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The latest S&P/ASX 200 profit sinners who are threatening the Santa Rally

It’s hard to gear up for the festive season when so many companies have been issuing profit warnings this month.

A string of S&P/ASX 200 (Index:^AXJO) (ASX: XJO) companies have released disappointing earnings updates that shocked the market and are leaving investors wondering if this could threaten the upcoming Santa Rally, which typically sees stocks jump higher at the end of the year and into early 2019.

Viva Energy Group Ltd (ASX: VEA) is the latest profit sinner to warn that it will not make prospectus forecasts this year.

The Viva Energy share price crashed 11.5% to $1.82 during lunch time trade. If the stock finishes the day at this level, it will mark its lowest level since Viva’s listing in July 2018!

The petrol refining and supply group reported today that margins from its Geelong refinery have collapsed by 30% in the past three months to October as the higher crude price and growing gasoline stocks have weighed on regional refineries.

As a result, the company is cutting its forecast 2018 Geelong Refining Margin (GRM) to US$8 a barrel compared to its prospectus forecast of US$9.20 a barrel.

This means its projected underlying earnings before interest, tax, depreciation and amortisation (EBITDA) for the refining division will fall by nearly $67 million to around $150 million for this year on a replacement cost basis (its financial year is the same as the calendar year).

The news is also dragging on its rival’s Caltex Australia Limited (ASX: CTX) share price with the stock falling 1.8% to $26.41 at the time of writing.

Another company facing an earnings chop is Medibank Private Ltd (ASX: MPL) after the private health insurer said it is being booted as the Australian Defence Force (ADF) insurer after holding on to that business for six years.

The operating profit from this contract in FY18 is estimated to be around $30 million while Medibank will likely book $5 million in exit costs to its FY19 profit.

The Medibank share price tumbled 8.7% to $2.53 at the time of writing.

Both Caltex and Medibank join a growing list of companies who have raised the white flag on profits or sales.

Other companies in this sin bin include Myer Holdings Ltd (ASX: MYR), James Hardie Industries plc (ASX: JHX), Lendlease Group (ASX: LLC), Pact Group Holdings Ltd (ASX: PGH) and Ltd (ASX: KGN) – just to name a few.

While some experts believe the profit downgrades are largely driven by company-specific factors, I think the problem with rising costs is affecting almost every sector in FY19.

Fortunately, demand for goods and services are still reasonably strong although it remains to be seen which companies have the power to pass on rising costs.

This characteristic will become an increasingly important determiner of companies that can outperform through 2019.

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has recommended ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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