Treasury Wine Estates cuts dividend as US sales shrink
With a huge investment in California vineyards last year, Treasury Wine Estates says it is well placed to benefit from a predicted lift in luxury wine sales.
Treasury Wine Estates chief executive Tim Ford believes an earnings slump in the US marks a turning point for the business that will soon emerge as a majority luxury wine producer, just at a time when luxury wine sales in the Americas, and across the globe, are racing ahead.
Giving him further confidence is a potential reopening of the Chinese market within months if crippling tariffs are removed, with a decision to hold back allocations of his luxury brand Penfolds costing growth in the short term but likely to pay handsome dividends later this year when Chinese drinkers fill their glasses and cellars.
But Mr Ford is first navigating the slide in sales of cheaper commercial wines, a marked slowdown in sales of Treasury Wine’s once booming 19 Crimes label, and an Americas business that is as volatile as it was when it first entered the country 24 years ago with the purchase of California producer Beringer.
Late last year, Treasury Wine 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).
On Thursday, Treasury Wine posted an interim net profit of $166.7m, down 11.4 per cent, although its pre-tax earnings were roughly in line with analyst expectations. Only its Penfolds division managed to report 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 – which houses many of its commercial wines – posting a 3.2 per cent profit drop.
“The results (in the Americas) were in line with expectations, half on half it was clearly down, but if you look at what the second half will be in the Americas which is higher sales and higher earnings, it will be significantly higher over the same time last year.
“And from a ‘balance of the year’ point of view our US business is in good shape, luxury wine grew so the US is not a problem.”
Mr Ford said Treasury Wine would have more luxury wine coming into the market next year as well as the full benefit of owning DAOU, which would see its Americas division evolve into a winemaker that is 70 per cent skewed to luxury wine.
“The Americas business will be a 70 per cent luxury wine business from fiscal 2025 which is the shape of the business we need going forward and which will be another growth engine next to Penfolds.”
That’s next year, but for now the strain of that Americas performance and withholding some Penfolds had a clear impact on results. Treasury Wine announced that revenue for the half was flat at $1.284bn and it declared an interim dividend of 17c per share, down from 18c, and payable on April 3. However, that slightly weaker dividend reflected a higher payout ratio and in terms of the value of the dividend was higher than last year given the shares it issued as part of the DAOU acquisition.
“I am pleased with the ongoing underlying performance of Treasury Wine Estates this period, with strong consumer demand for our priority luxury brand portfolio continuing around the globe,” Mr Ford said.
“Penfolds continues to perform and strengthen, whilst Treasury Americas has made significant progress in reshaping its portfolio focus with continued growth of its luxury brands now supported by the acquisition of DAOU in December.
“The business is on track to deliver mid-high single digit earnings growth in fiscal 2024 and we remain confident that our premiumisation strategy, pre-eminent brand portfolio and attractive market fundamentals at luxury price points will allow us to continue to deliver our long-term growth ambitions.”
Its luxury wine Penfolds reported a 2.9 per cent lift in earnings to $186.9m driven by momentum across Asia and Australia but that growth was moderated by the planned weighting of shipments in the second half of 2024 in order to prepare for the possible reopening of the giant China market to Australian wine.
Shares in Treasury Wine rose 36c to $11.43.
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