HANOVER, Germany (Oct. 30, 2008) — Continental A.G.'s rubber group suffered a 15.5-percent decline in operating earnings for the nine months ended Sept. 30 because of higher raw material expenses, and the company is planning to cut costs.
Sales rose 3.8 percent to $10.4 billion during the period for the group, make up of Conti's passenger/light truck tire, commercial tire and ContiTech non-tire rubber products business units. The decline in pretax operating earnings, to $1.12 billion, and increase in sales dropped the earnings margin two full points to 11.1 percent.
Alan Hippe, vice chairman of Conti and head of the rubber unit, in a press release said the unit's earnings margin “clearly showsàwe have very firm footing,” despite the impact of higher raw material costs, which he put at more than $300 million.
Hippe didn't elaborate on the nature of the cost-cutting measures but said the negative impact of raw material costs on earnings will be nearly $400 million for the full year.
The passenger/light truck tire unit reported a 13.7-percent drop in pretax operating income to $657.2 million as sales rose to $5.58 billion on the strength of replacement sales volume in the Americas and Europe. Increased OE business in Europe offset declines in North America, Conti said.
Earnings were impacted by $5.2 million for expenses related to the scrapping of unusable machinery at Conti's former tire plants in Charlotte, N.C., and Mayfield, Ky.
Commercial tire sales rose 0.1 percent to $1.55 billion, but the unit's operating income plunged 57.8 percent to $50.7 million. The revenue increase came despite lower sales volumes in both Europe and the Americas.
Overall, Continental reported pretax operating earnings of $2.27 billion on 60.6-percent higher sales of $27.7 billion.