Key Takeaways:
- Adjusted EBIT rose 35.1% to €570 million, with margin at 12.9%.
- Tires margin hit 15.3%, above full-year guidance of 13.0-14.5%.
- ContiTech now discontinued after €4 billion Lone Star Funds sale.
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Continental posts 35% earnings growth as tires drive Q2 results
Continental AG reported second-quarter adjusted earnings of €570 million, up 35.1% year on year, as its tires business offset a weaker market environment.
"We significantly increased our profitability and free cash flow," CFO Roland Welzbacher said. "The main drivers for Tires were a higher share of tires measuring 18 inches and above, lower impacts from exchange rates and tariffs, and positive effects from raw-material prices."
Group sales fell 9.1% to €4.4 billion, mainly because of the February sale of the Original Equipment Solutions business. On an organic basis, sales declined 0.3%. Net income dropped 45.9% to €274 million, largely due to the Aumovio spin-off, while adjusted free cash flow swung to €216 million from negative €46 million a year earlier.
The results put Continental in the final phase of its realignment as a pure-play tire maker after signing a €4 billion deal in early July to sell ContiTech to Lone Star Funds. ContiTech is now reported as a discontinued operation and excluded from the group outlook.
The tires division posted sales of €3.3 billion, down 0.2% year on year, with organic sales edging up 0.3%. Its adjusted earnings margin improved to 15.3% from 12.1%, driven by a stronger mix of larger-diameter tires, favorable raw-material prices and lower impacts from exchange rates and tariffs.
ContiTech generated sales of €1.1 billion, down 29.5%, with an adjusted earnings margin of 6.9% compared with 8.0% a year earlier. Organic sales declined 3.7% as a slower-than-expected market recovery weighed on performance.
Continental maintained its full-year tires guidance, forecasting sales of €13.2 billion to €14.2 billion and an adjusted earnings margin of 13.0% to 14.5%. For the group, it expects sales of €13.2 billion to €14.2 billion, an adjusted earnings margin of 12.0% to 13.5% and adjusted free cash flow of €700 million to €1.1 billion.
The company's key markets stayed subdued, with the European replacement-tire market for passenger cars and light commercial vehicles up 3% on imports while North America declined 1% and global automotive production fell about 1%. Welzbacher said raw-material costs would "increase substantially" in the second half, with steps already taken to address the pressure.
The reaffirmed tires guidance signals management expects margin strength to hold despite rising input costs. Investors will watch the closing of the ContiTech sale, expected by the turn of the year, for the final shape of the pure-play tire company competing with Michelin and Bridgestone.
This article is for informational purposes only and does not constitute investment advice.
