Continental (XTER:CON, Financial) (Germany), one of Europe’s largest tire and automotive component manufacturers, was a top contributor to the Fund’s performance for the quarter. Continental released results for 2022 that demonstrated significant progress in its automotive division, which had been experiencing challenging conditions and mixed financial performance. The business grew roughly 13% faster than the light vehicle production business on an organic basis due to a combination of volume and price increases. These price increases were necessary to offset severe material cost inflation, and the automotive division demonstrated a clear return to profitability in the fourth quarter with 2.1% margins. At the same time, additional detail highlighted a strong order intake and encouraging results at growth subsegments of the automotive division. The company’s tires segment, which is by far its largest in terms of earnings (and in terms of value, in our view), produced results at the high end of guidance thanks largely to a 19.3% increase in contribution from pricing and product mix. While ContiTech and free-cash-flow performance came in shy of expectations, we found the overall result to be encouraging. Looking forward, 2023 guidance called for revenue growth well in excess of our forecasts and continued progress in automotive profitability. We spoke with CEO Nikolai Setzer during the quarter and came away with conviction that management is steering Continental in the right direction and that the company’s financial results will improve due to both internal actions and improvements in external conditions relating to supply chain constraints and light vehicle production.
From David Herro (Trades, Portfolio)'s Oakmark International Fund first-quarter 2023 commentary.
