HANOVER, Germany — Continental A.G. reported a slight drop in profitability at its Rubber Group in the third quarter, while also issuing a downbeat forecast for growth prospects in the global automotive industry.
Continental's financial update was accompanied by news that its executive board has decided to spin off its entire powertrain business, to be known going forward as Vitesco Technologies. 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 versus $4.7 billion in the same period a year ago. Adjusted EBIT margin for the Rubber Group was about 12.3% versus 12.5% a year ago, the Hanover-based group's preliminary figures 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%, compared with $12 billion and 7.8% 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 CFO Wolfgang Schäfer said.
While Mr. Schäfer 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, Mr. Schäfer pointed out.