British supercar maker Aston Martin (LSE:AML) said it swung to a loss in the first half of 2019 as lower demand in Europe, a planned increase in spending, and a weaker "mix" of products sold more than offset the benefits of higher retail demand in the U.S. and China. 

On a pre-tax basis, Aston Martin lost 78.8 million British pounds ($96 million) in the first half of 2019, versus a profit of 20.8 million pounds in the first half of 2018. The company also cut its full-year guidance for wholesale shipments on weaker orders in the U.K. and Europe. 

Aston Martin's shares fell sharply in trading in London after the news was released.

A dark silver Aston Martin DBS Superleggera is parked near an open field.

Wholesale shipments of V-12-powered Aston Martins rose 6.9% in the first half of 2019, helping mitigate an unfavorable shift in mix. Image source: Aston Martin Lagonda Holdings Ltd.

The raw numbers

Aston Martin reports its results in British pounds. As of June 30, the last day of the second quarter, 1 British pound = about $1.26.

Metric H1 2019 Change vs. H1 2018
Revenue 407.1 million (4%)
Vehicles shipped (wholesales) 2,442 6%
Adjusted EBITDA 22.0 million (79%)
Adjusted EBITDA margin 5.4% 19.3 ppts lower
Adjusted EBIT (35.2 million) 99.6 million lower
Pre-tax profit (loss) (37.7 million)  102.1 million lower
Earnings (loss) per share (0.28) 0.323 lower

Data source: Aston Martin Lagonda Holdings Ltd. "EBITDA" is earnings before interest, tax, depreciation, and amortization. "EBIT" is earnings before interest and tax. "Vehicles shipped" are wholesales. "Adjusted" figures exclude one-time items, in this case non-cash charges of 2.5 million pounds for employee incentives predating the company's initial public offering in October 2018. Aston Martin had no one-time items in the first half of 2018.

What happened at Aston Martin in the first half of 2019

  • Retail sales rose 26% on good demand for the V-8-powered Vantage and V-12-powered DBS Superleggera models. 
  • The decline in revenue was due to unfavorable shifts in the mix of products sold: fewer ultra-high-priced "Specials," more of the lower-margin core V-8 models. Wholesale average selling price was 145,000 pounds in the first half of 2019, down from 167,000 pounds in the year-prior period.
  • Wholesale demand was very good in the Americas (up 54%) and in China (up 39%), but much weaker in Aston's core markets, the U.K. (down 17%) and mainland Europe (down 19%).  
  • As planned, operating expenses rose 21% to 164 million pounds. The increased spending went toward future products, the company's new factory in St. Athan, Wales, and hiring to support future growth.

What management had to say

CEO Andy Palmer has been working on a long-term turnaround for Aston Martin for several years. The plan involves a range of new models, including some in new market segments, intended to ensure that the company remains sustainably profitable.

Full results of the plan won't be seen for a few more years. But some of the intermediate steps have proven difficult -- and those difficulties have been exacerbated by weakness in Aston's home markets, the U.K. and mainland Europe.

"We are disappointed that our projections for wholesales have fallen short of our original targets impacted by weakness in two of our key markets as well as continued macro-economic uncertainty," Palmer said. "Accordingly, we have taken action to reduce wholesale guidance for 2019. We are also improving efficiency across the business, while protecting the brand."

Looking ahead

Aston Martin cut its full-year guidance. For the full year, it now expects:

  • Wholesale shipments of 6,300 to 6,500 vehicles (previous 2019 guidance: 7,100 to 7,300. 2018 result: 6,441).
  • Adjusted EBITDA margin of about 20% (previous guidance: 24%. 2018: 22.6%).
  • Adjusted EBIT margin of about 8% (previous guidance: About 13%. 2018: 13.4%).
  • Capital expenditures and research and development spending totaling about 300 million pounds (previous guidance: Between 320 million pounds and 340 million pounds. 2018: 311 million pounds).

Palmer reiterated that because the company expects to begin shipping new, high-priced "Special" models later this year, and because it expects its fixed-cost run rate to fall as the year unfolds, the company will likely deliver better bottom-line results in the second half of 2019, particularly in the fourth quarter.

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