Recasts, adds analyst comments in paragraphs 5-6 and 10, and share moves in 4

By Nichiket Sunil and Rajasik Mukherjee

Feb 23 (Reuters) - Australia's top fuel retailer Ampol ALD.AX reported a sharp drop in January refining margins on Monday, sending its shares to a more than six-month low, even as annual profit came in slightly ahead of market expectations.

Refining margins at Ampol's Lytton refinery in Queensland fell sharply to $8.13 per barrel in January from $15.14 in the final quarter of 2025, signalling tougher conditions ahead, as rising global inventories and weaker refining conditions pressured product cracks.

For fiscal 2025, refining margins at Lytton jumped 46% to $10.34 per barrel due to global outages and additional sanctions on Russia, helping the unit return to profit.

Ampol shares slid as much as 4.7% to A$27.62, hitting their weakest level since August 14, while the benchmark index .AXJO was down 0.7%, as of 0426 GMT.

"Despite strong FY25 numbers, the selloff in Ampol looks more like a forward-earnings reset than disappointment with the result itself," said Greg Boland, market strategy consultant at Moomoo Australia.

"Investors are focused on the sharp drop in Lytton refining margins... a signal that peak refining conditions may already be behind us."

Ampol posted full‑year net profit after tax from continuing operations of A$429.2 million ($303.40 million) on a replacement‑cost basis, slightly above the Visible Alpha consensus of A$428.5 million and 83% higher than last year’s A$234.8 million.

The Convenience Retail division, which operates more than 1,700 fuel and convenience outlets in Australia, reported a 5% rise in underlying operating earnings to A$373.7 million, helped by higher fuel volumes despite lower tobacco sales.

The Fuel & Infrastructure (F&I) division, which houses Lytton, reported annual underlying operating earnings of A$405.6 million, more than double of the prior year.

"Because Fuels & Infrastructure drove much of the earnings growth, any sign of softer margins quickly feeds into lower FY26 expectations," said Greg.

Ampol declared a final dividend of 60 Australian cents per share, higher than the 5 Australian cents declared last year.

($1 = 1.4146 Australian dollars)

(Reporting by Nichiket Sunil, Rajasik Mukherjee and John Biju in Bengaluru; Editing by Edmund Klamann, Diane Craft and Subhranshu Sahu)

((John.Biju@thomsonreuters.com;Nichiket.Sunil@thomsonreuters.com))