Continental’s third-quarter 2024 earnings have witnessed a significant surge. According to its official release, the actions taken to boost earnings helped the Continental Automotive group sector in particular, which hopes to increase adjusted EBIT in the fourth quarter.
Similar to the second quarter of 2024, the Continental Tires group sector reported a strong adjusted EBIT due to better European business, which was helped in part by promoting early winter tire sales. In contrast, the ongoing lackluster industrial expansion in North America and Europe hurt ContiTech’s earnings.
Continental is modifying its sales and profitability projection for ContiTech because it does not anticipate a recovery in the industrial market in the fourth quarter. Consequently, the Continental Group’s overall sales estimates have also been decreased.
Net income in the third quarter amounted to €486 million (Q3 2023: €299 million, +62.8 percent). Adjusted free cash flow was €323 million (Q3 2023: €466 million, -30.6 percent).
Outlook for fiscal 2024
Continental anticipates a decline in passenger car and light commercial vehicle output throughout 2024. While the global industrial sector is predicted to continue to lag, we anticipate that demand in the tire replacement sector will increase marginally in the second half of 2024 when compared to the first half.
Based on the assumptions mentioned as well as current exchange rates, Continental has adjusted its outlook for fiscal 2024 as follows:
For the Continental Group, sales in the range of around €39.5 billion to €42.0 billion (previously: €40.0 billion to €42.5 billion) are expected, while the adjusted EBIT margin is expected to be around 6.0 to 7.0 percent.
For the ContiTech group sector, Continental expects sales of around €6.2 billion to €6.6 billion (previously: €6.6 billion to €7.0 billion) and an adjusted EBIT margin of around 5.8 to 6.3 percent (previously: 6.5 to 7.0 percent).
Added to this are tax risks in connection with ongoing criminal tax investigations by Italian authorities (see page 105 of the 2023 annual report). As a precautionary measure, Continental has set aside provisions for likely financial charges in this regard.
The investigations relate to a possible failure by the Continental companies concerned to comply with the declaration requirements of the Italian financial authorities. According to the authorities, Continental should have paid taxes in Italy for the operations in question, which it instead paid in other European countries between 2016 and 2023.
Decline in automotive production in the third quarter
In the third quarter of 2024, the world’s output of passenger cars and light commercial vehicles fell by around 5% to 21.6 million units (compared to 22.6 million units in the same quarter in 2023).
At around 3.6 million units, vehicle production in Europe from July to September 2024 was significantly lower than the prior-year period (-6 percent). Production in North America also fell, amounting in the third quarter to around 3.8 million vehicles (-5 percent). China likewise posted a decline, producing around 7.3 million vehicles in the third quarter of 2024 (-3 percent).
Automotive: further improvements in the third quarter
Declining markets were the main cause of the Continental Automotive Group’s 4.7% drop in sales to €4.8 billion (Q3 2023: €5.0 billion). Year-over-year, the adjusted EBIT margin increased to 4.2 percent (Q3 2023: 2.8 percent).
This resulted from new agreements reached through pricing talks with automakers, as well as the strict application of cost-cutting and efficiency-boosting measures.
Continental anticipates further cost reductions, higher production volumes globally than in the previous quarter, customer product launches, and reimbursements for development costs to drive further improvement in automotive earnings in the fourth quarter.
Continental Tires Group Sector Posts A Strong Adjusted EBIT Margin
With sales of €3.5 billion in the third quarter (Q3 2023: €3.4 billion, +1.9 percent), the Continental Tires group sector did well. Its adjusted EBIT margin increased from 13.3 percent in Q3 2023 to 14.5 percent this year. Improved business in Europe, helped in part by promoting early winter tire sales, was the driving force behind this rise.
Continental will increase manufacturing capacity at its tire plant in Rayong, Thailand, by an extra 3 million tires annually in light of the Asia-Pacific region’s potential for growth.
The corporation intends to invest about €300 million in the gradual expansion of the plant. Among other things, Continental tire lines designed to meet the unique needs of electric vehicles are produced at the Rayong plant.
The top five global producers of electric vehicles in the Asia-Pacific area relied on Continental for original equipment tires in 2023. Furthermore, one of the biggest production locations for Continental motorcycle tires worldwide is Rayong.
In recent weeks, Continental has won a number of major accolades for its tires. Leading automotive journals and organizations have given its winter, summer, and all-season tires excellent ratings in a variety of independent tests.
Auto Bild, Sport Auto, and Auto Zeitung awarded the AllSeasonContact 2 the highest ratings in their all-season tire testing, while Auto Bild, ADAC, and Auto Express named the WinterContact TS 870 the winner of their winter tire tests. Tests conducted this season have consistently demonstrated Continental tires’ excellent quality and performance.
ContiTech: Weak Industrial Demand Dampens Earnings
In the third quarter, the ContiTech group industry reported revenues of €1.5 billion (Q3 2023: €1.7 billion, -9.9%). It has a 4.5 percent adjusted EBIT margin (Q3 2023: 6.5 percent). Weak industrial demand in North America and Europe was the primary cause of the profits fall. Thanks to the actions taken, the Original Equipment Solutions (OESL) business area’s operating result improved and remained marginally positive.
Key Comments
“We continue to drive Continental’s development – strategically and operationally, step by step. We are making our group sectors more agile and bringing them closer to the markets. Bolstered by the maturity they have built up over the years, they are now ready for greater independence. Automotive is on track to fulfill the requirements for a spin-off by the end of 2025. This spin-off is still being evaluated,said Continental CEO Nikolai Setzer in Hanover.
“Furthermore, the measures we have defined and implemented to improve earnings are having the desired effect. In the third quarter, for example, we increased our earnings both year-on-year and compared with the first two quarters of 2024. This was largely driven by price adjustments and disciplined cost management. In this challenging year-end sprint, we aim to improve Automotive’s earnings even further, noted Nikolai Setzer.”
“We posted good results for the third quarter. In the Automotive group sector, we improved our earnings as announced. Faced with weak automotive production, we achieved this by reducing costs and adjusting prices. Tires is performing well in terms of profitability, with the winter tire business getting off to a good start. But ContiTech continues to contend with a weak industrial environment in Europe and North America. With this down phase lasting longer than expected, we are examining additional measures to deal with the economic situation,” said Continental CFO Olaf Schick.
“We have also reached an agreement with Vitesco Technologies on the allocation of investigation costs. The associated payment of €125 million by Vitesco Technologies had a positive impact on our net income and free cash flow in the third quarter, which we expect to continue to increase in the fourth quarter due to the seasonal nature of our business. The process of making our business with ContiTech products for the automotive industry independent is also progressing as planned. As announced, we will present this business area to potential buyers and partners in the fourth quarter of this year, adds Olaf Schick.”
