Wine shares turn sour

Cheap plonk, private labels take toll on Treasury

TREASURY Wine Estates shares took a dive after the owner of the famous Penfolds label warned a glut of cheap wine had soured its US performance.

Chief executive Michael Clarke blamed the downgrade on changes in its US executive team, the rise in popularity of private labels among American wine drinkers, and a glut of cheap plonk.

Recent drought, heat and fires in Australia will also affect the cost of the local vintage, which is currently in harvest, the global winemaker said. But the biggest impact in the first half of 2019-20 is from its Americas region, which reported a 17 per cent drop in earnings before interest and taxes to $98.3 million.

The downgrade means the company now expects earnings growth of only 5.0 per cent to 10 per cent for the full financial year, instead of 15 per cent to 20 per cent as previously advised. Mr Clarke (right) said other regions were doing well for the business and the company had looked at whether they could recover the firsthalf shortfall in the second half.

But they decided to stay on a trajectory of sustainably growing profit, albeit with slightly lower growth rates than previously expected, for this and the next financial year.

Treasury Wine is reviewing its US and global commercial wine businesses to see how they can do things better for a stronger second half of 2020-21 and full-year 2021-22.

The winemaker’s net profit for the six months to December 31, 2019, was 5.1 per cent higher than the prior corresponding period at $229.2 million. It will hand shareholders a 20 cent dividend, fully franked, which is 11 per cent more than at the same time last year.

The group’s shares were down $4.33, or 25.96 per cent at $12.35 at yesterday’s close.