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Continental AG Cuts Sales Forecast on Currency Effects

Continental AG (CON), Europe’s second-biggest maker of car components, reduced its full-year revenue forecast as currency effects cut the value of sales made outside the region.

Continental also adjusted its profitability target, forecasting earnings before interest and taxes, and excluding one-time items, acquisitions and disposals, at 11 percent of sales rather than 10.5 percent. That’s still below the 11.8 percent second-quarter margin on that basis that the Hanover, Germany-based manufacturer reported today.

The company has followed German carmakers such as Volkswagen AG into emerging markets, where demand can be more volatile. The shift also exposes Continental to more currency risks as it seeks to expand beyond Europe’s saturated auto market, which is gradually recovering from a two-decade low.

The earnings forecast is “clearly below” analysts’ estimates, “but one should take into account the conservativeness” of the company’s previous predictions, Michael Punzet, an analyst at DZ Bank in Frankfurt, said in a report to clients.

Continental fell as much as 3.7 percent, the steepest intraday drop since April 11, and was trading down 2.4 percent at 160.80 euros as of 10 a.m. in Frankfurt. That pared the gain this year to 0.8 percent, valuing the manufacturer at 32.1 billion euros ($43 billion).

Matching Estimates

Second-quarter adjusted Ebit rose 2.6 percent to 1.01 billion euros, Continental said. Profit matched the average of eight analyst estimates compiled by Bloomberg. Revenue declined 0.2 percent to 8.53 billion euros because of currency effects. The euro has gained this year against currencies in Argentina, Chile and Russia.

Exchange-rate shifts will hurt sales by 1 billion euros, compared with an earlier prediction of a 700 million-euro cost, prompting the company to scale back the full-year revenue forecast by 1.4 percent to 34.5 billion euros. That will still amount to a fifth consecutive annual record, and exceed the 2013 figure by almost 4 percent.

The German company is seeking to outpace broader auto-market gains by focusing on components that enhance driving safety, reduce vehicle emissions and enable in-car communication links.

Lower prices for rubber helped boost Continental’s profitability expectations. The company reduced its estimate for the market price for rubber by 8.7 percent, doubling the predicted full-year cost benefit for the rubber group to 160 million euros. Continental’s rubber-unit margin is set to exceed 16 percent this year, while the figure will amount to 8 percent at the automotive-parts business.

To contact the reporter on this story: Elisabeth Behrmann in Munich at ebehrmann1@bloomberg.net

To contact the editors responsible for this story: Chris Reiter at creiter2@bloomberg.net Tom Lavell

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