Automotive group Continental plunges after second profit warning

Continental shocked investors for the second time this year as disappointing sales in China and Europe forced the car-parts maker to cut its revenue forecast and spending on new technology weighed on profitability. The shares plunged the most since 2009.

The world’s second-biggest automotive supplier expects revenue of €46 billion for the year, excluding currency effects, €1 billion lower than a previous target, the German company said Wednesday in a statement. It also reduced its forecast for operating return on sales to more than 9 per cent, down from a 10 per cent target.

Continental’s second guidance cut this year highlights the pressures on automotive companies whose traditional business model is in flux. The manufacturer, which last month announced sweeping changes to keep pace with the industry’s transformation to electric and self-driving cars, said high costs developing new technology for its customers were weighing on its business.

This switch from combustion engines to plug-in hybrid and electric cars also boosted spending demands, the company said.

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Continental fell 14 per cent to €159.95 at 3.50pm in Frankfurt, its lowest intraday level since February 2009. The stock, which closed off 13.2 per cent, was the worst performer in Germany’s DAX index.

The company’s €750 million of bonds due in September 2020 fell to 106 cent on the euro on Wednesday, the lowest since February 2014, according to data compiled by Bloomberg.

Issuing a profit warning so soon after an earlier forecast cut in April was a shock, Tim Schuldt, an analyst at Equinet, said by phone. The issues stem from both market-wide and home-grown conditions, he said.

Continental will cut costs further to adapt to the lowered guidance, chief financial officer Wolfgang Schaefer said on a call with analysts. Most of these measure will occur in the third quarter, helping Continental regain its footing by the last three months of the year, when the operating margin should return to close to 10 per cent, he said.

Asked why Continental reviewed its guidance just a few weeks after releasing earnings, Mr Schaefer said the company had expected that business would pick up after weakness early in the quarter, “but it didn’t.” – Bloomberg