Treasury Wine has warned of lower earnings due to a drop in cheap wine sales
Drinkers are shunning cheap wine with Treasury Wine Estates posting a 50 per cent drop in interim earnings for its commercial wine arm and downgrading its group guidance for the year. Shares slump.
Treasury Wine Estates has warned its underperforming commercial wines will continue to be a burden on profitability and cut its annual earnings guidance as drinkers shun cheap wine.
Profitability for its commercial wines dropped by almost 50 per cent in the first half, reflecting weak demand for wine at lower price points.
The winemaker, whose portfolio of wines spans luxury Penfolds Grange to cheap and cheerful Squealing Pig, is focusing its expansion on the luxury wine market in the US, where it has picked up wineries and labels. While price hikes for its Penfolds range has helped bring in extra sales revenue to counter the sliding performance of its collection of cheaper wines.
However, for now the pain will be felt in its earnings performance due to the size of its commercial division with Treasury Wine on Thursday warning it expected earnings for fiscal 2025 to be around $780m, which is at the lower end of the previously guided range of $780m to $810m.
Treasury Wine has targeted Penfolds and its American operations, both anchored in luxury wine, as the “clear drivers” of its future growth agenda with the reopening of the China market also buttressing luxury wine sales – taking some of the pain away from the weaker performance elsewhere in the company.
On Thursday Treasury Wine posted a strong uplift in its interim profit and dividend, driven by rising sales for its flagship luxury wine Penfolds, price hikes for Penfolds, and the recently acquired DAOU wine business in the US, countering continuing weakness in its portfolio of cheaper, commercial wines.
The company reported a 19.6 per cent increase in half-year revenue to $1.57bn as net profit rose nearly 33 per cent to $220.9m. Pre-tax earnings were up 35 per cent to $391.4m. The interim dividend was hiked to 20c per share, up from 17c, and is payable on April 2.
Net sales revenue per case improved 16.1 per cent, reflecting ongoing premiumisation of Treasury Wine’s portfolio mix towards luxury wine and price increases across Penfolds Bin and Icon portfolio.
Its luxury focused Penfolds division reported a near 34 per cent increase in earnings to $250.2m on margin of nearly 45 per cent, up 3.2 points, helped by the re-entering into the China market after the crippling tariffs on Australian wine were removed. The division’s performance was led but the re-establishment of the Australian-made Penfolds wine getting back into China, where there has been strong demand from customers, the company said.
Additionally, the positive depletions momentum for Penfolds continued in a number of other key Asian markets, including Hong Kong, Thailand and Malaysia. Outside of Asia, sales were impacted by the partial reallocation of the Penfolds Bin and Icon portfolio to support the rebuilding of distribution in China, with continued growth across the broader portfolio supporting the delivery of modest sales declines in Europe, Australia and New Zealand.
Treasury Americas reported a 66.9 per cent increase in earnings to $155.3m as sales increased 41 per cent, driven by the acquisition of DAOU. Excluding DAOU, sales for the Treasury Americas luxury portfolio declined 8.5 per cent, reflecting below plan performance in US trade, direct sales to consumers and lower sales as discounting was reined in.
Its cheap, commercial wines division, Treasury Premium Brands, reported a 49.9 per cent decrease in earnings to $22.9m. The result was driven by continued commercial and premium sales declines, reflecting softness in consumer demand for wine at lower price points, underperformance relative to the category.
“Our interim 2025 performance highlights the benefit to the quality of earnings and key metrics from our multiyear transformation to a luxury-led business, with this segment of the market continuing to be healthy in our key trading regions,” said Treasury Wine chief executive Tim Ford.
“We are extremely pleased to have successfully re-established the Penfolds Australian country of origin portfolio in China, with positive consumer and customer sentiment and key performance signals very clear.
“Our team has absolute clarity on our portfolio and execution priorities, with Penfolds and the Treasury Americas Luxury businesses the clear drivers of our future growth, with our global premium business playing a critical role to power and support this growth agenda.”