HANOVER, Germany—Continental A.G. reported a 10 percent jump in pre-tax operating income for the six months ended June 30 on the positive effects of dropping raw materials costs and efficiency gains.
As a result, Conti management is raising the fiscal year forecast for adjusted EBIT by half a point to 11 percent of sales along with a 25 percent rise in free cash flow expectations.
For the period, adjusted EBIT rose to $2.48 billion on 2.1 percent higher sales of $23.2 billion. Net income was up 14.2 percent to $1.79 billion.
Sales growth slowed measurably in the second quarter, Conti reported, to 0.2 percent.
Conti's Rubber Group—comprising the tire and ContiTech engineered rubber products business units—reported 9.7 percent higher operating income of $1.57 billion on a slight increase in sales to $9.1 billion, raising the operating margin a full point to 17.2 percent.
The tire business unit reported 14.7 percent higher operating profit of $1.27 billion on 1.8 percent better sales of $6.48 billion for the first half. Operating earnings were up 9.5 percent in the second quarter, while sales dropped 0.5 percent to $3.3 billion.
Conti attributed the earnings improvement to lower raw materials costs, “strict cost management” and a solid price mix.
Conti said unit sales volumes were up across the board in all regions, with particularly strong growth in replacement tires in North America—passenger/light truck tires up 6 percent and commercial tires up 9 percent—and OE sales in the Europe/Middle East/Africa region.
Negatively affecting the firm's full-year performance will be currency exchange rate effects, according to Chairman Elmar Degenhart, who said Conti expects a negative effect of about $1.4 billion, up nearly 43 percent from earlier estimates.
Continental increased its research and development expenditures 8.8 percent over last year to $1.5 billion, or 6.3 percent of sales.