Continental has announced the results of the second quarter of 2023 with strong earnings again in the Tires group sector and high order intake in Automotive of around €8.6 billion.
The ContiTech group sector achieved solid results, while earnings in Automotive fell short of expectations, mainly due to currency effects and continuing costs for special freight. Furthermore, inflation-related price negotiations scheduled for the second quarter are still ongoing.
As a result of updated market expectations in the tire-replacement business, Continental has adjusted its outlook for sales in the Tires group sector and consolidated sales.
The outlook for the adjusted EBIT margins remains unchanged. The technology company therefore expects consolidated earnings to increase in the second half of the year.
“Despite difficult market conditions, our Tires group sector ended the second quarter with good earnings once again. ContiTech’s performance remained solid. Earnings in Automotive, however, fell short of expectations. Here we will need to make up considerable ground in the second half of the year. By doing so, we will also improve our consolidated margin,” said Continental CEO Nikolai Setzer in Hanover on Wednesday. “Through our partnership with Aurora, we have generated significant order intake and taken a major technological step forward in autonomous mobility. Together, we will bring the first commercially scalable autonomous trucking system to the US market.”
In the second quarter of 2023, Continental achieved consolidated sales of €10.4 billion (Q2 2022: €9.4 billion, +10.4 percent). Its adjusted operating result (adjusted EBIT) was €497 million (Q2 2022: €401 million, +24.1 percent), corresponding to an adjusted EBIT margin of 4.8 percent (Q2 2022: 4.3 percent).
Net income in the second quarter amounted to €209 million (Q2 2022: -€251 million). Adjusted free cash flow was -€14 million (Q2 2022: -€687 million).
“We stabilized our adjusted free cash flow year-on-year as well as compared with the first quarter of 2023. As announced, we made initial progress with our inventories, which we will need to reduce further. The same applies to our receivables, which remain high and are also having a negative effect on our free cash flow,” said Continental CFO Katja Dürrfeld.
For the current fiscal year, Continental expects the production of passenger cars and light commercial vehicles to increase by 3 to 5 percent year-on-year (previously: 2 to 4 percent). For the global tire-replacement business, the technology company expects sales volumes to develop by -2 to 0 percent (previously: 1 to 3 percent).
Continental has adjusted its outlook for the current fiscal year due to the declining European and North American markets in the tire-replacement business.
Continental now expects sales in the Tires group sector of around €14.0 billion to €15.0 billion (previously: €14.5 billion to €15.5 billion) and consolidated sales of around €41.5 billion to €44.5 billion (previously: €42 billion to €45 billion). The outlook for the company’s other sales and margin expectations remains unchanged.
Continental also continues to expect significantly higher costs for materials, wages and salaries as well as energy and logistics in fiscal 2023. These are expected to impact earnings by around €1.4 billion (previously: €1.7 billion).
According to preliminary figures, the global production of passenger cars and light commercial vehicles amounted to almost 22 million units in the second quarter of 2023, representing an increase of around 16 percent compared with the relatively weak prior-year quarter (Q2 2022: 19.0 million units).
In the Automotive group sector, sales increased by 19.0 percent to €5.1 billion (Q2 2022: €4.3 billion). With its sales growing organically by 20.1 percent before exchange-rate effects and changes in the scope of consolidation, and global automotive production rising by around 16 percent, the group sector again outperformed the market.
The adjusted EBIT margin improved from -2.5 percent in the second quarter of 2022 to -0.6 percent. Compared with the first three months of 2023, earnings were burdened by substantial negative effects from currency translation and continuing costs for special freight.
Continental also achieved high order intake in the Automotive group sector of around €8.6 billion in the second quarter of 2023. The order from the exclusive partnership with Aurora, which the Autonomous Mobility business area announced in April, made a strong contribution.
Together, Continental and Aurora will bring autonomous trucking systems to the mass market – starting with the USA in 2027. This business alone will generate order intake of around €4.8 billion for Continental.
The Tires group sector had another strong quarter. Despite declining volumes in the tire-replacement business, it increased its sales to €3.5 billion (Q2 2022: €3.4 billion, +2.3 percent). Its adjusted EBIT margin was 13.7 percent (Q2 2022: 13.8 percent). This was attributable to the stable price situation and the group sector’s continued high share of premium tires.
Continental also became the first manufacturer to launch a production tire with a high share of sustainable materials – the UltraContact NXT. Comprising up to 65 percent renewable and recycled materials, it combines a high share of sustainable materials with maximum safety and performance.
It also has the highest possible rating (“A”) of the EU tire label in terms of rolling resistance, wet braking and exterior noise. The UltraContact NXT has been available to tire dealers in Europe since July 2023.