May 5, 2011 5:58 AM EDT
Continental said rising rubber prices will dent earnings as it posted a 62 percent rise in quarterly net profit on the back of surging emerging markets demand.
The Hanover, Germany-based supplier of auto parts and tyres on Thursday said its first-quarter net profit rose to 368 million euros ($547 million) but warned that raw material costs have not fully filtered through to the bottom line.
"The burden will increase in the second quarter," Chief Financial Officer Wolfgang Schaefer said in an interview on Thursday.
In the first quarter, rising raw material prices dampened profits by 257 million euros.
For the full year, higher costs -- of natural rubber in particular -- are expected to dent profits by more than 700 million euros, Schaefer said, adding that the company is considering additional price increases for customers following two price hikes this year.
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The price of natural rubber has risen from $3.45 per kilogram last year to an average price of $5.30 between January and April, Schaefer said.
Net debt rose to 7.6 billion euros, from 7.3 billion euros at the end of December to fund a seasonal increase in production of summer tires.
It added it aims to generate at least 500 million euros of free cash flow and reduce net debt to less than 7 billion euros by the end of the year.
Profits in the auto sector have been lifted by surging demand for German premium automotive products in China, helping companies such as BMW Daimler and Volkswagen.
Continental, which recently opened a tyre plant in China's Hefei, Anhui province, said on Thursday it had added 1,000 jobs in China during the quarter and planned to create another several thousand jobs this year.
Continental said it remained on track to achieve full-year targets of a 10 percent increase in sales to more than 28.5 billion euros with a stable adjusted EBIT margin.
At 0823 GMT, Continental shares were down 2.6 percent.
Late last month, Continental published key first-quarter results, saying its earnings before interest and tax (EBIT) rose almost 30 percent to 634 million euros in the period.
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