German automaker Daimler AG (OTC:DDAIF), the parent company of Mercedes-Benz, said that it will eliminate models and intensify an ongoing cost-cutting effort after posting a loss of 1.56 billion euros ($1.74 billion) for the second quarter of 2019.

The news wasn't a surprise, since Daimler had warned earlier in July that it would post a loss for the second quarter after allowing for costs from diesel-related litigation and the ongoing Takata air bag recalls. 

It was Daimler's fourth profit warning since June 2018.

A dark gray 2019 Mercedes-Benz GLC, a small luxury crossover SUV, on a dirt road near a waterfront.

Softening sales of Mercedes-Benz vehicles in the U.S. and China haven't helped Daimler in 2019. Image source: Daimler AG.

The raw numbers

Metric Q2 2019 Q2 2018

Change   (Decline)

Revenue 42.65 billion euros 40.76 billion euros  5%
Vehicles sold 821,666 833,005 (1%)
One-time items (4.17 billion euros) 418 million euros  -
Earnings (loss) before interest and tax (EBIT) (1.56 billion euros) 2.64 billion euros  -
Net profit (loss) (1.2 billion euros) 1.8 billion euros  -

Data source: Daimler AG. As of July 24, 1 euro = $1.11.

About those one-time items

Despite a decent sales result, Daimler swung to a loss in the second quarter after taking a series of one-time charges totaling about 4.16 billion euros:

  • 2.55 billion euros for expected legal costs related to an ongoing regulatory crackdown on diesel emissions; 
  • 1.15 billion euros for recall-related expenses, most of that for the ongoing global recalls of air bag inflators made by Japanese supplier Takata;
  • 459 million euros for expenses related to a product-line revamp in the Mercedes-Benz Vans division.

How Daimler's business units fared in the second quarter

  • The Mercedes-Benz Cars division, which makes and sells cars and SUVs as well as the small Smart cars, posted an EBIT loss of 672 million euros, down from 1.9 billion euros in the year-ago period, on its share of the one-time charges outlined above. Global sales fell 3% from a year ago, to 575,639, and revenue fell 1% to 22.3 billion euros. 
  • Sales at Daimler's heavy-truck unit, Daimler Trucks, rose 2% to 126,474 vehicles in the second quarter. Revenue rose 14% to 10.5 billion euros, and EBIT rose 33% to 725 million euros.
  • Sales at Daimler's commercial-vehicle unit, Mercedes-Benz Vans, rose slightly from a year ago to 111,118. Revenue rose 4% to 3.7 billion euros, but EBIT fell to a loss of 2.05 billion euros from 152 million euros a year ago, on diesel- and recall-related costs.
  • Daimler bus sales rose 12% from a year ago, to 8,435 units, driving an 18% gain in revenue to 1.3 billion euros. EBIT rose 61% to 106 million euros. 
  • Daimler Financial Services, the company's captive-financing unit, generated EBIT of 431 million euros on a 9% increase in revenue, to 7.1 billion euros. Return on equity was 12.5%, up sharply from 2.1% a year ago. 

What management had to say

Daimler's new CEO, Ola Kallenius, said that the company will get more aggressive about cost-cutting following the second-quarter loss:

Our second-quarter results were mainly impacted by exceptional items of 4.2 billion euros. Therefore, our focus for the second half of this year is on improving our operating performance and cash-flow generation. In general, we are intensifying the Groupwide performance programs and reviewing our product portfolio in order to safeguard future success. At the same time, we are continuing consistently our company transformation.

Looking ahead: revamped guidance for 2019

Daimler maintained its prior full-year guidance for sales and revenue, saying that it still expects groupwide sales to be about equal to its 2018 result (3.4 million vehicles), while its 2019 revenue will be slightly higher than in 2018 (167.4 billion euros). But it now expects its groupwide EBIT to be "significantly below" the 11.13 billion euros it generated in 2018.