Continental Shares Fall After Q2 Loss Posted

Continental AG (ETR:CONG) swung to a loss in the second quarter, sending shares into the red in early European trading, as the German automotive parts maker warned it faced a “hurricane” from global political tensions and supply chain constraints that have weighed on the availability of semiconductors.

Quarterly net income slumped to a negative €251M, down from €545M for continuing and discontinued operations in the same period last year. Continental described the three months to June 30 as “extremely challenging” due to recent market volatility.

“In particular, the geopolitical uncertainties as a result of the war against Ukraine, disrupted supply chains and massive price increases for raw materials, semi-finished products, energy and logistics, coupled with the shortage of electronic components and the consequences of the coronavirus lockdowns in China, heavily affected Continental’s results,” the company said in a statement.

Also impacting earnings was a series of expenses and charges, including a €370M downturn at its automotive unit as a result of higher interest rates and a €75M impairment from its operations in sanctions-hit Russia. Restructuring costs at its rubber and plastic parts manufacturing division came in at €63M as well.

Adjusted earnings before interest and tax slumped by nearly a fifth to €411M. Meanwhile, adjusted core profit margin of 4.4% and consolidated sales of €9.4B corresponded to preliminary results released in July.

Continental confirmed its full-year financial guidance, saying it expects higher automotive production as semiconductor supplies improve and energy flows into Europe stabilize. The company has also moved to mitigate recent cost inflation by purchasing across multiple sources and carrying out “comprehensive” inspections of its logistics chain for electronics.

“We cannot be entirely satisfied with our current business results – even if they are as expected – but we are optimistic for the second half of the year,” said Continental chief financial officer Katja Dürrfeld.

The Hanover, Germany-based firm expects consolidated sales for the year at between €38.3B to €40.1B, with an adjusted core earnings margin at around 4.7-5.7%.