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
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
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
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.
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