UPDATE 1-Continental AG sticks to guidance as markets weaken

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FRANKFURT Aug 27 (Reuters) - Tyres and car components group Continental AG (CONG.DE) is sticking to its earnings guidance for the time being despite weakening automotive markets, finance chief Alan Hippe told a conference call on Wednesday.

"The environment is more challenging than when I did the Q2 call. This is a fact. Also our results in July were a little bit weaker. Now we have to look at the numbers for August," he said.

"For the time being I have no reason to go away from our guidance, nevertheless it is a little more challenging to get to this."

Continental in July said it expected to generate sales above 26.4 billion euros ($38.83 billion) this year and boost its underlying operating margin from 9.3 percent in 2007.

"The markets are going down and also in Europe we feel a certain weakening. No doubt about that," Hippe said.

He was holding the call to outline an agreement last week in which family-owned bearing maker Schaeffler Group will become Continental's controlling shareholder by paying 75 euros per share in a tender for a stake of up to 49.99 percent.

Hippe said he was confident that Schaeffler will not boost its holding above 49.99 percent via options or swaps, tools it used to build its original stake.

"We have used legal terms and have also put in some more (accords) to just make sure we don't get another surprise ... we have done everything to really make sure that they stay at a 49.99 percent shareholding," he said.

Continental was already looking at cooperating with Schaeffler on powertrains, he said, citing in particular mechanical parts but providing no more details.

He said Continental would not pay a special dividend but said it was too early to talk about the payout for next year.

Asked about sales of winter tyres so far, he said: "(In) Germany the market is down and there is a certain reluctance to order winter tyres. On the other hand what we also see is Russia is doing well, eastern Europe is quite OK."

High inventories in western Europe meant dealers were ordering later than usual, he said.

But he added, "So far I am not really concerned about the situation because we also get first signals that the orders will come and that they will also come at a magnitude which will be satisfying." (Reporting by Michael Shields; Editing by Quentin Bryar) (michael.shields@thomsonreuters.com, Reuters Messaging: michael.shields.reuters.com@reuters.net; +49 69 7565 1266)) ($1=.6799 Euro)