Not even the lure of a higher dividend payout ratio nor the dangling of capital management initiatives has been enough to offset scepticism from Caltex shareholders about the wisdom of its restructuring strategy.

The market had already been tough on Caltex this year with its shares falling about 26 per cent since March. And Tuesday, in the midst of a market slump, was an unfortunate day to update shareholders on the fact that earnings were going to be even softer than expected.

The share price was further brutalised to the tune of 6.5 per cent before closing down 5.5 per cent at $25.57.

Caltex’s longtime boss, Julian Segal, has a vision to reshape the fuel and convenience retailer and refiner – one which he is convinced will set it up for long term and sustainable growth.

It requires investment from Caltex but also patience (and trust) from investors that expanding into new convenience food store models will be embraced by consumers.

Caltex said on Tuesday it was on track to report a replacement cost operating profit (the company’s measure) of between $530 million and $553 million.

Even if Caltex hits the top end of this forecast, it will only just make analysts’ consensus.

If it comes in the middle of the range it will be 15 per cent less than the 2017 full-year earnings.

The result will reflect international acquisitions made by Caltex in the Philippines and New Zealand, which has boosted this division’s international sales volume by 34 per cent.

Supplying the international market was a key plank of the company’s strategy.

This is clearly a positive but one-off troubles in its Lytton refinery in Queensland and weaker a refining margin were an earnings drag.

The convenience retail is the division that has been of most interest to shareholders. The company will exceed the 2018 guidance it provided a few months ago but profit will be below that of the previous year.

Its move away from the franchise model and higher fuel prices have both taken a toll.

Segal maintains the move away from the franchise model was needed to provide Caltex with the control it needed to updating the retail division.

But it’s the rollout of the new format Foodary stores that will also test Segal’s execution skills. The lure for customers will be an array of fresh and ready made meals to go. And there are now 55 of these stores up and running.

In addition Caltex is furthering its partnership with Woolworths on loyalty rewards and redemptions as well as on the creation of Woolworths’ Metro sites.

Caltex has already said it will be looking to grow the convenience division’s earnings by $120 million to $150 million in five years.

Investors now need to make a judgment on whether the restructured Caltex can fullfil the Segal vision. Some have already voted with their feet.

Extracted from Sydney Morning Herald