Continental reported earnings in line with consensus on Wednesday, as successful price negotiations, lower inventories and stabilized supply chains allowed the company to improve auto industry performance and increase free cash flow.
The German auto parts multinational adjusted its tire business’s adjusted margin outlook upward to 12.5-13.5% from 12-13% previously, as higher prices offset a decline in North America and Europe.
The company also said it now expects global production of passenger cars and light commercial vehicles to grow 5-7% this year, up from a previous forecast of 3-5%.
Continental struggled in the second quarter with freight costs, currency effects and reducing working capital, but struck a more positive tone on Wednesday, with profit up 7.1% from last year to 637 million euros ($680.57 million).
The company had managed to reduce inventories and would continue to do so in the fourth quarter to achieve its adjusted free cash flow target of 0.8-1.2 billion euros, a big jump from the loss of 497.3 million euros reported so far between January and September.
“We still have a lot of ground to gain in the fourth quarter,” said Chief Financial Officer Katja Garcia Vila, formerly Dürrfeld.
The auto sector, which suffered losses in the second quarter, returned to profitability with an adjusted profit margin of 2.8%, largely thanks to price increases and stabilization of supply chains.
However, negative exchange rates have led to sales expectations for the automotive sector being adjusted slightly downwards, from 21 billion to 20 billion euros. ($1 = 0.9360 euros) (Reporting by Victoria Waldersee Editing by Miranda Murray and Miral Fahmy)