The share price of Caltex Australia Limited (ASX: CTX) is down 18% to $22.22 at the time of writing after announcing profit guidance for the half year ended 30 June 2019.
The petroleum refiner and service station operator announced this morning that its replacement cost operating profit (RCOP) is projected to be in the range of $120 million to $140 million. This would represent a 56% decline at the midpoint from the $296 million RCOP it reported in the prior corresponding period.
Management attributed the profit decline to difficult macroeconomic conditions such as the slowing Australian economy, low refining margins and higher crude prices in conjunction with a lower foreign exchange rate. This has created a difficult operating environment for the industry in both sales volumes and margins. Industry sales volumes are down around 2% compared to the prior corresponding period.
Refinery issues
Caltex's Fuels and Infrastructure division is expected to report earnings before interest and tax (EBIT) in the range of $190 million to $210 million for the first half. At the midpoint of guidance, this is 38% below the $314 million EBIT reported in the prior corresponding period.
The main culprit was Caltex's Lytton refinery which is expected to report EBIT in the range of zero to $10 million, a 95% decline at the midpoint from the $105 million in EBIT generated in the prior corresponding period. The underperformance has occurred primarily due to lower external refiner margins and previously disclosed outages.
Excluding Lytton, Fuels & Infrastructure EBIT is expected to be between $190 million and $200 million. This is only slightly lower than the prior corresponding period and would have improved if not for the approximately $40 million negative EBIT impact from the repricing of the EG Group (Woolworths) fuel supply contract.
Retail struggles
Caltex expects to report a first-half EBIT result at its Convenience Retail business in the range of $75 million to $85 million. This would represent a 50% decline at the midpoint of guidance when compared to the $161 million in EBIT generated in the prior corresponding period. Management attributed the underperformance to a more competitive landscape and the challenging conditions in the retail diesel market that are impacting margins.
As a result of all of the above issues, Caltex's share price plunged to a 5-year low of $20.52 in morning trade. Listed rival Viva Energy Group Ltd (ASX: VEA) is also down 8% to $2.06 at the time of writing in response to Caltex's announcement.
