Continental raised its full-year outlook on Wednesday after its tire business delivered third-quarter adjusted EBIT of €514 million, beating the €478.4 million analysts expected in a company-compiled consensus cited by The Wall Street Journal. The stock gained roughly 6% in early European trading on the day of the announcement.

The German tire maker now expects an adjusted EBIT margin (earnings before interest and taxes from ongoing operations, stripped of one-off items) of around 13.4% to 14.0% for continuing operations this year, up from a prior range of 12.0% to 13.5%. It projects adjusted free cash flow (operating cash flow minus investment) of around €1.0 billion to €1.3 billion, raised from €0.7 billion to €1.1 billion.

Continental also narrowed its sales forecast to around €13.5 billion to €13.9 billion, from a previous corridor of €13.2 billion to €14.2 billion. The company has excluded its ContiTech group sector from the continuing-operations outlook since Aug. 4 because of its planned sale.

What drove the beat?

Third-quarter adjusted EBIT rose 6.7% to €514 million from €482 million a year earlier. The adjusted EBIT margin increased to 14.9% from 13.9%. Sales from continuing operations fell to €3.5 billion from €3.9 billion, a decline driven by the sale of the Original Equipment Solutions business area at the beginning of February; organic sales declined 1.5%.

Net income for continuing and discontinued operations reached €349 million, compared with a loss of €756 million a year earlier. The prior-year quarter carried special effects from the Aumovio spin-off and preparations for the Original Equipment Solutions sale. Adjusted free cash flow for continuing operations fell 69.0% to €31 million from €99 million.

Bernstein analyst Harry Martin said in a note that a U.S. tariff refund in the double-digit millions of euros and inventory accounting effects lifted the adjusted EBIT figure.

Which regions performed?

Continental credited the results to earnings in Europe and Asia. The EMEA (Europe, Middle East and Africa) adjusted EBIT margin rose to 18.7% from 17.7%, and the Americas margin rose to 8.7% from 8.5%. The APAC (Asia-Pacific) margin slipped to 18.6% from 19.0%.

Several factors contributed to the performance, according to the company:

• Higher sales of ultra-high-performance tires, which measure 18 inches and above
• Positive exchange-rate effects
• Lower tariff impacts
• Commercial measures taken in response to higher raw-material prices

Weak replacement markets (the aftermarket for worn tires) hurt earnings in North and South America, and weak automotive markets weighed on original-equipment business.

What did management say?

CEO Christian Kötz said in a statement: "We delivered another very good quarter in the tire business. We have raised our outlook in line with these results and head into the challenging final stretch of the year in a strong position."

CFO Roland Welzbacher flagged cost pressure ahead. Higher raw-material prices "are increasingly affecting our earnings and will impact us even more in the fourth quarter," he said.

What is the outlook for ContiTech?

For the ContiTech unit being prepared for sale, Continental guided to 2026 sales of around €4.2 billion to €4.4 billion, narrowed from a prior range of €4.2 billion to €4.8 billion. It expects a ContiTech adjusted EBIT margin of around 6.5% to 7.5%, down from previous guidance of 7.0% to 8.5%.

The raised full-year guidance combines a stronger-than-expected third quarter with caution on input costs, as raw-material inflation builds toward the fourth quarter and the final months of the year determine whether the tire unit lands at the top or bottom of its new 13.4% to 14.0% margin range.