt. “Without good cash flow, they won’t be able to get out from under their debt mountain.”

Continental projected a “significant” improvement in sales and earnings before interest and taxes in the fourth quarter. The company, which may book additional restructuring charges, said it expects to adhere to earnings and financing commitments under its loan agreements in the final three months of the year.

Cash Flow

Free cash flow rose to 1.08 billion euros in the first nine months, compared with 124 million euros a year earlier. Cash flow was boosted by the sale of 24.9 percent of the ContiTech hose unit to a pension trust for 476 million euros, according to the company’s report.

Third-quarter adjusted Ebit, excluding one-time effects such as charges for acquisitions, increased 29 percent to 413 million euros. Continental, which reduced headcount this year by nearly 5,000 people as it closes factories, has cut costs by 4 billion euros over the past 12 months.

The Powertrain unit, which makes engine and transmission components, was Continental’s only unit to record a deficit, losing 73 million euros at the adjusted-Ebit level in the quarter. Adjusted earnings at the car-tire division jumped 75 percent to 241 million euros, boosted by winter-tire sales.

The company anticipates selling at least 17.4 million winter tires this year to match the previous year’s level, despite a decline in Russia, Degenhart said.

Powertrain Unit

Continental has been preparing for a sale of new stock since July 30. The sale was approved by the supervisory board over the objections of Schaeffler Group, which controls 90 percent of Continental’s capital.

“The share sale will work well,” said Arndt Ellinghorst, an analyst with Credit Suisse in London. “Investors are still open to Conti and are giving them the benefit of the doubt that they can fix Powertrain.”

Continental rose 3.79 euros, or 11 percent, to 38.75 euros in Frankfurt trading. The stock has gained 34 percent this year.

Disagreement between Continental and Schaeffler resulted in management changes, including Degenhart’s appointment, as the companies sought to defuse strategy disputes stemming from Schaeffler’s hostile bid for Continental in July 2008.

Degenhart, the former head of Schaeffler’s automotive-parts division, replaced Karl-Thomas Neumann as Continental’s CEO, becoming the third person to hold the post since Schaeffler, the world’s second-largest ball-bearing manufacturer, began accumulating its Continental stake last year.

Wolfgang Reitzle, the CEO of industrial gas company Linde AG, has been Continental’s supervisory board chairman since Oct. 19. He succeeded Rolf Koerfer, who is a partner at the Allen & Overy LLP law firm representing Schaeffler and held the post for seven months. Koerfer’s predecessor as chairman was Hubertus von Gruenberg, who left in March after a dispute over board seats.

To contact the reporter on this story: Chris Reiter in Berlin at creiter2@bloomberg.net.

Last Updated: October 29, 2009 13:01 EDT