Conti adjusts fiscal outlook amid geopolitical unrest

HANOVER, Germany—Continental A.G. is adjusting its financial outlook for fiscal 2022 due to the uncertain geopolitical situation, especially ongoing events in Eastern Europe and the impact of global materials prices and availability.

Continental said it expects earnings will be affected negatively, sufficient enough to lower the pre-tax operating ratio by as much as 15 percent from earlier forecasts, while revenue expectations are essentially unchanged.

Conti is basing its revised forecast in large part on lowered expectations for global passenger cars/light commercial vehicle production. Conti said production should increase by 4-6 percent over 2021, down from the company's outlook of 6-9 percent published on March 9.

Conti also is considering the negative effects from cost inflation for key inputs, especially for oil-based raw materials as well as for energy and logistics. Such factors are becoming increasingly more material for tires and ContiTech business divisions.

For the tires sector, Conti said it expects the pre-tax operating margin to fall slightly—to 12-13 percent from 13.5-14.5 percent—while sales could end up slightly higher than the forecast issues earlier. The adjusted EBIT margin range assumes a year-on-year increase of nearly 90 percent in procurement and logistics costs of around $2 billion.

Commenting on the geopolitical situation, Conti said the situation remains tense and could worsen, which could result in further lasting consequences for production, supply chains and demand.

In addition, Conti said further negative effects could arise as a result of the ongoing COVID-19 pandemic and the related supply situation. Depending on the severity of the disruption, this may result in lower sales and earnings in all group sectors.

At the same time, Conti issued preliminary first-quarter 2022 financial results, which show consolidated sales growth of over 8 percent to $10.3 billion and an adjusted EBIT margin of 4.7 percent, down measurably from 8.5 percent a year ago.

Sales in the tires sector were up 22 percent to $3.6 billion with an adjusted EBIT margin was 17.1 percent, up slightly over the 2021 quarter. The adjusted EBIT margin benefited from a special effect of around $220 million.