The next time you balm your lips or light a candle, thank a company that's now struggling to make those products profitably.

Following a dismal first-quarter loss of $3.4 million, Calumet Specialty Products (NASDAQ:CLMT) managed a second-quarter gain of $41.8 million. At nearly 12% better than the corresponding 2007 quarter, the results mark a welcome reversal for investors, who've watched shares plummet more than 70% since September 2007. Beneath the surface, however, challenges and red flags still abound.

First and foremost, the company reiterated that meeting its credit obligations is a consideration at this point. While its double-digit dividend yield may be a draw for many investors, Fools should know that Calumet's continued weakness could certainly jeopardize those distributions.

Second, the improved gross profit for the fuels segment that boosted the quarter's results was achieved principally through the liquidation of lower-cost inventory, aka LIFO liquidation. Investors should understand that such profits are pretty much a one-time deal, and that the gains related to the LIFO liquidations aren't sustainable.

The one positive development I observed was a 136% increase in diesel fuel production, while gasoline volumes rose by only 25%. As Valero (NYSE:VLO) indicated recently, the market conditions for diesel fuel are currently much more favorable than those for gasoline.

Looking forward, CAPS member nolaloha assessed the company's outlook as follows:

All refiners have been hit by reduced crack spreads. Calumet in particular has been affected by a poorly managed upgrade to their Shreveport refinery...Expect a lot of volatility, with crack spreads fluctuating, and demand dropping for specialty hydrocarbons.

With the entire industry under substantial pressure, though, I don't like the risks associated with Calumet at this point, and I continue to view big-dog Valero as the lone attractive stock in the space.

I maintain that as profitability throughout the refining industry approaches critical levels, something has to give. Both Tesoro (NYSE:TSO) and Valero have indicated they will operate below capacity. Marathon Oil (NYSE:MRO) is considering spinning off its refining and marketing segment to reduce the drag on overall earnings. It may be a long road to recovery for this sector, but with its debt issues digging potential pot holes, Calumet's journey could be longer than most.

Further Foolishness:

Calumet Specialty Products is a Motley Fool Income Investor recommendation. If income streams float your boat, hop aboard with a free 30-day trial subscription.

Fool contributor Christopher Barker captains yachts and writes about stocks. He can also be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He owns shares of Valero. The Motley Fool has a disclosure policy.