HANOVER, Germany — Continental A.G.'s tire sector suffered a 17.6% drop in operating income for the quarter ended Sept. 30 on 2.5% higher sales, as higher costs for raw materials, energy and logistics ate into margins.
Pre-tax operating income (EBIT) fell to $480 million on sales of $3.51 billion, pushing down the operating margin three and half points to 13.1%.
The revenue increase was based entirely on higher selling prices, as unit sales dropped 5.5% from the third quarter of 2020, Conti reported, led by "significant" drops in OE volumes.
By contrast, replacement sales in North America and China were ahead of 2019 levels, while replacement market sales in the Europe/Middle Asia/Africa region were slightly below 2019 levels, Conti said, without providing specifics.
Looking ahead, Conti said both pricing and product mix continue to develop "favorably," especially in the Americas and EMEA, while earnings headwinds are expected to be "even stronger" in the fourth quarter.
For the nine months ended Sept. 30, the tire unit's operating income nearly tripled to $1.61 billion on 18.2% higher sales of $10.2 billion, yielding an operating ratio of 15.8%.
The tires business area continued to benefit from the strong replacement-tire business for trucks and passenger cars, Conti said, while rising raw material costs are having an "increasingly detrimental impact" on the business.
Overall, Continental reported a 42.4% drop in third-quarter adjusted pre-tax operating income, to $494.1 billion, on 7.4% lower sales of $9.43 billion, reflecting "significantly" lower vehicle production. As a result, the adjusted operating ratio fell three-plus points to 5.2%.
Net income totaled $364.4 million a drop of 57%.
Looking ahead, Conti expects global markets to remain "highly volatile" in the coming months, given the ongoing shortages of semiconductor components as well as uncertainties in the supply chain and customer demand, according to Wolfgang Schäfer, chief financial officer.
Accordingly, he noted, Conti has adjusted its fiscal 2021 financial expectations downward slightly. The adjusted EBIT margin is expected to come in at 5.2% to 5.6%, down from 6.5% to 7% previously, while sales revenue is expected to be roughly 3% below earlier forecasts at about $38.2 billion to $39.4 billion.
The company is basing its forecast in part on expectations that global production of passenger cars and light commercial vehicles in 2021 will be roughly unchanged from 2020 (in a range of down 1% to up 1%), whereas previous forecasts were for 8% to 10% growth.