Morningstar | Continental Reports Preliminary 1Q Headline Results, 2019 Guide Unchanged; EUR 158 FVE Maintained
Narrow-moat-rated Continental announced preliminary revenue and adjusted EBIT results for the first quarter of 2019. Revenue was roughly flat with the year-ago period at EUR 11.0 billion, but excluding changes in the scope of consolidation and favorable currency exchange, it would have declined 2%. We view the result as favorable given that first quarter global light vehicle production declined 7.0%. Adjusted EBIT (before special items) plunged 17.1%, to EUR 884 million, versus EUR 1.07 billion reported in the first quarter of 2018, driving a 160-basis point contraction in adjusted EBIT margin to 8.1%. Even so, the result handily beat market expectations, with the sell-side consensus estimate for adjusted EBIT at EUR 799 million. Continental will release full results on May 9.Management's 2019 guidance includes revenue in a range of EUR 45 billion to EUR 47 billion and adjusted EBIT margin in a range of 8% to 9%. The margin guidance represents contraction of 30 to 130 basis points compared with 2018's 9.3% adjusted EBIT margin result. We forecast 2019 revenue of EUR 46.1 billion and adjusted EBIT margin of 8.7%. At EUR 13.85 diluted earnings per share before special items, or EPS, we are slightly ahead of the 2019 sell-side consensus EPS estimate of EUR 13.44. Even so, the 3-star-rated shares of Continental trade at only a slight 3% discount to our EUR 158 fair value estimate, reasonably priced relative to our forecast for revenue growth, cash flow, and returns on invested capital.
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.
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