Caltex hit in supermarket wars
The Australian Competition and Consumer Commission has been reviewing the petrol discount scheme operated by the big supermarket chains, Woolworths and Coles, amid industry-wide criticism it gives them an unfair competitive advantage.
Caltex supplies Woolworths with its petroleum products, giving it a prime exposure to the supermarket wars.
Caltex made the disclosure when unveiling a profit for the June half of $195 million, up from $167 million a year earlier, as it benefited from inventory gains on the oil price movement. Revenue totalled $11.5 billion, down from $11.8 billion a year earlier.
Inventory gains flattered earnings by $24 million in the half, compared with losses of $30 million in the year earlier period.
A steady interim dividend of 17¢ a share was declared.
Earnings per share in the half rose to 72.2¢ from 61.8¢ a year earlier.
Stripping out the impact of oil price movements and profits fell to $171 million on a so-called replacement cost basis from $197 million a year earlier, coming in at the upper end of its recent guidance of $160 million to $175 million.
Supply disruptions at the Lytton refinery in Brisbane and to premium product supplies in Sydney, along with the slide in the Australian dollar, wiped an estimated $20 million off earnings, it said.
The currency alone cost $39 million, which would have been $85 million but for a group policy of hedging 50 per cent of its foreign exchange exposure.
In the supermarket wars, Caltex said Woolworths had been slow in responding to the discounting by Coles, which had pressured deliveries for a time.
By the end of the June half, the discounting had stabilised, with volumes returning to usual levels.
Caltex has consistently refused to signal the extent of the supplies made to Woolworths, only pointing out that while it is an important outlet it acts as a wholesaler, so the margins are modest.
Sales volumes of unleaded fuel and ethanol mix fuels remained soft, Caltex said, although it was continuing to benefit from a shift to sales of premium product for both petroleum and diesel product lines.
Sales of premium petrol rose 4 per cent, and would have topped 5 per cent but for supply disruptions in the Sydney market.
Despite concerns over a slowdown in resource sector activity, Caltex said it was continuing to ship rising volumes to the sector, where it is benefiting from the need to tap deeper ore bodies in both the coal and iron ore sectors as shallower reserves are mined out.
As the ratio of overburden being shifted rises, this is flowing through to rising diesel volumes, it said.
This could lift volumes by as much as 30 per cent.
Analysts were wary of recommending Caltex shares due to "execution risks" in closing Kurnell, earnings volatility from the Lytton refinery and potential for increased marketing competition from rivals.
Frequently Asked Questions about this Article…
Caltex said petrol sales were hit during the June half because Coles ramped up price discounting with its "shopper dockets," which pressured deliveries. Woolworths was slower to respond to that discounting, exposing Caltex to the supermarket price war and temporarily reducing volumes.
Caltex reported a June half profit of $195 million, up from $167 million a year earlier. Revenue fell to $11.5 billion from $11.8 billion. Earnings per share rose to 72.2 cents from 61.8 cents a year earlier.
Yes. Inventory gains inflated reported earnings by $24 million in the half, compared with inventory losses of $30 million in the prior-year period, so the movement in oil prices materially affected the headline profit.
Caltex declared a steady interim dividend of 17 cents a share for the June half.
Caltex said supply disruptions at the Lytton refinery and to premium product supplies in Sydney, together with the slide in the Australian dollar, wiped an estimated $20 million off earnings. The currency movement alone cost $39 million, which would have been $85 million without the company's policy of hedging 50% of its foreign exchange exposure.
Caltex supplies Woolworths with petroleum products, so it is exposed to supermarket competition. It describes Woolworths as an important wholesale outlet with modest margins and said supermarket discounting pressured deliveries until discounting stabilised by the end of the June half and volumes returned to usual levels.
Caltex reported a shift toward premium product sales. Premium petrol sales rose about 4% (they would have topped 5% but for Sydney supply disruptions). On diesel, rising demand from the resource sector — as deeper ore bodies are mined and overburden increases — could lift diesel volumes by as much as 30%.
Analysts were cautious recommending Caltex shares because of execution risks in closing the Kurnell refinery, earnings volatility linked to the Lytton refinery, and the potential for increased marketing competition from rivals in the retail and wholesale fuel markets.
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