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TWE predicts stronger results in future

19 February 2024 By Ron Emler

Optimism is rising at Treasury Wine Estates despite muted first half results and a cut in dividend, as CEO Tim Ford says its American division will pick up pace.

In the six months to the end of December net profit slipped by 11.4% to AU$166.7 million compared with the same period in 2022, largely due to a further poor performance in North America, where sales fell by 17.5%.

At this time last year Treasury lowered its half-year dividend by 1¢ to 18¢ and it has made an identical cut this year.

But investors were encouraged and Treasury’s shares rose to a three-month high on the expectation that the group has passed the nadir of its fortunes following the perfect storm of Covid shutdowns and China’s associated imposition of punitive tariffs on Australian wines.

Analysts pointed out that following the resultant drastic restructuring, over the past three years earnings per share have risen by an average 10% but the shares have gone up by just 1% a year.

US strategy

Treasury predicts stronger results in the second half and repeated its forecast for mid- to high-single-digit organic earnings growth in the full year to the end of June.

Chief executive Tim Ford said that core profit figure for the half-year met his expectations and marked a low point in its American operations that would not be repeated.

The American division has been a headache for Penfolds for many years but Mr Ford believes the disposal of commodity lines to focus on premium bottles is about to deliver improved results, especially following the $1 billion purchase of Daou Vineyards in December.

That, Mr Ford said, was “already showing promise” and he has hopes Daou will become a global super-premium brand to stand beside Penfolds in the portfolio.

Some 98% of Daou’s sales are in the US but Mr Ford said there were many US states where it was under-represented.

“We’ve got a lot of runway to build distribution,” Mr Ford said.

Miserable results

The results from the American division, where margins slid to 20.8% from 24.1%, were described as “miserable” by one analyst.

But Mr Ford said they marked a low point.

“We expect the stabilisation of 19 Crimes,” he said. “It’s a brand that is standing the test of time.”

The North American business also suffered from higher costs, in part because of the low 2020 grape harvest in California where fires hit yields.

Mr Ford said wines from the more abundant 2021 harvest would become available. “We have more wine to sell,” he said.

Treasury Wine is also working on a potential restructuring in the US, with sales and marketing of the luxury wines to become a stand-alone division this summer.

It is also assessing the merits of a global premium wine unit representing brands such as Wynns, Seppelt, Matua, 19 Crimes and Sterling Vineyards.

Everything was “on the table,” Mr Ford said.

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