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Continental sees more price hikes after profit tops forecast

Continental sees more price hikes after profit tops forecast By Reuters

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Economy 6 minutes ago (Nov 10, 2022 15:44)

© Reuters. FILE PHOTO: A sticker with the logo of German tyre company Continental is pictured on tyres in Bourbriac, France, February 18, 2022. REUTERS/Benoit Tessier

By Victoria Waldersee

BERLIN (Reuters) -Continental expects to pass more energy and labour cost increases onto customers next year, the auto parts supplier said on Thursday, after price hikes and a recovery in auto production helped it top quarterly operating profit forecasts.

The German company maintained its outlook for the full year and said it expected to hit the upper end of its 4.7-5.7% adjusted earnings margin forecast, but warned the overall business environment was still highly volatile.

Its supplier network so far looked like it would withstand surging energy costs this winter, Chief Financial Officer Katja Duerrfeld said, adding a possible gas shortage would more likely impact its suppliers than the company itself.

Continental is on track to reduce its own natural gas consumption in Germany by 20% by the end of the year as promised, Duerrfeld said, amid pressure on German companies to lower their intake in light of a cut in supplies from Russia.

The company’s shares were up 10% after it reported a 47% jump in adjusted earnings before interest and tax of 605 million euros ($605 million) for the third quarter, topping the mean forecast of 519 million in a company poll of 10 analysts.

Still, higher interest rates and valuation effects led to a net loss of 211 million euros.

Global automotive production is recovering from drastically reduced output after Russia’s invasion of Ukraine and semiconductor shortages which are slowly easing.

Production rose 11.1% compared to last quarter and 27.5% compared to the third quarter last year, Continental said, with the highest regional year-on-year growth in China.

Duerrfeld said the company saw no reason to pull back from the “extremely important” Chinese market, amid an ongoing debate in Germany about how to manage the economic relationship with an authoritarian government.

The Inflation Reduction Act had not spurred new plans to invest in the United States, but further relocation of production out of Germany beyond what was already outlined in the company’s ongoing 2019 restructuring programme could not be ruled out, she said.

“In light of the challenging environment, we did well to achieve our third-quarter forecast, but our financial results are not in line with our medium-term targets. However, we are on the right track and our order intake remains high,” Chief Executive Nikolai Setzer said.

($1 = 0.9996 euros)

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