The Treasury Wine Estates Ltd (ASX: TWE) share price is under the microscope today after dropping guidance.
Weaker expectations for TWE
The wine business said its Penfolds FY26 first quarter shipments were in line with expectations for key markets globally.
TWE noted that in China there had been softness in depletions throughout June and July, noting “evolving consumption dynamics within the alcohol sector, with large-scale banqueting occasions particularly impacted.”
While August depletions showed some improvement, the company previously said the Mid-Autumn Festival period would provide a clearer outlook of the likely performance trends through the rest of the year.
September depletions did grow in September year on year, but data indicates that it remains weak according to plan. If this continues, Penfolds’ depletions targets for FY26 in China are likely to be missed.
Therefore, the company no longer believes it’s appropriate to retain Penfolds guidance for low to mid double-digit EBITS growth in FY26 and approximately 15% EBITS growth in FY27.
The wine business is implementing several initiatives to mitigate the expected impacts in China, including re-allocating products to select customers in other key markets in a way that’s “sustainable and minimizes the risk of parallel imports back in China.
Treasury Americas
The company said its portfolio is performing well outside of California, with depletions growing ahead of the luxury categories, with growth of more than 5% outside of the most populous US state.
However, in California, depletions were impacted by the distributor transition, including key account set-up activities in September.
Negotiations between the Republic National Distribution Company (RNDC) and the ASX share are ongoing. It’s considering a number of factors, including the treatment of the remaining inventory (A$100 million of value) currently held by RNDC in California.
The company warned there may be an additional impact to TWE’s FY26 shipments and operating plan.
TWE also said it no longer believes it’s appropriate to retain the guidance for modest EBITS growth in Treasury Americas in the year.
Treasury Collective
The company said Treasury Collective’s FY26 first quarter was in line with expectations in Australia, Europe, the Middle East and Africa. However, US performance was also impacted by the California distribution transition.
Final thoughts on the Treasury Wine Estates share price
The company withdrew its group guidance for EBITS growth in FY26 and also decided to pause its $100 million share buyback until there is greater clarity about trading conditions and expectations.
It said it still has a strong and flexible capital structure, with approximately $1 billion of liquidity currently on hand, with significant headroom to the financial covenants under its borrowing arrangements.
It seems like a challenging industry to deliver consistent results and isn’t the sort of business I’d want to invest in. There are other opportunities that seem more appealing to me.
