Morningstar | Continental Cuts 2019 Guidance, Reports Preliminary 2Q Results; Maintaining EUR 158 FVE. See Updated Analyst Note from 22 Jul 2019
Narrow-moat Continental cut 2019 guidance due primarily to the decline in global light vehicle production, reducing its full-year production outlook from flat to down 5%. Management's 2019 guidance includes revenue in a range of EUR 44 billion to EUR 45 billion, down from the prior range of EUR 45 billion to EUR 47 billion. The company now expects adjusted EBIT margin in a range of 7.0% to 7.5%, dropping from the prior range of 8% to 9%. The new margin guidance represents contraction of 180 to 230 basis points compared with 2018's 9.3% adjusted EBIT margin result.We lowered our 2019 estimate to revenue of 44.4 billion down from our prior forecast of EUR 46.1 billion and adjusted EBIT margin to 7.0% from 8.7%. We also reduced our 2020 estimated revenue and adjusted EBIT margin to EUR 48.0 billion and 9.0% from EUR 48.5 and 9.1%, respectively. Owing to the time value of money since our last model update, our fair value estimate would have risen to slightly more than EUR 160. Including our reduced 2019 and 2020 estimates, our fair value estimate remains unchanged at EUR 158. While the stock is likely to come under additional selling pressure in the near term as the market adjusts to the reduced guidance, we view the 4-star-rated shares of Continental as attractively valued relative to our forecasts for revenue, cash flow, and returns on invested capital.
Continental reported preliminary second-quarter consolidated revenue of EUR 11.2 billion, down from EUR 11.4 billion last year. Consolidated adjusted EBIT margin was down 240 basis points to 7.8%. Automotive group revenue of EUR 6.7 billion was down around 4% versus the second quarter of 2018 but outpacing a global light vehicle production decline of nearly 8%. Even so, group adjusted margin contracted roughly 250 basis points to 5.5%. Rubber group revenue of EUR 4.5 billion was slightly better than the EUR 4.4 billion in the year ago period. Adjusted EBIT margin declined approximately 200 basis points to 12.5%.
Continental is an automotive industry supplier. Co.'s automotive divisions comprised of: Chassis & Safety, which develops and produces systems that provide safety and enhanced vehicle dynamics; Powertrain, which develops solutions for gasoline and diesel engines, as well as hybrid and electrical drive systems; and Interior, which provides solutions for information management within vehicles and networking between vehicles. Co.'s rubber divisions comprised of: Tires, which provides tires for passenger cars through trucks, buses and construction site vehicles to special vehicles, motorcycles and bicycles; and ContiTech, which develops products made from rubber and plastic.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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