Continental projects five-year downturn of global auto market

HANOVER, Germany—Continental A.G. reported a slight drop in profitability at its Rubber Group for the third quarter, while also issuing a downbeat forecast for future growth prospects in the automotive industry.

Continental's financial update was accompanied by news that its executive board has decided to fully spin off its powertrain business Vitesco Technologies with subsequent listing. Due in part to market uncertainty, the company no longer will pursue a potential partial IPO of its powertrain operations, which it originally had considered.

Third quarter sales in the rubber unit, comprising Continental's tires and ContiTech businesses, were about $5.1 billion compared to $4.7 billion in the same period a year ago. Adjusted EBIT margin for the Rubber Group was about 12.3 percent, compared to the prior-year 12.5 percent, the Hanover-based group's preliminary figures issued Oct 22 show.

For the Continental group as a whole, consolidated sales in the third quarter came in at about $12.4 billion and the adjusted EBIT margin was about 5.6 percent, compared to $12 billion and 7.8 percent in the third quarter of 2018.

"Considering the unresolved trade disputes, the unclear situation regarding Brexit, and declining markets, we did reasonably well in the third quarter from an operational standpoint," Continental's CFO Wolfgang Schaefer, Continental's chief fiscal officer, said in a statement.

But, while Schaefer confirmed Continental's annual outlook for sales and earnings, he issued a stark assessment of the group's main market going forward.

"We do not anticipate that global production of passenger cars and light commercial vehicles will experience any material improvement in the next five years, so we have revised our assumptions for the medium-term market development accordingly," he said.

The assumptions made and adapted as part of the annual planning process led to non-cash impairments of goodwill and other intangible assets totaling about $2.8 billion.

The impairments, which Continental "recognized" in the third quarter, are mainly linked to the revision of market expectations, Schaefer pointed out.