Continental Earnings: Faster-Than-Expected Turnaround in Automotive Drives Profit Higher

Narrow-moat Continental reported a strong third-quarter result that beat FactSet consensus EPS by 10%, driven by a significant improvement in profitability in the automotive segment despite weak industry dynamics. EBIT margins in the automotive segment increased to 2.5% in the third quarter from 0.2% in the second quarter, with double-digit margins implied in the fourth quarter given management’s full-year guidance. This is a faster turnaround than expected. Higher industry vehicle production and new product launches by Continental’s customers are expected to drive revenue in the automotive segment 11% higher in the fourth quarter relative to the negative 4% decline year to date. Management has also been working vigorously to reduce costs in the automotive segment as it gets ready for the spinoff of this business by the end of 2025.