(Recasts with more detail, adds analyst)
By Nick Tattersall
FRANKFURT, July 31 (Reuters) - Demand for high-margin car electronics boosted profits at Germany's Continental in the first half, insulating the tyre and auto parts maker from sector malaise and letting it put a figure on its 2003 profit goal.
The world's fourth-largest tyre maker said on Thursday operating profit jumped 15 percent to 399 million euros ($452 million), above the average forecast of 374 million in a Reuters poll of 11 analysts.
"We've raised our expectations for 2003 and are now assuming that we'll achieve an operating result of more than 700 million euros," Chief Executive Manfred Wennemer said in a statement.
The firm, which had previously said it expected higher sales and earnings this year despite lower car demand in Europe and the United States, posted a 694-million-euro operating profit in 2002.
While earnings at many of its customers have tumbled, Continental has largely escaped the slump in the auto industry by shutting tyre factories and focusing on electronic components, which are less susceptible to pricing pressures from carmakers.
This has proved an especially strong strategy at a time when German carmakers are launching more new models than ever, many of them with the electronic braking, steering and suspension systems that Continental produces.
The group's stock, which has outperformed the DJ European autos index by 30 percent since the start of the year, rose on the news, trading 1.5 percent higher at 20.33 euros at 1000 GMT, while the European index was flat.
"Lifting the outlook was no surprise, but it'll cause a few analysts to raise their forecasts," said Sal. Oppenheim analyst Patrick Juchemich, who rates the stock "outperformer".
SAFE AS HOUSES
The first-half results imply earnings before interest, tax and amortisation (EBITA) of 216 million euros in the second quarter, according to Reuters calculations. This beat the 199 million in the same period a year ago and a consensus estimate of 188 million.
The Automotive Systems division -- which specialises in safety electronics and engine management systems -- saw the sharpest rise in profit, with the operating result rising by around a quarter to 186 million euros in the first six months.
It also saw a strong rise in demand for its air suspension systems, which are fitted to recently-launched luxury cars including Porsche's Cayenne, VW's Touareg and DaimlerChrysler's Maybach.
Operating profit at its passenger car tyre business rose by around 30 percent to 119 million euros, although truck tyre sales slipped. This combined with higher material and labour costs in the United States to push down earnings at its commercial vehicles tyre unit by around 36 percent.
Group sales in the first half slipped slightly to 5.647 billion euros, hit by exchange rate effects, but were up 6.2 percent on a currency-adjusted basis.
The U.S.'s top tyremaker Goodyear Tire & Rubber Co on Wednesday reported its first second-quarter loss since 1990 due to higher raw material prices, though the operating loss at its struggling North American tyre unit was better than expected.
Europe's biggest tyre maker Michelin posted a slide in first-half net profit on Tuesday due to restructuring costs, but its operating profit also beat forecasts due to slightly stronger demand and higher prices.
Continental cut net debt in the first half by 625 million euros, bringing its gearing down to 113 percent from 155, and said it would meet its pledge to cut it below 100 this year.