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Why the Caltex Australia share price has been smashed today

In morning trade the Caltex Australia Limited (ASX: CTX) share price has been smashed following the release of its profit guidance for the year ending December 31.

At the time of writing the fuel retailer’s shares are down 7% to $25.13.

What does Caltex expect to report in FY 2018?

According to the release, the company’s Fuels & Infrastructure segment is expected to deliver an EBIT result in the range of $560 million to $580 million for FY 2018. This compares to a segment EBIT of $666 million in FY 2017.

The reason for the decline in EBIT has been the underperformance of the Lytton refinery this year. This business is expected to post a 51% decline in EBIT in FY 2018 due largely to a lower Caltex Refer Margin and an unplanned outage in October.

Excluding this business, the Fuels & Infrastructure business would have posted an increase of approximately 21% year on year.

Another drag on its results this year has been its Convenience Retail segment which is expected to post EBIT of between $295 million and $305 million in FY 2018. While this is ahead of its previous guidance, it will be a decline from $334 million a year earlier.

The segment has outperformed previous guidance due to the favourable impact of falling crude and product prices in the fourth quarter.

As a result of this, the company advised that it expects Replacement Cost Operating Profit (RCOP) net profit after tax to be between $533 million and $553 million in FY 2018, compared with the consensus estimate of $552 million and FY 2017’s $638 million.

Should you invest?

While FY 2018 looks set to be a disappointing year for Caltex, I think its shares have fallen to an attractive level today.

At under 12x estimated full year earnings, I think Caltex could be a good option considering the recent pullback in oil prices and its plans to expand its Convenience Retail business significantly over the coming years.

In light of this, I would sooner buy its shares ahead of energy producer’s such as Santos Ltd (ASX: STO) and Woodside Petroleum Limited (ASX: WPL).

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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