Caltex shares copped a hiding yesterday after it shocked the market by revealing that its expected June half earnings had been battered by the surge in oil prices and the plunge in the value of the Aussie dollar and that earnings would more than halve overall.
The shocking was the news from Caltex that it is now expecting only a tiny profit at best at its only Australian oil refinery at Lytton in Brisbane in the six months to June, as well as weak results elsewhere in the business from its fuels and infrastructure division (outside of Lytton) and the convenience stores chain.
The company signalled this by telling the market to expect a slump in profit for the half year.
Caltex said it now expects its half-year replacement cost operating profit to be $156 million less, than the result for the first half of last year
Its historical cost profit is expected to come in around $150 million to 4180 million, less than half the $383 million for the June half of 2018.
The net profit figure most closely watched by the market is set to more than halve for the six months to June, to $120 million-$140 million, down from $296 million posted in the first half of 2018, Caltex told the ASX
Earnings before interest and tax at the Lytton refinery will be between zero and $10 million, down from $105 million in the same half of 2018.
That saw the shares plunge 24% at one stage to a low of $20.52 before the bounced a little to close down more than 13% at $23.40.
The news also saw shares in another oil refiner and marketing group, Viva Energy (which controls the Shell operations here) saw its shares slump more than 8% to $2.06 in the wake of the Caltex shocker.
CEO Julian Segal claimed in yesterday’s statement that Caltex had “delivered a fair underlying performance in a very challenging market”.
“1H 2019 has presented extraordinary challenges for the industry,” He said.
“Weaker domestic economic activity has impacted domestic demand, including from the transport, agriculture, and construction sectors. Combined with a lower external refiner margin and the high price of crude, this has created difficult market conditions for both sales volumes and margins. Industry sales volumes are down ~2% compared with 1H 2018.”
The convenience store business will see a rotten performance with it expected to deliver an earnings before interest and tax (EBIT) result in the range of $75 million to $85 million in the June 2019, around 50% lower than the EBIT result of $161 million in the same period of 2018.
This, in particular, is poor given that Caltex is spending hundreds of millions of dollars taking back control of the convenience store business after being exposed in a wage theft scandal involving some of its franchisees.
The Fuels and Infrastructure operation “is expected to deliver an EBIT result in the range of $190 million to $210 million for 1H 2019, below the $314 million EBIT result in 1H 2018.”
“F&I (ex-Lytton) EBIT is expected to be between $190 million and $200 million in 1H 2019, which is down only slightly compared with 1H 2018 and would have improved on the previous corresponding period if not for ~$40 million negative EBIT impact from the repriced EG Group (Woolworths) fuel supply contract.”