January 14, 2019 / 8:17 AM / 4 months ago

Continental warns weaker markets, electric shift to hit margins

FRANKFURT (Reuters) - German automotive supplier Continental AG warned of a drop in profitability this year, blaming a downturn in car markets and the industry’s costly shift from combustion engines towards electric vehicles.

The logo of Continental AG, a German automotive manufacturing company specialized in tyres, brakes and car safety products, is pictured on a rim at the company's stand during the Hannover Fair in Hanover, Germany, April 25, 2016. REUTERS/Wolfgang Rattay/File Photo

The group said on Monday it expected an adjusted operating (EBIT) margin of 8-9 percent this year, down from a forecast of “more than 9 percent” in 2018.

According to preliminary figures, its adjusted EBIT margin came in at 9.2 percent in 2018, Continental said.

“As feared, the decline of the automotive markets intensified significantly once again in the fourth quarter,” Chief Executive Elmar Degenhart said.

“This, combined with the profound changes in our industries, is reducing our growth rate.”

Continental’s warning comes after rival Kuka lowered its operating profit guidance and carmakers Ford and Jaguar Land Rover announced sweeping job cuts in response to falling demand.

On Monday, Chinese auto industry association CAAM said domestic sales fell 13 percent in December, leading to a 2.8 percent drop for the full year, the first annual contraction since the 1990s.

Shares in Continental, which will release 2018 results on March 7, fell 2.2 percent in early trade.

The group also said it expected consolidated sales of 45 billion to 47 billion euros ($52-54 billion) in 2019, compared with 44.4 billion in 2018.

($1 = 0.8728 euros)

Reporting by Christoph Steitz, Editing by Edward Taylor and Mark Potter

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