Continental AG Cuts Forecast on Antitrust, Warranty Provisions

  • Adjusted Ebit expected at 10.5% of revenue instead of 11%
  • Earthquake disruption at Japanese supplier also to hurt profit

Continental AG scaled back its 2016 profitability forecast as warranty and antitrust-fine provisions contribute to a 480 million-euro ($529 million) cut in operating profit at the German manufacturer’s car-parts unit. The stock fell to a 3 1/2-month low.

Adjusted earnings before interest and taxes will amount to 10.5 percent of revenue compared with an earlier prediction of a margin exceeding 11 percent, Hanover-based Continental said late Monday in a statement. Higher research and development spending, as well as costs from disruptions at a supplier in Japan because of an earthquake in August, will also hurt profit.

Earnings at the chassis & safety and interior divisions will be reduced by 390 million euros because of potential warranty costs for products made between 2004 and 2010 as well as the possible competition fines, Continental said. The company’s 2015 annual report outlined pending antitrust probes involving components businesses in Brazil and South Korea, as well as a search by European Union regulators at an undisclosed unit. The component maker has meanwhile been focusing acquisitions on software producers as it seeks to expand in new technology for self-driving cars.

“We believe that the warranty issues are a true one-off” because the products involved were made awhile ago, Sascha Gommel, an analyst at Commerzbank AG, said in a report to clients. “The other two problems could be longer lasting, as Interior has been suffering from supply-chain bottlenecks,” while “incremental R&D spending could also continue.”

Continental shares fell as much as 4.5 percent to 167.45 euros, the lowest intraday price since July 8, and were trading down 2.7 percent as of 9:26 a.m. in Frankfurt. The stock has dropped 24 percent this year, valuing the company, which is also Europe’s second-biggest tiremaker, at 34.1 billion euros.

Vincent Charles, a Continental spokesman, declined to specify either the type of product or the sites of regulatory cases that prompted the provisions, saying negotiations on any costs are still under way.

— With assistance by Aaron Ricadela, and Brian Lysaght

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