Shares in Treasury Wine Estates (ASX: TWE) were around 5% lower in afternoon trading after the winemaker warned investors A) that underperforming commercial wines will continue to be a drogue on profitability and B) cutting its earnings guidance.
While earnings were 1% above consensus, net profit after tax missed consensus by 9%.
Within its interim update today, the winemaker told the market to expect earnings for FY25 to be around $780 million, at the lower end of the previously guided range of $780 million-$810 million.
These two salvos dished up to the market this morning appear to have eclipsed what was an otherwise reasonable result which included a 17% rise in the dividend to 20 cents per share.
Rising sales for flagship luxury brand Penfolds and recently acquired high-end Californian winemaker Daou Vineyards drove a 33% uplift in interim profit to $220.9m on the back of a 19.6% increase in 1H FY25 revenue to $1.57bn.
Other key results include:
Pre-tax earnings, up 35% to $391.4 million.
Net sales revenue per case, up 16.1%.
Penfolds division increased earnings by 34% to $250.2 million.
Treasury America earnings, up 66.9% to $155.3 million, sales up 41%.
Treasury America’s luxury portfolio declined 8.5%.
Treasury Premium brands, 49.9% drop in earnings to $22.9 million.
US and China
Highlighting two areas of strategic focus, management referenced Daou Vineyards - which the winemaker acquired in October 2023 – which increased net sales revenue (NSR) 11.2% with distributor transition and creation of Treasury Americas’ dedicated Luxury sales and marketing team completed in 1H25.
Treasury Americas 2024 vintage was a particular highlight, delivered through the integrated California supply chain, including production through the Paso Robles winery network. The winemaker now expects production and overhead cost synergies of around US$35 million, up from the previous guidance of US$20 million, with around US$30 million to be realised in FY26.
Secondly, management told the market that the reopening of Penfold's Australian COO portfolio in China – the luxury end of the market – is performing well and offset some of the pain being incurred with commercial wine brands.
While alcoholic beverages market conditions have been mixed in China, management notes wine category trends were positive in 1H25, driven by strong consumer demand during the December quarter.
Meanwhile, on online sales channels, which represent approximately 20% of Penfolds retail sales in China, trends were also positive, with 1H25 wine category value growing 6%, driven by Penfolds.
Luxury-led business
CEO Tim Ford believes the company’s interim 2025 performance highlights the benefit to the quality of earnings and key metrics from the multiyear transformation to a luxury-led business.
“We are extremely pleased to have successfully re-established the Penfold's Australian country of origin portfolio in China, with positive consumer and customer sentiment and key performance signals very clear,” said Ford.
“The progress we have made integrating DAOU and Treasury Americas to create the leading supplier of luxury wine in the US market is also pleasing.”
Treasury Wine Estates has a market cap of $8.6 billion making it the 64th largest stock on the ASX; the share price is 3.6% lower over one year and 5.8% lower year to date.
The stock appears to be in a long-term bearish trend confirmed by multiple indicators.
Consensus is Strong Buy.
This article does not constitute financial product advice. You should consider independent advice before making financial decisions.
