* Now sees 2016 group adj EBIT margin above 10.5 percent
* Previously expected margin of more than 11 percent
* Analysts say additional R&D expenses most worrying
* Shares fall more than 3 pct to lowest since July
(Adds share price, analyst comment)
By Maria Sheahan
FRANKFURT, Oct 18 Shares in Germany's
Continental AG dropped to their lowest in more than
three months on Tuesday after the automotive supplier cut its
profit guidance for the year, partly due to an increase in
research and development spending.
Late on Monday, Continental said its annual results would
take a 390 million euro ($437 million) hit from warranty cases
for unspecified products as well as possible expenses for
pending antitrust proceedings.
But what analysts said was more worrying was that the
company also hiked its spending on the development of
infotainment systems and environmentally friendly drive systems
by 60 million euros ($67 million).
"We believe Conti may have overinvested in technologies that
may prove to be fleeting in nature and with lower than
anticipated payback," analysts at Barclays said.
They stuck with an "equal weight" rating on the stock but
cut their price target to 178 euros from 184 euros, saying the
company's tyre-making business, traditionally a cushion for
downturns on the car parts side, was likely at a peak.
Analysts at Evercore ISI, who recommend selling Conti's
stock, said they believed the additional R&D spending was
related to a push by German carmakers for more plug-in hybrid
vehicles, adding they saw it being a drag on earnings next year
Shares in Conti were down 3.2 percent at 169.75 euros by
0734 GMT, making them the only decliners on Germany's blue-chip
DAX index, which was up 0.8 percent.
Further weighing on results, Conti said a third earthquake
in Japan's Kumamoto region in August worsened the situation of
an important supplier of micro control units located there,
resulting in lost sales of at least 100 million euros.
Conti now expects the 2016 margin on adjusted earnings
before interest and tax (EBIT) at its Automotive business, which
accounts for about 60 percent of group sales, to come to more
than 6.5 percent, compared with previous guidance for more than
The group margin will be above 10.5 percent, versus a
previous forecast for more than 11 percent, Conti said. It
affirmed its forecast for 2016 sales of around 41 billion euros
before exchange-rate effects.
($1 = 0.8928 euros)
(Reporting by Maria Sheahan; Editing by Susan Thomas and Mark