Continental’s Unit Sale Faces Uphill Struggle

Automobile tires tested at the Continental AG Contidrom tire test facility in Wietze, Germany. (Krisztian Bocsi/Bloomberg)

Continental AG’s industrial ContiTech unit is set to miss targets because of weak demand and other expenses, raising doubts about the price the division will fetch in its sale process.

Returns on adjusted earnings before interest and tax at ContiTech, which makes products such as conveyor belt systems and agricultural hoses, are expected at around 4.9% for last year, the German tire maker said Jan. 21. The preliminary result falls short of a goal of at least 6%. 

Continental shares declined as much as 4.5% in Frankfurt. The stock is still up around a quarter in the past year.

Offloading ContiTech is the final step in Continental’s breakup plan that included listing its auto parts business Aumovio SE. The plan for a sale this year remains in place and there’s strong interest from potential buyers, Chief Financial Officer Roland Welzbacher said. Jefferies analysts estimate the unit could be worth 3.4 billion euros ($4 billion).

“We already thought that the ContiTech sales price may disappoint, given that Continental is an enthusiastic seller with an explicit target sale date,” Bernstein analyst Harry Martin wrote. “We expect the weak results in the fourth quarter in ContiTech will likely make it even harder to get a good price for the asset.”

For the fourth quarter, the division’s returns stood at 2% after markets didn’t recover and currency and valuation effects weighed on profitability, Continental said. 

While ContiTech struggled, positive product mix and cost cuts helped boost the tires business. Fourth-quarter returns on adjusted EBIT for the group will be around 10.9%, toward the higher end of Continental’s targeted margin corridor. For 2025, the company expects to report returns of 10.2%, in line with expectations. 

Germany’s auto industry is struggling with global economic uncertainty led by trade tensions and cost pressures amid volatile demand. To become more agile, Continental moved to slim down its business to focus on its robust tire division. 

Continental is due to present full-year results on March 4.