Germany's Continental Issues Profit Warning

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Sep 18,2008

German tyre and car parts maker Continental warned investors on Saturday that profits would be squeezed below what it had forecast by sluggish car sales in Europe and North America and rising raw material costs. The group, now controlled by family-owned bearings manufacturer Schaeffler, said it expected to make an adjusted operating margin of around 8.5 percent this year -- it had previously aimed to exceed its 2007 margin of 9.3 percent. "Conditions have in part worsened significantly, especially in the automotive divisions, compared to the good development in the first six months of the current fiscal year," the company said in a statement. "The rubber divisions are affected as well but not to the same extent," it added. The surprise announcement comes almost one month after Schaeffler won the battle for control of the tyres-to-brakes firm, a deal that opened the way to creating the world's third-biggest supplier to the car industry. But Schaeffler, whose ball bearings are used to steer a car, and Continental, which makes the electronics used in satellite navigation, face a tough future together as higher oil prices erode car sales. U.S. car production is slowing and pump prices surging, while consumers are shifting to less profitable small cars. Meanwhile raw material costs for everything from steel to plastics are climbing. Many big names like Delphi , Collins & Aikman and Dura had already filed for bankruptcy protection before the worst of the downturn. Even solid companies like Japan's Denso and tyre giant Michelin are missing targets, slashing forecasts or both.

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