Is Continental’s 4Q EBIT preview a low-level profit warning?

Shortly after Continental AG pre-released its fourth quarter 2014 results at the North American International Auto Show in Detroit on Monday 12 January 2015, the company also previewed estimated fourth quarter pre-tax profits. The problem is that while the majority of the advance figures were broadly in line with expectations, the pre-tax profit (EBIT) figure wasn’t. So with this in mind it begs the question of whether Continental executives are preparing the market for a lower than expected result when the final figures are published on 5 March 2015.

According to the EBIT figure previewed by Continental at the 17th Commerzbank German Investment Seminar in New York on 12 and 13 January, Conti is likely to post a fourth-quarter adjusted EBIT figure of 930 million euros. With the consensus figure riding at 1,016 million euros, the reality appears to be some 86 million euros short of expectations. However, while Conti will quickly be forgiven for being even further away from the median consensus of 1,022 million euros and the maximum expectation of 1,098 million euros, the fact that the automotive supplier is below fourth quarter 2013 EBIT of 942 million euros will no-doubt be disappointing to investors.

Nevertheless in the 24 hours since the news broke Continental AG’s share price increased more than 4 per cent. And therefore this would suggest that the market prefers Conti’s brand of transparency – even when it means previewing numbers that are lower than the analyst community hoped for – is preferable to announcing bad news unexpectedly when the full fourth quarter 2014 results are published in March.

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