Car parts maker Continental AG believes it can increase sales by as much as 10 percent this year and perhaps be profitable on the bottom line, as it posted a better-than-expected swing to profit in the first quarter.

Carmakers slashed production levels radically last year to preserve cash, driving Tier 1 suppliers like Bosch and Continental deep into the red while pushing smaller firms such as Edscha and Karmann to the brink of insolvency and beyond.

Heavy restructuring charges and goodwill impairments dragged Continental into the red in 2009.

Chief Executive Elmar Degenhart reaffirmed the group's full-year targets on Wednesday during the annual shareholder meeting but said the company could exceed them.

It is not yet possible to say how the European automotive industry will develop in the second half of the year... (but) if the development on the markets continues to be as positive as it has been so far, we even have a chance of increasing sales by as much as 10 percent, Degenhart told shareholders.

In February, Continental, the world's third largest automotive parts producer, said it expected sales growth of at least 5 percent and a significant year-on-year improvement in adjusted operating profit in 2010, although little progress would be made in further reducing its 7.85 billion euros in net debt following a rights issue.

In terms of net profits attributable to shareholders, a return to the black is within sight, Degenhart said.

Citibank noted the target increase.

There is, we feel, an implicit upgrade to expectations with it indicating that it has a chance to increase sales by as much as 10 percent, which is certainly not in market numbers, Citibank told its investors.

Continental's upbeat stance mirrors that of close rival and industry leader Bosch, which said last week that a demand in all regions was on the rebound and forecast sales would almost entirely recover from last year's crisis.


Continental shares jumped initially but heavy losses in the broader equities market pushed it back down. At 1104 GMT, the stock was down 0.97 percent at 41.87 euros, outperforming the European car sector, which was off 1.9 percent

Morgan Stanley cautioned investors not to read too much into Wednesday's statements, since few in the industry can reliably predict how far the European car market might fall once government-sponsored scrapping incentives run out.

Investors will want more clarity on cash flow to assess the earnings quality, the bank wrote, adding that lack of visibility into second-half results raises questions about the sustainability of the strong H1 results.

Continental had earnings before interest and tax (EBIT) of 494 million euros in the first three months of the year, a swing from a 165 euros loss the previous year.

Nearly two-thirds of the profits came from its tires and rubber businesses, although they only account for about a third of overall sales.

Group revenue jumped by 1.7 billion to about 6 billion euros.

Last year's industry crisis was particularly painful for parts makers directly supplying carmakers, since vehicle production levels plunged even faster than demand as manufacturers slimmed inventories and conserved cash.

($1=.7508 Euro)

(Additional reporting by Jan Schwartz in Hanover; editing by Karen Foster)