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By Madeline Chambers and Nick Tattersall
FRANKFURT, Oct 29 (Reuters) - German tyre and car components maker Continental raised its full-year guidance on Wednesday after quarterly operating profit beat expectations, helped by cost cuts and improving demand.
Earnings before interest, tax and amortisation (EBITA) rose to 262 million euros ($306.7 million) in the third quarter, up almost a third from a year ago and beating a forecast of 211 million in a Reuters poll of 18 analysts.
Conti lifted its forecast for 2003 operating profit to 750 million euros from previous guidance of over 700 million euros.
The tyre and parts maker cited rising demand for its key products including electronics systems. Although overall demand for cars in Europe and the U.S. remains sluggish, manufacturers are packing their vehicles with extras to lure buyers.
"Due to the gratifying gains in volume, we are raising our earnings forecast," Continental Chief Executive Manfred Wennemer said in a statement.
Conti, which supplies customers such as Volkswagen , BMW and Mercedes with features such as cruise control and anti-lock braking systems, is benefiting from a recent expansion of its higher-margin electronics business as cars have become more sophisticated.
The company's stock, which has more than doubled from a low in March as investors applauded recent restructuring efforts, was up 0.92 percent at 1244 GMT, slightly outperforming other European auto stocks .
Traders cited the better than expected figures but some market players found the outlook conservative.
"In light of the good numbers, the company's outlook for the full year looks rather cautious," said Oliver Girzick, auto analyst at Bayern LB.
TYRE REVAMP
Conti said cost savings, a gradual pickup in demand for its products and an improved mix of products had driven profits in the last quarter.
The world's fourth-largest tyre maker is also reaping the benefits of a major revamp at its tyre business, where it has shut expensive factories and invested in eastern Europe over the past three years.
In an interview on German television, Wennemer said Conti would continue its cost-cutting efforts in north America where the car tyre business is facing a particularly tough time.
"In 2001 we closed five tyre factories in Europe with a total of around 4,500 employees and similar steps, although not on the same scale, stand before us in the coming months in the United States," he said.
The company said 340 U.S. jobs could be hit and it planned to save 20 million euros in costs.
French rival Michelin , Europe's biggest tyre maker, said last week high raw material costs and a strong euro had hit sales in the third quarter and would push down its operating margin in the full year.
Conti also said it had made good progress on cutting its debt and that gearing, or the ratio between net debt and equity, had improved to 93 percent, compared with 135 percent in 2002.
"So we have achieved the 100 percent target we set earlier than planned. We now want to further reduce the gearing ratio by the end of the year," finance chief Alan Hippe said in a statement.
Sales for the first nine months of the year were flat at 8.485 billion euros due mainly to a strong euro, although if adjusted for exchange rate effects, they were up 5.7 percent.