Germany's Continental Bullish on Tire Demand, Raises U.K. Prices

By Ilka Kopplin and William Wilkes

FRANKFURT--Continental AG (CON.XE) raised its 2016 outlook on robust demand for tires, noting it increased tire prices in the U.K. after the value of sterling fell sharply following the country's Brexit vote.

The German auto supplier, which also makes auto technology and components, said it hiked prices on Aug. 1. The U.K. vote to quit the EU on June 23 sent the pound sharply lower against the euro, the currency Continental books revenues in. Continental declined to say how much it increased prices.

Continental reported a second-quarter net profit of 905 million euros ($$), up from EUR792 million in the year-earlier period. It also improved its outlook based on robust demand for tires, saying its margin on earnings before interest and taxes would exceed 11% in 2016, above a previous forecast of around 11%.

Continental Chief Financial Officer Wolfgang Schafer warned Brexit would have "a greater impact" on the U.K. automotive industry if the country got a bad deal in future trade talks with the EU.

The potential fallout of Brexit has worried the auto industry. Continental's decision to raise U.K. prices to offset the cost of a weak pound follows a series of manufacturer warnings about the vote's impact.

General Motors Co. said last week that the pound, which has declined roughly 12% versus the dollar, could shave $400 million off its second-half earnings. A week ago, Peugeot Chief Executive Carlos Tavares said automakers were waiting for somebody to make the first move to raise prices.

The U.K. car market, the second largest in Europe, has slowed sharply since Brexit, with sales falling even as other major EU markets recorded growth or flat sales, according data published by the European Automobile Manufacturers' Association last month.

The outlook for U.K. sales may darken further. On Friday, market research firm GfK Ltd said its long-running gauge of consumer confidence recorded its steepest month-on-month drop since 1990.

Write to Ilka Kopplin at ilka.kopplin at wsj.com and William Wilkes at [e-mail]

(END) Dow Jones Newswires

August 03, 2016 07:33 ET (11:33 GMT)

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