The Treasury Wine Estates Ltd (ASX: TWE) share price is trading more than 20% lower today after the company released its 1H20 profit report. Here’s what you need to know.
About Treasury Wine Estates Ltd
Treasury Wine Estates is a world-leader in wine making and brand marketing with some 13,000 planted hectares of vineyards and around 3,400 employees across 70 countries.
Some of Treasury’s more popular brands include Penfolds, Yellowglen, Wolf Blass, Lindeman’s, Pepperjack, and Rosemount.
What’s Happened?
Yesterday evening, Treasury Wine released its 1H20 profit report to the market, along with revised FY20 guidance and an interim dividend announcement.
Key results include:
- 1H20 earnings before interest, tax, and self-generating and regenerating assets (EBITS) of $366.7 million — up 6% on the previous corresponding period (pcp)
- NPAT up 5% to $229.2 million
- EPS up 5% to 31.9 cents per share
- Americas reported a 17% decline in EBITS to $98.3 million
- Interim dividend of 20 cents per share, fully-franked — up 11% on the pcp
USA Underperformance
TWE attributed the underperformance in its US results to:
- Unexpected changes in the company’s Americas leadership, resulting in a loss of execution momentum
- US wine market dynamics where suppliers are trying to move surplus wine across the market at lower prices
- Inability to recover the higher US Luxury and Australian Commercial costs due to unfavourable US market conditions — with higher levels of discounting required to try to maintain share across all price points
FY20 Downgrade
1H20 EBITS of $366.7 million fell short of the company’s expectations and as a result, management has revised down its FY20 growth rate.
Treasury Wine now expects FY20 reported EBITS growth of approximately 5% to 10%, which compares to its previous guidance of 15% to 20% growth.
The company also expects FY21 EBITS growth of 10% to 15%, reflecting continued premiumisation and growth in Luxury wine availability, balanced against the risks associated with challenging US wine market conditions persisting into FY21.
The announcement further explained that recent drought, heat and fires in Australia have created some likely challenges with respect to the cost of the 2020 Australian vintage, which is currently in harvest.
A strategic review of the company’s internal operating model is also underway, focused on accelerating returns from premiumisation and managing the Commercial wine business differently.
Management Commentary
Commenting on the results, Treasury Wines CEO Michael Clarke said, “our first half performance in the Americas has been a setback and is disappointing given the high expectations we have for growth in this important market.”
“The fact that we have continued to deliver sustainable, margin accretive growth despite this setback in one of our key markets is testament to the fundamental strength of our global business model, which sources multi-regionally, sells multi-regionally and is the most self-distributive wine business, globally.”, he added.
Looking forward, Michael Clarke said, “We remain focused on our journey of sustainably growing earnings, but for F20 and F21, at slower growth rates than previously expected as we look to re-build momentum in the US and implement key actions from our strategic review.”
Are Treasury Wine Shares Now Cheap?
The Treasury Wines share price has taken a hit in response to these results, with shares last trading 22.18% lower at $12.98.
The question of whether or not TWE shares are cheap, expensive or somewhere in between comes down to valuation.
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