FRANKFURT - German tire and car parts maker Continental AG said on Monday its operating profit jumped by a quarter in the first three months of 2003 and that it expected to lift earnings over the year as a whole.
The world's fourth-largest tire maker said its Automotive Systems unit, which specializes in high margin electronics, steering and braking systems, had again been its best performer and would continue to drive earnings for the rest of the year.
"Continental expects to post an operating result for the full year above last year's level and expects to cut debt further," the company said in a statement.
In its annual report, the company previously had given a 2003 forecast viewed as conservative by investors, saying it expected operating profit to be at last year's level of 694 million euros ($778 million).
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Although it expects car production on both sides of the Atlantic to fall this year and its struggling U.S. tire business continues to be a headache, ever higher car equipment levels have kept demand for its auto electronics buoyant.
Group earnings before interest, tax and amortization (EBITA) rose 24 percent to 183 million euros in the first three months of the year, above the highest estimate in a Reuters poll of 10 analysts, while sales grew 3.2 percent to 2.822 billion euros.
Automotive Systems, which accounted for more than 40 percent of operating profit, saw the sharpest improvement, with EBITA rising by two thirds and sales up more than 7 percent.
"The earnings at automotive systems were very, very promising. This is something you can trust going forward," said Sal Oppenheim analyst Patrick Juchemich, who rates the stock "outperform."
Revenues at its car tire business rose 3 percent, although the U.S. replacement market continued to be weak, while truck tire sales slipped 7.5 percent, partly because it stopped consolidating some sales at a South African subsidiary.
Traditionally a tire maker, Continental is reaping the benefit of expanding its auto electronics business, a strategy that is keeping it ahead of tire-making rivals.
The group also is benefiting from a revamp of its tire business in the last 18 months. It has closed five factories and moved half of its European production to low-wage countries.
The company boasts its electronic braking business is one of its fastest-growing segments, and it will shortly launch a cruise control system that uses infrared to warn drivers that they are too close to the car in front.
By contrast, Goodyear Tire & Rubber Co., one of the world's largest tire makers, said late last month its first-quarter loss had widened as it struggled with weak sales and higher costs for raw materials.
Europe's largest tire maker Michelin said last month its sales had fallen 5 percent in the first three months of the year as a weak dollar took its toll on export revenues.