At time of writing, Caltex Australia Ltd [ASX:CTX] shares are trading at $25.46 on the back of the release of their year-end unaudited profit guidance for 2018.
The disturbing results in the profit guidance report is likely the cause for this 5.8% drop in share price.
It seems the ‘year in which we [Caltex] established solid foundations for sustainable growth’ failed to spark hope and/or confidence in current investors.
In the past, investors have enjoyed great results from resource stocks like Caltex. But a changing market can disrupt this, as we’ve seen in Caltex’s falling shares.
That’s why Markets & Money analyst Jason Stevenson believes your best bet in 2019 may come from smaller, more speculative stocks — read more about it here for free.
Caltex Share Price says profit guidance isn’t ideal
The report revealed losses in multiple areas.
Historic Cost Profit after tax — that is, profit based on the original cost of the company — now sits between $530–$550 million. When compared to 2017’s figure of $619 million, we’re seeing a troubling 13% decrease in a matter of 12 months.
The Fuels & Infrastructure sector also suffered a hit. Despite being the target in which ‘significant progress’ was supposedly made in 2018, Earnings Before Income Tax (EBIT) of the sector went from $666 million in 2017 to $560–$580 million this year. Calculating at the midpoint of this range, that’s a drop of a round 15%.
Caltex insisted in the report that this poor result ‘was due to the impact of lower regional refining margins more than offsetting the strong underlying business performance’.
One such margin is sure to be the Lytton Refinery up in Brisbane — which Caltex owns and operates — suffering unplanned third-quarter outages this year. Lytton’s EBIT sat between $155–$165 million this year. That’s almost a 49% decline compared to the 2017 figure of $328 million.
And yet, Managing Director and CEO of Caltex, Julian Segal remained confident in the progress the company managed to make this year.
Caltex CEO happy with the results
Included in the report were comments by Segal herself.
She noted that excluding the Lytton refinery results, the Fuels & Infrastructure sector earnings managed to increase by 21% within the past 12 months.
Additionally, this sector ‘increased international sales volumes by 34% and Australian domestic sales volumes by 2%, and successfully extended the contract supply…to Woolworths’ sites for a further 15 years’.
This year, Caltex also acquired 20% interest in Seaoil in the Phillipines, and received a full year’s earnings contributions from Gull New Zealand, which ‘have underpinned our strong international growth’.
‘The ongoing transition of franchise sites to company operations is on track, with agreements in place that will see Caltex control over 98% of our network by the end of 2020.’
Profit declines tend to be a worrying sign for investors in a company. However, as Caltex have marked 2018 as a year to set up future growth, it’s difficult to determine whether these declines reflect any negativity for the company.
Either way, it will be what plays out in 2019 that will give investors the answer.
For Money Morning
PS: With 2019 just around the corner, a new year’s resolution of yours may be to step up your investment game. Well, we have the perfect free video masterclass series that will show you just how you can do that. Hear from Sam Volkering, one of our analysts, on how he believes you can capture more Aussie stock gains in a single year than most investors do in 10 years. Click here to watch now.