HANOVER, Germany—Continental A.G. suffered slight declines in operating income for the quarter and half-year ended June 30 despite solid sales gains in both reporting periods.
Conti cited increased costs for raw materials for both its automotive and rubber groups for the earnings declines, but said the pressure on earnings from these costs appears to be easing somewhat.
Due to solid sales growth in the first half, Conti management raised the firm's sales forecast for fiscal 2017 by nearly $550 million and confirmed the earlier earnings outlook, according to CEO Elmar Degenhart.
"Our business with innovative technologies for assisted and automated as well as with connected and efficient driving once again grew faster than the global market for passenger cars and light commercial vehicles," Degenhart said.
Conti's pre-tax operating income for the second quarter fell 3.5 percent to $1.79 billion on 8.3 percent higher sales of $11.9 billion. The operating ratio fell nearly two points to 15 percent.
For the half year, operating income was off 2.2 percent to $3.56 billion on 9.9 percent higher sales of $23.8 billion, for an operating ratio of 14.9 percent.
Conti's Rubber Group—the tire and ContiTech divisions combined—increased sales by nearly 9 percent in the first half to $9.5 billion, but "sharp increases" in raw materials costs generated $325 million in negative earnings headwinds, Degenhart said.
As a result, the Rubber Group's adjusted operating income fell 13.7 percent, reducing the operating margin more than three points to 15.1 percent.
The tire unit suffered 20.6 percent and 15.2 percent drops in adjusted operating income for the quarter and half, to $556 million and $1.08 billion, respectively. These results came on 2.6 percent and 3.9 percent improvements in sales, to $3 billion and $5.92 billion.
Conti said its OE passenger/light truck tire business was off slightly, but replacement sales were up. Sales of commercial tire products were up about 10 percent.
Conti expects global demand for passenger/light truck and medium/heavy commercial tires to grow 2 and 3 percent, respectively, this year.
Conti also noted in its half-year financial report that the purchase price for Hoosier Racing Tire Corp. increased by roughly $3.4 million over the $140 million "provisional" figure the company disclosed in November.
For the full year, Conti anticipates raw materials headwinds of about $490 million, about 10 percent less than what the firm forecast in January.
Nevertheless, Degenhart continues to regard the market environment as challenging.
"Economic and political uncertainties are notably influencing market activities. Over the past few years, we have further improved our agility and flexibility—and we are now benefiting from this," he added.