Penfolds bets on China

Treasury Wine Estates had a double-digit drop in its interim profit and slashed its dividend, as shrinking sales in the US for its once blockbuster 19 Crimes wine and a decision to hold back Penfolds allocations to prepare for a reopening of China later this year strangled its profitability.

The strategic move to pull back on Penfolds quantities on the market to have plenty in its cellars if China reopens to Australian wine by removing its 200 per centplus tariffs has again cost the winemaker.

A slump in the Americas comes just as Treasury Wine late last year doubled down on the largest wine market in the world, after agreeing to buy California’s DAOU Vineyards for as much as $US1bn ($1.57bn). It was also throttled by rising costs and inflation, from the higher cost of vintages to IT bills.

Only its Penfolds division reported earnings growth for the first half, and that was only a slight gain of 2.9 per cent, with its Treasury Americas arm witnessing a 17.5 per cent slide in earnings and its Treasury Premium division posting a 3.2 per cent profit drop.

On Thursday, Treasury Wine posted an interim net profit of $166.7m, down 11.4 per cent. It reiterated guidance for mid-high single digit pre-tax earnings for fiscal 2024, but this excluded the performance of its newly acquired DAOU business and the potential huge kick to profits in the second half if China dismantles its tariffs and welcomes back Australian wine. It has trimmed its interim dividend to 17c a share, down from 18c, and payable on April 3. Revenue was flat at $1.284bn on strength of demand for luxury wine, resilience in premium wine and consumer preference away from cheaper, commercial wine.