Continental Raises Earnings Forecast on Chinese Growth

Continental AG (CON), Europe’s second-largest auto-parts maker, raised its earnings forecast for 2013 as growth in China and North America make up for the effects of the euro’s currency-market gains.

Continental stock jumped to a 21-year high after the Hanover, Germany-based company said earnings before interest and taxes, adjusted for one-time items, acquisitions and disposals, will total at least 10.5 percent of sales. That compares with an earlier forecast of a margin exceeding 10 percent.

The manufacturer, also Europe’s second-largest tire producer, has sidestepped the effects of the region’s car-market contraction by adding sales to customers including Volkswagen AG and Bayerische Motoren Werke AG in growing markets such as China and the U.S. Continental, which has kept up profit with a focus on high-technology parts such as safety sensors, said today that declining rubber costs contributed to the increased forecast.

“We regard Conti’s guidance as relatively conservative, as it has been all year,” Philip Watkins and Avinash Mundhra, analysts at Citigroup Inc., said today in a report to clients. The third-quarter earnings “reaffirm the strength of its product portfolio.”

Stock Jumps

Continental rose as much as 5.8 percent and was up 5.7 percent at 142.95 euros at 11:08 a.m. in Frankfurt. The stock, which for the past four months has traded at about the highest price since at least August 1992, has gained 63 percent this year, the biggest jump on Germany’s benchmark DAX Index (DAX), valuing the company at 28.6 billion euros ($38.6 billion).

Michelin & Cie. (ML), Europe’s largest tiremaker, said Oct. 29 that currency shifts in the U.S., Japan and South America more than offset gains in global deliveries, causing the French company to review spending plans after third-quarter revenue dropped 5.9 percent to 5.12 billion euros, even as volume rose.

Faurecia SA (EO), Europe’s largest maker of car interiors, reiterated a target last month for 2013 operating profit to increase after third-quarter sales rose as growth in Asia and South America offset weaker demand in its home region.

The two French auto-parts suppliers are cutting expenses in Europe by shutting plants and eliminating jobs while adding production and customers abroad.

Debt Reduced

Continental’s third-quarter Ebit rose 16 percent from a year earlier to 886.3 million euros, beating the 819.8 million-euro average of five analyst estimates compiled by Bloomberg. On an adjusted basis, the Ebit margin widened to 12.2 percent of sales from a restated 10.5 percent.

Net debt was reduced to 5.59 billion euros at the end of September from 6.8 billion euros a year earlier. The manufacturer, which ranks second in Europe’s car-parts industry to Robert Bosch GmbH, has been refinancing debt this year, including a 500 million-euro sale in mid-September of bonds maturing in March 2017.

The company is “satisfied” with its financing structure and sees no need to issue further bonds, Chief Financial Officer Wolfgang Schaefer said today in an interview.

Continental is sticking to a dividend payout-ratio range of 15 percent to 30 percent of net income for this year, Schaefer said, saying it’s “too early” to specify a figure. The CFO reiterated that the manufacturer is looking at acquisitions of about 1 billion euros, adding that he “can’t rule out” a transaction next year.

German Exports

Car production grew “strongly” in China and southeast Asia in the first nine months of the year, the manufacturer said. The company raised its forecast for North American auto production to an increase of 4 percent versus an earlier estimate of a 3 percent gain. Carmaking in Europe, which will probably decline 3 percent for the full year, has stabilized, helped by both “steadying” local demand and German vehicle exports to China and the U.S., Continental said.

Continental reduced its revenue forecast for the year to 33.5 billion euros from an earlier projection of about 34 billion euros. Sales last year totaled 32.7 billion euros. The lowered forecast stems from “the unexpectedly high appreciation of the euro against many other currencies,” the company said.

To contact the reporter on this story: Christoph Rauwald in Frankfurt at crauwald@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net

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