Conti dials back fiscal '23 tire business sales forecast

HANOVER, Germany—Continental A.G. is dialing back the full-year sales forecast for its tire business based on declining replacement-market demand in North America and Europe.

Conti is reducing the revenue projection for its tire unit by about 3 percent from earlier forecasts to a range of roughly $15.9 billion to $16.5 billion, based on early August foreign exchange rates. At the low end, that would represent no growth from fiscal 2022.

The adjusted pre-tax operating income ratio is expected to be in the 12- to 13-percent range, roughly on par with fiscal 2022.

Conti's tire business reported single-digit revenue increases in the quarter and six-month period ended June 30, based primarily on "considerably higher" original equipment business. Those gains offset drops in both consumer and commercial replacement market sales in both Europe and North America, Conti said.

Tire business unit pre-tax operating income (EBITDA) fell 14.2 percent and 14 percent, respectively, for the three- and six-month periods, Conti said, to $627.7 million and $1.35 billion.

The operating ratios slipped to 16.7 percent and 17.9 percent, respectively, as revenue increased 2.3 percent in the quarter to $3.77 billion and $7.48 billion.

Despite the earnings erosion, Continental CEO Nikolai Setzer said the tires group sector "ended the second quarter with good earnings once again, … despite difficult market conditions."

Conti linked the increased tire revenues over the first six months to positive price and product-mix effects, reflecting a "stable price situation" and a high proportion of premium-tire sales.

Commenting further on its first half showing, Continental said OE tire sales increased "considerably" compared with the prior-year period due to a rise in vehicle production.

This included 15-percent year-on-year rises in vehicle production in April, May and June, in Europe and North America—to around 4.4 million and 4.1 million units, respectively—and a 20-percent rise in China to around 6.6 million units.

Replacement tire sales were hit by "consistently high inventories in the trade and the price reduction anticipated on the market," Conti said.

Continental said it expects production of passenger cars and light commercial vehicles to increase by 3 percent to 5 percent year-on-year, up from its previous forecast of 2 percent to 4 percent.

However, full-year replacement tire sales volumes are expected at best to be on par with 2022, with a drop of 2 percent possible.

In North America, Conti sees industry-wide consumer tire shipments coming up 1 percent to 3 percent shy of 2022 after dropping 8 percent in the first half. In commercial tires, the outlook is worse: shipments falling 8 percent to 10 percent from 2022 after an 11-percent drop in the first half.

Conti cited advance order purchasing in fiscal 2022 as contributing to the double-digit drop in the half.

This earnings projection includes an expected negative impact from higher costs for material, wages and salaries of around $217 million, a figure that's about half of that previously projected and reflecting an improved outlook on cost-increases.