Z's profit decline comes at a time when motorists have been paying record pump prices across the country of more than $2.50 per litre.
Revenue for Z's half-year result to the end of September rose from $2.12billion a year ago to $2.67billion.
Its reported replacement cost of earnings before interests, tax, depreciation and amortisation declined 21%, from $221million a year ago to $175million, while replacement-cost after-tax profit slumped 31%, from $105million a year ago to $72million.
Z's ebitda guidance range for the full year was downgraded from $420million-$455million to $400million-$435million.
Z chief executive Mike Bennetts said the trading environment was the "most challenging" since Z Energy, formerly Shell, started operating eight and a-half years ago.
The recent record price resulted from a combination of crude oil prices rising 25%, a 9% weakening of the New Zealand dollar against its US counterpart and increased government fuel taxes, both nationally and regionally, he said.
"These sustained high prices have resulted in a decrease in retail demand," he said in a statement.
Forsyth Barr broker Damian Foster said the half-year result was "weak" and Z had underperformed against last year by about $44million.
He said $26million was due to lower margins, which would continue as the main threat for the remainder of the trading year.
Another $27million was because of a New Zealand Refinery maintenance outage and the resultant extra fuel imports. This came on top of an earlier $5million pipeline outage, resulting in "effectively a $32million hit", compared with Z's $20million prediction.
"There's no doubt that this is a disappointing result," Mr Foster said.
"Most disappointing" was the 12.5c per share dividend, which while 2.1c higher than a year ago, did not support Z's earlier dividend guidance of 50c-55c for the full year.
Z's ability to pay more than 50c was now "a big if ", Mr Foster said.
Craigs Investment Partners broker Peter McIntyre said the downgraded guidance implied a dividend in a range of 45c-50c, against Craig's estimated 50c.
"This was a noisy result. Competitive pressures are worse than expected.
"But the share price reflects more negative outcomes than what has been reported," Mr McIntyre said.
Z's shares fell 4.75% to $5.81 following the announcement, which was 16.7% down on a year ago.
During the half year, Z sold 1.96 billion litres of fuel, similar to the same period a year ago.
Mr Bennetts outlined Z's profit margins, saying replacement-cost after-tax profit per litre fell from 5.3c a year ago to 3.7c.
Z's fuel unit profit margin - the margin before operating costs and corporate tax are applied - declined from 17c per litre last year to 15.5c.
He reiterated yesterday that Z's "financial returns are not excessive given the complexity of the business" and were on a par with overseas fuel companies.
While two Government reports during the past year on fuel pricing have been inconclusive, early last month Prime Minister Jacinda Ardern said motorists were being "fleeced", the comment coming amid increasing government and regional taxes.
Ms Ardern has prioritised the passing of the Commerce Amendment Bill to amend the Commerce Act to allow the Commerce Commission to undertake market studies, the fuel markets being a "priority area", Ms Ardern said in early October.
