Investing.com -- Continental AG (ETR:CONG) shares jumped on Wednesday following its second quarter results which met expectations despite a downward adjustment to its full-year outlook.
At 4:13 am (0813 GMT), Continental AG was trading 5.2% higher at €57.17.
The company reported group revenue of €10,003 million, slightly missing the latest VisibleAlpha consensus by approximately 3.4%. However, the group’s adjusted EBIT of €704 million matched Stifel's forecast and exceeded consensus estimates by about 2.6%.
The automotive division demonstrated considerable improvement compared to the previous quarter. Auto revenue declined by 3.4% year-over-year (down 2.2% organically), coming in around 4% below VisibleAlpha consensus.
Nonetheless, the auto adjusted EBIT of €133 million, which represents a 2.7% margin, was in line with consensus but fell short of Stifel’s forecast by €40 million. The division benefited significantly from concluded price negotiations with OEMs, contributing to a notable improvement in margins.
“We also estimate that the company achieved c€50m in cost benefits from the ongoing €400m fixed cost reduction programme in the quarter,” analysts at Stifel said.
The tires segment also showed resilience, with second quarter revenue falling 2.5% short of consensus but achieving an adjusted EBIT of €498 million (14.7% margin), which was approximately 3% ahead of consensus estimates.
Volume growth was modest at 0.2% year-over-year, while price/mix was slightly negative due to OE price indexation.
Looking ahead to 2H24, Stifel anticipates gradual improvements in price/mix as the headwinds from OE price indexations diminish.
Continental AG has revised its FY24 guidance in light of weaker market conditions. The company now projects group revenue in the range of €40-42.5 billion, down from the previous guidance of €41-44 billion.
Specifically, auto revenue is now expected to be between €19.5-21 billion (reduced from €20-22 billion), and tires revenue is forecasted at €13.5-14.5 billion (previously €14-15 billion).
The company has also adjusted its margin outlook for auto to 2.5-3.5% (from 3-4%) and for ContiTech to 6.5-7% (unchanged).
These adjustments are primarily due to weaker market conditions and lower expected volumes, though Continental AG remains confident in its price and cost reduction strategies.
Stifel values Continental AG based on FY24E target multiples, with automotive technologies at 9.3x EV/adj. EBIT, Tires at 9.5x EV/adj. EBIT, and ContiTech at 8x EV/adj. EBIT.
The company's valuation is underpinned by its focus on high-growth areas such as autonomous mobility and vehicle networking, alongside a resilient tires/rubber business that generates strong cash flows.