Conti share price sinks, net income rockets in first 9 months of 2011
Upon publishing its results for the nine months to September 30, Continental states its expectation of annual sales reaching at least 29.5 billion euros remains unchanged. The tyre maker and automotive supplier also believes it can still achieve an adjusted EBIT margin of around ten per cent for the full year, however Executive Board chairman Dr. Elmar Degenhart concedes this “must meanwhile be viewed an an ambitious target owing to the higher-than-expected burden we are experiencing from raw material costs.” Yet these costs, Degenhart adds, should be “roughly offset” by the “very good utilisation” of Continental’s capacities, with strong order books aiding the company’s fortunes.
During the first nine months of 2011, Continental Corporation raised its sales by 18.0 per cent to 22.59 billion euros and achieved an EBIT of 1.92 billion euros, an increase of about 540.5 million euros or 39.3 per cent year-on-year. The EBIT margin during the nine-month period came to 8.5 per cent, compared with 7.2 per cent in 2010. Adjusted EBIT before acquisition-related amortization and special effects rose by roughly 433 million euros or nearly one quarter, to 2.2 billion euros. This represents an adjusted EBIT margin of 9.9 per cent, compared with 9.4 per cent in the same period of 2010. Net income attributable to shareholders of the parent grew by 531 million euros or 146.2 per cent in the first nine months of the year to 893.7 million euros. Earnings per share increased from 1.82 euros to 4.47 euros for the third quarter of 2010.
Share price plummets
At the close of the third quarter, Continental share prices were approximately 40 per cent lower than their June 30 level, at 43.64 euros. This third quarter drop means than during the first nine months of 2011 the price of Continental shares has declined some 26 per cent, approximately two percentage points better than the automotive sector index. “The positive development of the Continental share price that had prevailed since the beginning of the year halted in the third quarter of 2011 in mid July,” stated Continental in its Financial Report to September 30, 2011. “Prior to this, the Continental share price had reached a new multi-year high of 76.26 euros on July 7, its highest price since May 30, 2008.”
Continental concedes that “the cause of the plunge in share prices on the European stock exchanges is difficult to identify even in retrospect.” Its Financial Report points to US debt issues as the Eurozone crisis as two of the main contributory factors. Along with its annoucement of these muted share results, Continental adds that its share price stabilised above the 50 euro mark in October and during the first two weeks of the month the share price outperformed the automotive sector by more than seven percentage points.
Rubber Group performance
Continental’s Rubber Group boosted its sales in the first nine months of 2011 year-on-year by about 1.5 billion euros to approximately 8.9 billion euros. Despite raw material costs amounting to 765 million euros in the first three quarters, the adjusted EBIT rose approximately 113 million euros to nearly 1.2 billion euros. The adjusted EBIT margin was 13.5 per cent, compared with 14.7 per cent for the same period of 2010. Touching on the subject of raw material costs, Dr. Degenhart said the Rubber Group will deal with more than 900 million euros in raw material costs in the current fiscal year as opposed to the previously anticipated 850 million; this higher figure is largely due to the increasing prices for synthetic rubber impacting upon operating results earlier than expected.
Demand for replacement market passenger car and light commercial vehicle tyres in Europe “continued to develop positively” in the third quarter of 2011, Continental reports, adding that growth in its most important regional market amounted to six per cent over the first nine months of the year despite raw material related price increases. Conti’s winter tyre business grew by more than 20 per cent in the third quarter of the year, an increase that “more than compensated for the slowdown in summer tyre business.” For the full year, Continental maintains its forecase of four per cent growth in its European replacement tyre business.
European demand for replacement market commercial vehicle tyres is reported to have “levelled out considerably in recent months.” After increasing 14 per cent in the first half of the year, growth declined to five per cent in the third quarter. “Certain indicators of transport volumes have fallen in the past months,” Continental explains. “For example, the index for the distance travelled by trucks on German roads calculated by the German Federal Office for Goods Transport declined from 6.8 per cent at the end of the first quarter to 4.6 per cent at the end of July.” On the basis of such indicators, Continetla has lowered its forecast for the European commercial vehicle replacement tyre business from eight per cent to three per cent for full-year 2011.
1b euros invested, 1.2b spent on R&D
In the first three quarters of 2011, Continental Corporation invested some 1.02 billion euros in capital expenditure, up from 782.3 million euros in the same period of 2010. Rubber Group investments amounted to 439.9 million euros. Approximately 1.23 billion euros was spent on research and development, 82 million euros more than in the first nine months of 2010. Rubber Group R&D accounted for 169.0 million euros. “Our successes this year and the customer interest in the new products we showcased at the latest IAA Motor Show demonstrate that we were right in deciding to invest more than 1.3 billion euros in research and development even in the 2009 crisis year. At 5.4 per cent of sales, our R&D rate is now returning to the normal level, after six per cent a year ago and 6.7 per cent in 2009,” said Degenhart.