Continental Raises 2015 Forecast on Lower Raw-Material Costs

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Continental AG, Europe’s second-biggest maker of car parts, raised its 2015 profitability goal as lower supply costs bolstered second-quarter earnings. The stock jumped the most in 9 1/2 months.

Earnings before interest and taxes, and adjusted for one-time gains or costs, will amount to 11 percent of revenue instead of an earlier prediction of more than 10.5 percent, Hanover, Germany-based Continental said Tuesday in a statement.

Low prices for oil, rubber and other commodities have helped Continental cut spending. The euro’s decline against the dollar this year boosted the value of revenue generated outside Europe. An earnings boost from raw-material cost reductions will amount to 200 million euros ($219 million) in 2015 rather than an earlier estimate of 150 million euros, the company said.

The raised forecast and second-quarter profit growth “should give investors more confidence in the geographic and product diversity of the large growth suppliers” to the auto industry, Arndt Ellinghorst, an analyst at Evercore ISI, said in a report to investors.

Continental rose as much as 4.7 percent, the steepest intraday gain since Oct. 17, and was trading up 4.3 percent at 214 euros as of 10:38 a.m. in Frankfurt. The stock has gained 22 percent this year, valuing the company, which is also Europe’s second-biggest tiremaker, at 42.8 billion euros.

Quarterly Growth

Second-quarter adjusted Ebit jumped 25 percent from a year earlier to 1.25 billion euros. Revenue rose 18 percent to 10 billion euros, with the figure excluding acquisitions or disposals increasing 13 percent to 9.59 billion euros. Automotive-division adjusted Ebit increased 27 percent while rubber-products unit profit on that basis gained 25 percent.

“We proved how strong we are in a challenging environment and followed up on the good first quarter of 2015 with further growth” in the second quarter, Chief Executive Officer Elmar Degenhart said in a separate statement. “Despite a slowdown in the growth rate of vehicle production in Asia, we anticipate stable business development in the remaining half of the year at the high level already achieved.”

The manufacturer completed the 1.4 billion-euro purchase of U.S. hose and conveyor-belt manufacturer Veyance Technologies Inc. in January, part of a strategy to increase the proportion of business generated outside the auto industry. The business contributed 562.8 million euros to first-half revenue, Continental said Tuesday.

Software-Maker Acquisition

Continental bought the Elektrobit automotive-software business and brand name in July for 600 million euros amid an industrywide effort to acquire technology that enables automated driving.

BMW AG, Audi AG and Daimler AG outlined plans on Monday to buy Nokia Oyj’s HERE electronic-mapping business as part of that strategy. Continental Chief Financial Officer Wolfgang Schaefer said in an interview Tuesday that his company would consider joining the carmakers’ HERE consortium, though it’s a “long way” before any decision is possible.

The car-parts maker has “slightly more” than 2 billion euros available for further acquisitions, though there’s no deal expected in coming months, Schaefer said.

The rubber division’s 2015 adjusted-Ebit margin forecast was raised to about 16 percent of sales from an earlier outlook for more than 15 percent. Continental reiterated a forecast for the car-parts unit’s margin to exceed 8.5 percent.

The Chinese car market may rise 3 percent to 4 percent in the second half of 2015 “and possibly beyond,” Schaefer said. Demand for cars in the U.S. is probably at a peak, he said.

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