In a preliminary look at its 2019 results, German automaker Daimler AG (OTC:DMLRY) said that its full-year 2019 profit fell by half from a year ago, worse than expected, and that it faces further charges of up to 1.5 billion euros ($1.7 billion) related to diesel-engine emissions. 

We won't have all the details until next month. But here's what Daimler said, and some thoughts on why it's worrisome. 

What Daimler said: a big drop in earnings in 2019

Here's what Daimler said in its preliminary 2019 earnings release:

  • Daimler's overall earnings before interest and tax (EBIT) were 5.6 billion euros ($6.2 billion) in 2019, down from 11.1 billion euros in 2018.
  • That does not include additional expenses for legal and regulatory actions related to diesel-engine emissions in various parts of the world. Daimler is estimating that the total of those expenses will fall between 1.1 billion euros and 1.5 billion euros.
  • Most of that charge will fall on the Mercedes-Benz Cars and Mercedes-Benz Vans divisions.

Daimler also released preliminary EBIT and EBIT margin figures for each of its divisions. Again, these do not include those additional diesel-related charges.

  • Mercedes-Benz Cars, which makes the familiar Mercedes-Benz luxury vehicles, generated EBIT of 3.7 billion euros for 2019, down from 7.2 billion euros in 2018. Its EBIT margin was 4%, down from 7.8% a year ago.
  • Daimler Trucks, the company's heavy-trucks unit, had EBIT of 2.5 billion euros, down from 2.8 billion euros a year ago. Its EBIT margin was 6.1%, versus 7.2% in 2018.
  • Mercedes-Benz Vans, which makes Mercedes-Benz-brand commercial vehicles, posted an EBIT loss of 2.4 billion euros, versus an EBIT profit of 0.3 billion euros a year ago. Its EBIT margin was negative 15.9%, versus 2.3% in 2018. That result includes about 300 million euros in one-time costs related to an ongoing revamp of the unit's product portfolio. Daimler warned that the unit's EBIT margin will be lower than negative 17% once the diesel expenses are included. 
  • Daimler Buses, which makes commercial and school buses under several brands, posted EBIT of 0.3 billion euros, flat from a year ago. Its EBIT margin was 6%, up 0.1 percentage point from 2018.
  • Daimler Mobility, the future-tech unit, generated EBIT of 2.1 billion euros, up from 1.4 billion euros a year ago. Its EBIT margin was 15.3%, versus 11.1% in 2018. That result includes one-time expenses of about 300 million euros for a restructuring at YOUR NOW, an urban-mobility joint venture between Daimler and BMW AG. 

Daimler will release its complete fourth-quarter and full-year 2019 earnings on Feb. 11.

A 2019 Mercedes-Benz GLE, a midsize luxury crossover SUV.

Mercedes-Benz Cars' sales rose 1.3% in 2019, paced by strong demand for its new GLE crossover. But profits fell sharply from a year ago. Image source: Daimler AG.

How many more surprises are there? 

This news is a surprise, given that Daimler already took a big charge, 2.55 billion euros in the second quarter of 2019, ostensibly to cover diesel-related legal expenses. It's also a surprise in the sense that Daimler's Mercedes-Benz Cars unit posted record deliveries in 2019, and it would have been reasonable to expect a stronger result.

But that said, Daimler warned in July that its full-year EBIT would be "significantly below" its 2018 result, and that wasn't wrong.  

The thing is, this is Daimler's fifth profit downgrade since the beginning of 2018, and the third under its still-new CEO, Ola Kaellenius. At this point, auto investors have to be wondering if Daimler's management team really has a grip on its diesel-related exposure -- not to mention the huge ongoing costs of revamping its product portfolio to accommodate electric drivetrains and advanced technologies. 

I suspect that Kaellenius will have a lot of difficult questions to answer when Daimler delivers its full report on Feb. 4, and I expect that investors will be listening closely.