The Caltex Australia Limited (ASX: CTX) share price took a spill even as the broader market rallied as the fuel supplier and retailer posted a steep drop in half-year earnings.

But the profit decline isn’t the key issue that’s sparking a 4.7% dive in the CTX share price to $24.64 during lunch time trade while the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index is gaining 0.6%.

It isn’t even so much the drop in the oil price on hopes of a new Iran-US peace deal, which is holding back the Santos Ltd (ASX: STO) share price and Oil Search Limited (ASX: OSH) share price, that’s the problem.

No fuel for the fire

The real issue is the lack of an inspiring outlook for Caltex, in my view.

This isn’t to say the near halving in the 1HFY19 replacement cost of sales operating profit (RCOP) earnings before interest and tax (EBIT) to $255 million isn’t disappointing in that it shows the big task ahead for management.

The two key divisions posted a decline too – namely Fuels & Infrastructure (F&I) and Convenience Retail (CR) – with the latter posting a bigger percentage decline.

Never mind that interim RCOP net profit of $135 million was at the higher end of management’s guidance due to good cost cutting with management aiming to trim $100 million per year in operating expenses by the end of 2020.

The thing is, you can’t cut to grow and growth is an elusive thing for Caltex as it looks for new ways to stay relevant as the popularity of electric vehicles is tipped to surge.

How Caltex plans to turnaround its fortunes

Management is banking on convenience retail to win back investors as it plans to roll out new outlets and buy-back franchise stations.

“Around 500 sites within the company-controlled network have been identified to deliver strong returns from an enhanced convenience offer, with clear opportunities to deliver growth through disciplined execution,” said Caltex in its ASX results statement released today.

“Around 50 metropolitan freehold sites have also been identified as being able to deliver a higher value through alternative use and will be divested in tranches commencing in 2H 2019.”

The problem is I haven’t seen anything particularly inspiring about its strategy, particularly given the competition it’s likely to face from Viva Energy Group Ltd (ASX: VEA) and chains like BP which struck a deal with David Jones to serve gourmet food at selected stations.

The question is why would Caltex have an edge over the competition when it comes to convenience retailing – and if I even could answer that, I will have a more bullish take on the group.

In the meantime, talk about its balance sheet strength, attractive valuations and dividend (which was cut from 57 to 32 cents a share) doesn’t seem all that relevant.

There are better value stocks to focus on.

Extracted from Motley Fool