Profit Guidance Sends Caltex Share Price into Nosedive

By ,

Fuel supplier and convenience retailer Caltex Australia Ltd [ASX:CTX] has had its share price value cut by almost a quarter this morning. At time of writing, shares were down 22.02% or $5.94 to trade at $21.04.

This morning’s drop in price is the lowest it’s been since June 2014. Shares in the fuel retailer have been in a steady decline over the past 18 months despite low oil prices.

What’s the damage?

In their unaudited profit guidance released this morning, Caltex have forecast some worrying figures. Core business operations, fuels and infrastructure guidance has been set for $190–$210 million, a stark difference to the $314 million seen at the end of the previous half year.

Excluding their fuel refinery arm, Lytton Caltex, the company forecast $190–$200 million in earnings before tax, which included a $40 million impact from the repricing of a fuel contract with Woolworths Group Ltd [ASX:WOW]. This figure is still down about $9 million from figures in 1H CY2018.

Do you have our #1 income earning stock in your portfolio yet? Visit the infographic on our website here to see what it is (it might surprise you).

The biggest shock comes from profit guidance for the Lytton Oil Refinery located near the port of Brisbane. Expected earnings before tax are given in the range of $0–$10 million, a massive downgrade from the previous corresponding period of $105 million.

According to Caltex, Lytton earnings in 1H 2019 were significantly impacted by US$2 per barrel lower external refiner margins and the previously disclosed outages.

The company’s convenience retail business sector is also expected to underperform by last year’s standards. Caltex has forecast earning between $75 and $85 million, down from $161 million reported in June last year.

Total convenience retail fuels sales volumes are expected to be 2.4 billion litres in 1H 2019, 1–2% lower than the fuels sales in 1H 2018, compared with a 2–3% reduction in industry retail volumes. Retail shop earnings are expected to be largely in line with the prior year.

Caltex Managing Director and CEO Julian Segal said difficult macroeconomic conditions and a slow Australian economy have hampered company performance.

Despite the prevailing negative conditions and heightened fuel competition, Caltex has gained market share in the retail market and held market share in wholesale markets by leveraging our fuel supply chain expertise and our national retail network. Our strategy continues to drive earnings from improvements in the supply chain, with a renewed focus on fuel supply and our convenience retail offer.

An ominous sign for fuel retailing?

CTX’s profit guidance paints a bleak forecast for fuel retailing in the country. Weaker domestic economic activity has impacted domestic demand, including from the transport, agriculture and construction sectors. Combined with a lower external refiner margin, this has created difficult market conditions for both sales volumes and margins.

According to Caltex, total Australian fuels sales volumes are expected to be 8.2 billion litres in 1H 2019, 2% lower than the 8.4 billion litres in 1H 2018. Total fuels sales volumes are expected to be approximately 9.7 billion in 1H 2019, 5% lower than 10.2 billion litres in 1H 2018.

This indicates that Caltex has been able to maintain its market share in the declining market — a small consolation prize for Caltex investors.

With oil prices becoming increasingly volatile, companies like Caltex will find it increasingly difficult to expand their refiner margins.

Current oil prices are a far cry away from the highs we saw in 2008 (reaching a record high of US$145 per barrel) and are still trading well below the 2014 peak of $100 per barrel.

Nevertheless, if fuel retailers like Caltex believe the price of oil is negatively impacting their margins, then they are going to continue to feel the squeeze with OPEC hoping to see prices return to $70 by Q3 this year.

The likelihood of this occurring seems low at the moment, as the oil producing nations continue to bicker about production cuts.


Ryan Clarkson-Ledward,
For Money Morning

PS: With oil prices set to remain volatile, it might be worth checking out another one of the world’s most ‘hated’ commodities. Check out this free report on how this resource could rise from the dead in 2019. Download here.

About Ryan Clarkson-Ledward

Ryan Clarkson-Ledward is an Editor at Money Morning.

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

Ryan is also the Editor…

Rigged! How to Invest in the Lockdown Economy

‘Freeman points out that about 40 per cent of profits of companies on the ASX are generated offshore, insulating them from the worst of the lockdowns.’

Coles Share Price versus Woolworths Share Price: Which is Better?

Two supermarket heavyweights, Coles Group Ltd [ASX:COL] and Woolworths Group Ltd [ASX:WOW] have avoided massive sell-offs in this downturn. Today we look at the Coles share price in comparison with the Woolworths share price, to see which could be sturdier as the months in self-isolation progress.

Woolworths Share Price Down: More Sales than Coles, Owes a Decade of Back Pay

Woolworths released potentially conflicting updates on the ASX this morning, leading to a small loss for the Woolworth’s share price. It will be an interesting day of trading today for Aussie grocery leader Woolworths Group Ltd [ASX:WOW]…

Is Coles’ Share Price Uptrend Signalling a Slow-Down?

The share price of Coles Group Ltd [ASX:COL] has been on a solid run since hitting a 52-week low of $11.12 on 21 February. Before market open today, the grocery giant was only 29 cents shy of its 52-week high, sitting at…

Woolworths Share Price Rises on Merger News | ASX:WOW

Today, Woolworths Group Limited [ASX:WOW] announced an agreement to merge Endeavour Drinks and ALH Group [ASX:AKH] into a combined entity, set to be named ‘Endeavour Group Limited’.At time of writing, Woolworths’ share price is trading at $33.83, up 2.78%. 

Marley Spoon Share Price Climbs 63% with Woolworths Deal

Today, Marley Spoon AG [ASX:MMM] entered a $30 million strategic partnership with Woolworths Group Ltd [ASX:WOW]. Triggering the Marley Spoon Share Price to jump by a whopping 63.6% to 72 cents a share in today’s trading.