By Geoffrey Smith
Investing.com — Shares in Continental (ETR:CONG) (OTC:CTTAY) fell on Wednesday after the German-based tire giant cut its profit outlook for 2022, after COVID-related disruptions to its business in China at the end of the year caused a late slump in cash flow at one of its divisions.
Continental said that its ContiTech group had been hurt by public-health restrictions late in the year, when Beijing was ultimately forced to acknowledge defeat in its attempts to keep the highly contagious Omicron variant of COVID-19 under control.
It said the division’s operating margin before interest and taxes was consequently likely to have been around only 2.3% in the fourth quarter and only 4.7% for 2022 as a whole, rather than the 6%-7% range it had previously guided for.
“The lower-than-expected earnings are mainly due to increased production costs, an unfavorable product mix and pandemic-related business restrictions in China,” Conti said.
That translated into a warning that group cash flow for the year would be only €200 million. Conti had previously forecast a range of €600-€800M, expecting a strong second half after a disrupted start to the year. The full-year EBIT margin is now set to be toward the bottom end of the forecast range at around 5.0%.
Continental stock fell 3.1% in response, to make it the worst performer in the benchmark DAX index on Wednesday.
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