Z Energy raises earnings, dividend forecast on crude oil slump

A sharp drop in oil prices late last year helped Z Energy improve its margins. Photo / File

Z Energy has increased its full-year earnings guidance by more than $15 million due to improved margins following the sharp drop in oil prices late last year.

The country's biggest fuel retailer said falling crude prices and resulting reduction in pressure on margins will enable it to deliver operating earnings of between $420m and $450m for the year ending March 31.

In November the firm had cut its guidance to $400-to-$435m, citing pricing pressures.

The firm today also increased its dividend forecast, citing increased December quarter earnings and a more stable outlook for crude oil prices. It is expecting to pay total dividends of between 38 and 47 cents for the year, up from the 32-to-41 cents signalled in November.

Z shares have risen strongly this month and last traded at $5.81. They are down almost 23 per cent during the past year.

Brent crude oil prices dropped more than 40 percent late last year, from about US$86 ($127.33) a barrel in early October to US$51 in late December. March Brent was recently at US$61.36.

Wellington-based Z Energy said its retail and commercial fuel trading improves in a falling crude market.

Lower prices encourage retail customers to buy more fuel, with average fill volumes recently rising to the more typical 28 litres, from a low of 26 litres in the September quarter.

A one-month pricing lag on some commercial fuel sales also advantages the firm when product prices are falling.

The $10m negative impact of rising crude prices on fuel margins that Z disclosed in its first-half earnings "has more than fully reversed" to be a positive $8m "price lead" in the December accounts, the company said in a statement on NZX.

Z Energy said total industry fuel volumes of 2.51 billion litres in the December quarter were 5.2 per cent higher than a year earlier. That growth was primarily driven by commercial markets.

Z group sales, excluding exports and other sales to industry, increased 0.7 per cent.

Industry retail segment volumes fell 3.1 per cent in the quarter, but Z Energy said its volumes were unchanged.

The company said its commercial volumes grew in the quarter, but it lost market share in diesel and jet fuel sales.

"The decline in commercial diesel was from high-volume, low-margin account losses which have been replaced towards the end of the quarter by volume that has improved the portfolio mix."