Continental AG Q1 Earnings Beat Expectations, Full-Year Guidance Unchanged

Overview

Bernstein's earnings comment on May 6, 2026, indicates that Continental AG's first-quarter performance was robust: revenue of 4.4 billion euros met market expectations, adjusted EBIT of 522 million euros was 4.5% higher than expected, primarily due to higher-than-expected margins in both tyre and ContiTech businesses. Despite potential additional costs from the Middle East, the company maintained its full-year guidance, confident in hedging most of the negative impact.

Core views

Demand side: Tyre volumes decreased 4.3% year-over-year, slightly below consensus, but European replacement market performed well, and the share of 18-inch and larger tyres increased, driving a price/structure contribution of +4%, accelerating for the second consecutive quarter. Supply side: Tyre business margin 14.4%, up 1 percentage point year-over-year, due to declining raw material costs, product mix improvement, and internal cost control. ContiTech margin 7.9%, excluding OESL 8.7%, mainly benefited from a focus on high-margin products, improved distribution business, and declining raw material costs. Financials and cash flow: Adjusted free cash flow 350 million euros, below consensus of 410 million euros, primarily due to higher than expected working capital outflow; management reaffirmed guidance range, expecting a low to mid three-digit million euros cost shock from the Middle East, but emphasized it is hedgeable. Asset disposals: ContiTech disposal progress as planned, no further details provided, but higher margins could enhance potential disposal valuation.

Analysis framework

The report uses a sum-of-the-parts (SOTP) valuation: - Assigns 8.1x EV/EBIT to the tyre business, higher than Michelin's long-term average of 7.8x, based on higher expected tyre margin; - Values ContiTech at 6.5x EV/EBIT; - Values headquarters and central functions at the average multiple of the retained business. Summing these parts gives a target price of 66 euros, implying a forward PE of about 15.6x.

Methodology notes

• Valuation MethodSOTP Part-to-Part Valuation

  Breaks the company into tyre, ContiTech, and headquarters parts, giving each a different EV/EBIT multiple and summing them up

  Suitable for companies with diverse businesses, reflects the true value of each part; this report gives a premium multiple to tyres, reflecting their high profitability expectations

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Continental AG (CON.GR)

  Earnings beat expectations and full-year guidance unchanged, valuation has slight upside potential

  Strengths

  Continuing tyre margin improvement, potential value release from ContiTech disposal, proven hedging cost capability

  Weaknesses

  Free cash flow impacted by working capital outflow, ContiTech disposal price and timing uncertain

  Comparison

  command a premium valuation compared to Michelin (8.1x vs 7.8x EV/EBIT), reflecting higher profitability expectations

  Risks

  Increased competition from Chinese low-cost producers in Europe/America, slower than expected adoption of electric vehicles, ContiTech disposal price lower than expected leading to delayed deleveraging

Key data

• Q1 Revenue4.396 billion eurosDown 10.4% year-over-year, in line with expectations
• Q1 Adjusted EBIT522 million eurosUp 5% year-over-year, 4.5% higher than expected
• Tyre Volumes-4.3%Slightly below consensus -4%
• Tyre Price/Structure+4.0%Ring-fenced, Q4 was +3.4%
• Tyre EBIT Margin14.4%Up 1 percentage point year-over-year
• ContiTech EBIT Margin7.9%Excluding OESL 8.7%, higher than expected
• Potential Middle East Cost ShockLow to mid three-digit million eurosExpected to start showing from Q2

Impact & implications

The report suggests that Continental AG's Q1 earnings validated its profitability recovery path, with significant improvements in tyre premiumization and cost control. Despite uncertainties from the Middle East, the company's historical hedging capabilities and the width of its current guidance range provide a buffer. If the ContiTech disposal proceeds as planned, it could further reduce debt and enhance shareholder returns.

Risks

• Increased competition from Chinese low-cost producers investing in Europe/America capacity
• Slower than expected adoption of electric vehicles
• ContiTech disposal price lower than expected or tyre profitability expansion not meeting expectations leading to delayed deleveraging

What to watch

• Progress of ContiTech disposal and final valuation
• Specific impact of Middle East cost shock and company's hedging measures
• ability to continue expanding tyre profitability to industry-leading levels in the second half of the year