Penfolds stars in Treasury Wine Estates’ results as profit dips on weaker consumer

The maker of luxury wine Penfolds is seeing a continued trend in drinkers seeking more pricey wines to enjoy, but it wasn’t enough to avoid a drip in annual profit.

The power and prestige of the Penfolds wine brand is doing the heavy lifting for Treasury Wine Estates at a time when drinkers are gravitating to luxury wines, which now deliver two thirds of the group’s profit.

And the company, whose expansive portfolio stretches from $1000 Penfolds Grange to cheap and cheerful Squealing Pig, is preparing to store up large stocks of the fabled Penfolds to prepare for a potential reopening of China next year after recent trade sanctions lifted on Australian barely offers hope wine would be next.

“We are planning to sell more Penfolds in the second half versus the first half of fiscal 2024, and we’re doing that strategically to give us the flexibility of a potential change to the (wine) tariffs in China,” said Treasury Wine chief executive Tim Ford.

“And the barley announcement two weeks ago was a very positive step forward.

“Now if that doesn’t occur, then we can re-evaluate our shipment plans, but we are doing that just to give ourselves the optionality should things continue to improve the Australia-China relationship.”

China remains a huge opportunity for Treasury Wine and in particular Penfolds, with the country once generating the bulk of its profitability before crippling tariffs were slapped on Australian wine, but the Penfolds brand meanwhile has shown its earnings prowess across other markets.

Treasury Wine posted a small decline in annual profit on Tuesday as strong top-line growth for its flagship luxury wine Penfolds, successful price hikes across key several brands and a rigorous cost-cutting strategy helped shield the winemaker from deteriorating trading conditions.

The winemaker reported a 3.3 per cent fall in annual net profit to $254.5m as revenue fell 1.7 per cent to $2.49bn. Earnings rose 11.4 per cent to $583.5m, inline with earnings guidance provided in May of earnings of between $580m and $590m, as the winemaker also issued a profit warning due to deteriorating trading conditions.

Treasury Wine has declared a final dividend of 17c a share, slightly up from 16c last year, payable on October 3.

Penfolds, famous for its Grange, St Henri and now a new selection of Penfolds made in the US and China, accounted for 62 per cent of Treasury Wine’s total earnings and underlined the shift by drinkers to pick out premium and luxury wines from the shelf or a wine list.

“The Penfolds result was the standout, with strong top-line luxury growth reflecting the unparalleled strength of this exceptional brand and outstanding execution by the team,” Mr Ford said.

Its Penfolds division reported a 14.2 per cent increase in earnings to $364.7m and a margin of 44.5 per cent (in line with 2022). Strong net sales revenue growth of 14.3 per cent was delivered through Asia, Australia and Europe.

In addition, the successful launch of ‘One by Penfolds’ and growth of the multi-country of origin portfolios – Penfolds from California and France – contributed to net sales growth, particularly in Asia. Mr Ford said the ‘One by Penfolds’ was launched with 100,000 cases sold to date and the label would aim to build up to 300,000 cases in sales as drinkers embraced the label.

Mr Ford said premiumisation trends continued across the wine category, with demand for luxury wine remaining strong in its key global markets and a resilient premium wine segment despite the tightening economic environment.

In many other retail categories, consumers were trading down to cheaper products, but this was not the case in wine.

“I think they (consumers) are buying less wine and buying a better wine when they do take a bottle off the shelf,” he said.

“It has been fairly consistent and luxury continues to grow, which we expected that it would 12 to 18 months ago. I think the pleasant surprise has been what we call the premium wine category, which is $10 to $30 price point.”

He said drinkers were moving away from the under $10 a bottle category, and he saw this trend continuing.

Treasury Wines CEO Tim Ford highlighted the ‘standout’ performance of Penfolds in 2023. Picture: Emma Brasier

Snoop Dogg ambassador for Treasury Wine Estates label 19 Crimes. Picture: Supplied

Its Treasury Americas division reported a 14 per cent increase in earnings to $203.9m and a margin of 24.8 per cent, up 5.6 percentage points. Strong performance of key luxury brands including Frank Family Vineyards and Beaulieu Vineyard, the continued growth of Matua and favourable foreign exchange rates were partly offset by shipment declines for 19 Crimes and Sterling Vineyards, in addition to constrained luxury portfolio availability from the lower yielding 2020 Californian vintage.

“Treasury Americas luxury portfolio execution was a highlight, with price increases and growth in distribution achieved despite significant volume availability constraints, setting a strong platform for future growth,” Mr Ford said.

At Treasury Premium Brands, the division reported a 5.4 per cent decline in earnings to $81.7m and a flat margin of 10.4 per cent. Reduced net sales revenue for the commercial portfolio in Britain and Australia in addition to unfavourable foreign exchange movements were partly offset by 7.8 per cent sales growth for priority brands, including 19 Crimes, Squealing Pig and Pepperjack.

Treasury Wine has implemented a range of cost savings initiatives which has delivered savings of $62m in 2023.

The company also announced on Tuesday its chairman Paul Rayner will retire at the next annual general meeting in October, to be replaced by outgoing Telstra chairman and current Treasury Wine non-executive director John Mullen.

Treasury Wine shares closed up 2.8 per cent at $11.71 in a higher market.