HANNOVER, Germany — Weighed down by exchange rate and inventory valuation effects, Continental A.G. reported a 10.2-percent drop in first quarter operating income, to $1.25 billion, on 0.1-percent higher sales.
Conti said it expects these effects — which impact the firm's Rubber Group primarily — to reduce fiscal 2018 earnings by about $188 million.
The exchange rate issues also impacted first quarter revenue, Conti said, which edged up slightly to $13.5 billion. The operating ratio slipped one point to 9.3 percent. Net income fell slightly to $906.1 million.
"Our first quarter was weighed down by strong exchange-rate effects in smaller markets in which our local production footprint is very limited," Chief Financial Officer Wolfgang Schäfer said.
"We saw extreme fluctuations in exchange rates between currencies in these countries, coupled with the strong appreciation of the euro. This unusual situation weakened our natural hedge against exchange-rate effects," he added.
Conti's Tire Division reported a 19.4-percent drop in pre-tax operating income, to $670.5 million, on 4.4-percent lower revenue of $3.24 billion. Conti cited a 5-percent decline in commercial-vehicle tire-related business and slight drops in both OE and replacement market sales in passenger and light truck tires.
Noting that the average price of North Sea Brent crude oil was up $13 a barrel in the first quarter, Conti said every $10 increase in the price of crude equates to a negative gross impact on the Rubber Group's operating income of about $50 million because of the oil-related raw materials.
Conti is expecting its costs for carbon black and other rubber chemicals to rise at least 10 percent this year vs. 2017. On the other hand, the company expects the price of butadiene — a base material for synthetic rubber — to fall 5 to 6 percent and the price for natural rubber to expected to fall throughout the year to below the 2017 average.