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November 12, 2020 09:59 AM

China, U.S. driving resurging Continental tire business

European Rubber Journal
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    HANOVER, Germany — Continental A.G.'s tire business reported relatively strong results for the quarter ended Sept. 30, with pre-tax operating income up nearly 18% on nearly flat sales driven by strong performances in China and the U.S.

    The tire business' adjusted EBIT was up 17.6% from the 2019 period to $577 million, Conti said, reflecting a strong price/mix and a significant raw material tailwind of $105 million. Sales fell 0.5% to $3.36 billion, yielding a three-point jump in the operating margin to 17.1%.

    "China continues to be the leading region [with] 11% year-over-year growth [in automotive production] in the quarter and North America production was able to slightly beat its prior year level," CFO Wolfgang Schaefer said during an earnings conference call.

    Europe remained the lagging region at negative 8%, with the key German and French markets down by 16% and 23%, respectively, Mr. Schaefer said.

    Demand growth for tires were mainly in line with vehicle production levels, he added. In replacement markets, Conti saw a "strong sequential recovery" in the same regions and in line with vehicle production.

    "Third quarter [replacement] volumes in China were well ahead of last year ... while North America also bounced back on prior year level," he said.

    Demand in Europe improved, but at a slower pace than other region, reflecting a "major impact" from weaker demand for winter tires.

    For the first nine months of the year, the tire division's adjusted EBIT fell 36.2% to $893 million on 16.2% lower sales of $8.18 billion, yielding an operating ratio of 10.9%.

    Conti said OE sales of consumer tires were "significantly" below the comparable 2019 period, while replacement market sales of both consumer and commercial vehicle tires were below 2019 levels.

    On a corporate basis, Conti reported improved operating earnings for the quarter of $972 million on 7.2% lower sales of $12 billion.

    Continental CEO Elmar Degenhart said Conti achieved "overall solid" quarterly results despite the "highly volatile" market environment.

    "We did remarkably well in the third quarter from an operational standpoint," Mr. Degenhart said. "The measures we undertook as soon as the coronavirus pandemic broke out were fully effective. We thus did not hesitate to hit the brakes immediately.

    "In China and North America, we were just as resolute in accelerating again when the markets started to recover," he said, stressing the firm's "enhanced agility" and "disciplined cost management" as reasons the company remains competitive worldwide.

    "In a persistently tough market environment, we are thus demonstrating a more-than-satisfactory performance on which we can build. It gives us reason to look to the future with optimism, yet with a certain degree of caution" he added.

    "The current development should not, however, fool us into thinking that the global automotive markets will recover quickly," he said, noting the vehicle industry's ongoing "fundamental technological transformation" and the potential impact of a resurgent COVID-19 on the markets.

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