Continental AG shares jump 10% as German firm predicts boost from China

By Louis Goss

Continental AG shares jumped 10% on Thursday after the German car parts manufacturer told analysts it expects strong growth in China, paired with its push to increase its margins and cut its costs, will boost its profits in the second quarter of 2024.

In a pre-close call with analysts, the Hanover headquartered manufacturer said it expects a rebound in the Chinese car market will boost its tires and auto parts segments and offset a slump in Europe and North America.

Continental AG said its cost-cutting initiatives, which saw it cut 7,150 jobs in February, will also increase its profitability in saving the company "a high-double to low-triple digit" sum in 2024, in line with its aims to save EUR400 million by 2025.

Shares in Continental AG (XE:CON), listed in Germany, increased 10% on Thursday having lost 23% of their value in the year-to-date on the back of an underwhelming set of first-quarter results driven by a slowdown in the automobile market.

Continental AG was first started as a manufacturer of rubber used in raincoats, water bottles and bicycle tires in Hanover in 1871, before it expanded into making car tires on the back of the growth of Germany's automobile industry in the 20th century.

Analysts at Jefferies, led by Michael Aspinall, said they expect Continental's cost-cutting initiatives will boost the company's profits by EUR10 million to 30 million in the second quarter of 2024 and by EUR100 million to EUR150 million throughout the full-year 2024.

Jefferies analysts said margins in Continental's tire business are expected to bounce back from rates of 11.7% in the first quarter to 14.6% in the second quarter, as they predicted the company will also achieve higher margins in its automotive and ContiTech industrials units.

They said this will see Continental AG will post earnings before interest and tax (EBIT) worth EUR699 million in the second quarter, versus the EUR179 million it posted in the first quarter of 2024.

The German company said its tire business has now seen signs of an initial recovery in the market for passenger and light truck tires in Europe and North America and signs of a "strong rebound" in China.

Continental AG noted that its industrial unit ContiTech will likely remain in a "weak" position this year, but said the segment's standing will be improved by the cost-cutting measures it has pursued alongside its price negotiations with customers.

-Louis Goss

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07-04-24 0512ET

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