By Max Bernhard
German automotive supplier Continental AG cut its earnings and sales guidance for the year, citing a decline in global car production, as well as lower demand and possible warranty claims.
Continental had previously forecast global auto production to remain stable, but it now anticipates a decline of about 5%, the company said late Monday.
It said it now expects an adjusted operating profit margin of about between 7% and 7.5% in 2019, compared with previous expectations of between 8% and 9%. Continental now forecasts sales of about between 44 billion and 45 billion euros ($49.34 billion and $50.47 billion) compared with EUR45 billion to EUR47 billion before.
Continental's guidance cut is the latest in a slew of profit warnings from car makers and parts suppliers. Premium car maker Daimler AG cut its earnings outlook twice since last month, while Chinese manufacturer Geely warned on profit at the beginning of July. Auto makers have been struggling with slowing demand in the world's largest markets, such as China and Europe. At the same time, they have to stem large investments for the development of new technology and adapt to stricter emissions rules.
Continental Chief Financial Officer Wolfgang Schaefer said the company is less optimistic about the second half of the year than before. "The reason for this is the continuing downward trend in vehicle production in Europe, in North America and particularly in China. Unresolved trade conflicts are also contributing to economic uncertainty," he said.
Continental said the profit warning was also due to "unanticipated changes in customer demand" which could hit sales of some of the products in its core automotive division. Earnings may also take a hit from potential provisions for warranty claims over the second half of the year. "The causes of these potential expenses from warranty claims and the corresponding amounts are not clarified at this time," it said.
Nevertheless, Continental said its results in the second quarter were solid. Sales in the quarter fell slightly to EUR11.2 billion from EUR11.4 billion a year earlier, according to preliminary data, it said. The adjusted operating profit margin shrunk to 7.8% from 10.2%, however. The company is scheduled to report second-quarter results on August 7.
Write to Max Bernhard at email@example.com; @mxbernhard
Corrections & Amplifications
This item was corrected at 0715 GMT to reflect that Continental previously forecast sales of about between EUR45 billion and EUR47 billion. The original version incorrectly misstated that the previous guidance range was forecast for between EUR45 million and EUR47 million in the third paragraph.