Continental Rubber Group fiscal earnings decline on higher costs, flat sales

HANOVER, Germany—Continental A.G.'s Rubber Group suffered an 8.7-percent decline in fiscal 2018 pre-tax operating earnings despite 0.6-percent higher sales, as elevated raw materials prices and foreign exchange changes offset gains in areas such as volume and pricing.

Rubber Group earnings fell to $3.77 billion while sales grew to $20.8 billion, Conti said, reducing the operating ratio nearly two points to 18.2 percent.

Tire business operating earnings fell 9.2 percent to $2.22 billion on 0.2 percent higher sales of $13.3 billion.

As a corporation, Conti reported an 11.7 percent drop in operating income, to $4.75 billion, on 0.9 percent higher sales of $52.4 billion. As a result, the operating ratio fell a point to 9.1 percent.

Net income fell 3 percent to $3.49 billion.

Despite the lower earnings, Conti CEO Elmar Degenhart said the company "again demonstrated our excellent performance despite the weak markets. We are continuing to grow faster than our relevant industries and markets."

In his remarks to the media, Degenhart noted that autonomous driving, electric mobility and connectivity are all core elements of Conti's strategy.

"When people talk about the 'mobility of the future,' they mean Continental," he said. "We are supplying what others are still testing. Our solutions, components, and systems are already generating enhanced safety, efficiency and comfort in four out of five vehicles worldwide."

Degenhart went on to single out the tire business, saying: "Grip is one of our traditional key fields of expertise in the tire business. It is part of our corporate culture, and we transfer it even to our connectivity technology, providing dependable solutions to offer secure contact, from the road to the cloud, all from a single source like no other company."

In its preliminary earnings report, Continental said it expects continued raw materials costs headwinds of up to $60 million throughout 2019.

In the tire business, Conti reported that foreign exchange losses more than offset gains in the unit's price/mix component, leading to the lower profits.

During the year, Continental sold a record 155 million passenger car and truck tires last year, including record sales of winter tires. Overall growth was 3 percent, Conti said, with sales of 17-inch and larger rim diameter tires up 11 percent.

In North America, Conti said its passenger/light truck tire sales volume was unchanged from 2017 and thus lagged the market growth of 3 percent. On the commercial tire side, Conti said its sales volume was up 5 percent but trailed market growth of 7 percent.

Regionally, North America accounted for 27 percent of Rubber Group revenue last year, or roughly $5.6 billion.

For 2019, Conti is forecasting 2-percent volume market growth in North America for both consumer and commercial aftermarkets.

On a corporate scale, fiscal 2019 is off to a "subdued start," Conti said, due to continuing market uncertainty. Continental reaffirmed at this time its preliminary guidance from early January: sales growth of 1 to 5 percent and operating earnings on par with fiscal 2018.