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Aston Martin Profit Drops Less Than Expected As Investors Await a New SUV

By John Rosevear - Nov 7, 2019 at 3:08PM

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Six brand-new old cars made the difference.

British supercar maker Aston Martin ( AML ) said that its third-quarter operating profit fell 58% from a year ago, to 10.5 million British pounds ($13.5 million), on weaker sales ahead of the launch of an important new SUV model. 

But that was still enough to beat Wall Street's expectations, thanks to the sale of six remakes of an all-time classic Aston Martin model.

The raw numbers

Aston Martin reports its results in British pounds. As of Sep. 30, the last day of the third quarter, 1 British pound = about $1.23.

Metric Q3 2019 Change (Decline) vs. Q3 2018
Revenue 250.1 million (11%)
Vehicles shipped (wholesale) 1,497 (16%)
Adjusted EBITDA 47.7 million (12%)
Adjusted EBITDA margin 19.1% 0.2 pp lower
Adjusted EBIT 13.4 million (51%)
Operating profit 10.5 million (58%)
Adjusted earnings (loss) per share (0.048) 0.065 lower

Data source: Aston Martin Lagonda Holdings. EBITDA = earnings before interest, tax, depreciation, and amortization. EBIT = earnings before interest and tax. "Adjusted" figures exclude one-time items, in this case noncash charges of 2.9 million pounds for restructuring charges and employee incentives predating the company's initial public offering in October 2018. Aston Martin had one-time charges totaling 1.9 million pounds in the third quarter of 2018. Pp = percentage points. 

Why Aston Martin's profit fell, and why it beat expectations

Investors had expected Aston Martin's third-quarter profit to fall from the third quarter of 2018, when two brand-new models generated a sales boost. But Aston did better than expected, in part because it delivered the first six (of a planned 19) DB4 GT Zagato Continuation models before the end of the quarter. 

These are handmade recreations of an iconic Aston Martin sports car from the early 1960s, priced at 6 million pounds each -- which almost certainly deliver over 1 million pounds of EBIT per car. All 19 cars in the planned production run have been sold; the remaining 13 will be delivered in the fourth quarter, CEO Andy Palmer said.

A green Aston Martin DB4 GT Zagato Continuation, shown during final assembly at Aston Martin's factory.

Aston Martin said that it will complete and deliver a total of 19 DB4 GT Zagato Continuation models by the end of the year. Image source: Aston Martin.

What Aston Martin's CEO had to say

In a statement, Palmer made a few important points:

  • Tough market conditions in the U.K. and Europe have put the company's sales behind expectations for the year to date. 
  • The higher-priced DB11 and DBS Superleggera are doing well. But the Vantage, Aston's least expensive model, competes in a declining market segment. While it has gained market share, total sales have been below plan. The Vantage accounts for roughly two-thirds of total sales.
  • The upcoming DBX is Aston Martin's first SUV, and (it hopes) an important future generator of profit. It's on track to begin production in the second quarter of 2020, as planned. 
  • Aston has been showing the DBX to customers at private events, and early orders have been strong. The final production version will be revealed to the public in Beijing on Nov. 20.
  • The company is working to cut costs, and will continue to do so in 2020. 

Also of note to investors:

  • Aston had 110 million pounds in cash remaining on Sep. 30. That doesn't include any proceeds from a private placement of $150 million in senior secured notes, announced in late September, that closed successfully on Oct. 8. 
  • Debt stood at 800 million pounds as of Sep. 30, up from 560 million pounds at the end of 2018.

Looking ahead 

The company lowered its deliveries guidance somewhat for 2019. For the full year, it now expects wholesale shipments to fall below the previous guidance range of 6,300 to 6,500 vehicles as it works to lower dealers' inventory levels, but to come in "within the range of market expectations." 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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