HANNOVER, Germany (July 31, 2014) — Continental A.G. reported a 10-percent jump in pre-tax operating income for the six months ended June 30 on the positive effects of dropping raw materials costs and efficiency gains.
As a result, Conti management is raising the fiscal year forecast for adjusted EBIT by half a point to 11 percent of sales along with a 25-percent rise in free cash flow expectations.
For the period, adjusted EBIT rose to $2.48 billion on 2.1-percent higher sales of $23.2 billion. Net income was up 14.2 percent percent to $1.79 billion.
Sales growth slowed measurably in the second quarter, Conti reported, to 0.2 percent.
Conti's Rubber Group — comprising the tire and ContiTech engineered rubber products business units — reported 9.7-percent higher operating income of $1.57 billion on a slight increase in sales to $9.1 billion, raising the operating margin a full point to 17.2 percent.
The tire business unit reported 14.7-percent higher operating profit of $1.27 billion on 1.8-percent better sales of $6.48 billion for the first half. Operating earnings were up 9.5 percent in the second quarter, while sales dropped 0.5 percent to $3.3 billion.
Conti attributed the earnings improvement to lower raw materials costs, “strict cost management” and a solid price mix.
Conti said unit sales volumes were up across the board in all regions, with particularly strong growth in replacement tires in North America — passenger/light truck tires up 6 percent and commercial tires up 9 percent — and OE sales in the Europe/Middle East/Africa region.
Negatively affecting the firm's full-year performance will be currency exchange rate effects, according to Chairman Elmar Degenhart, who said Conti expects a negative effect of about $1.4 billion, up nearly 43 percent from earlier estimates.
Continental increased its research and development expenditures 8.8 percent over last year to $1.5 billion, or 6.3 percent of sales.