Treasury Wine posts better performance in US, China
Treasury Wine Estates boss Tim Ford says the company is in the ‘best position it has ever been’ as it sheds its low margin commercial wines to focus on the needs of luxury wine drinkers.
Treasury Wine Estates chief executive Tim Ford says the company is in the “best position it has ever been” as it sheds its low margin commercial wines to focus on the needs of luxury wine drinkers from New York to Shanghai.
An upbeat Mr Ford believes he is closer to achieving a long-held dream of turning Treasury Wine into a major force in the global luxury wine sector.
That dream came into stronger focus on Thursday when Treasury Wine, the makers of Penfolds, Pepperjack and 19 Crimes, unveiled its full year results, showing that two recent acquisitions in California’s Napa Valley were boosting sales.
Treasury Wine’s high-stakes bet on expanding into the premium US wine market through the acquisition of DAOU Vineyards for as much as $1.6bn in 2023 and the 2021 purchase of Napa Valley’s Frank Family Vineyards for $434m is starting to pay off.
It comes as the Chinese market reopens, after years of high tariffs kept the Penfolds range largely off shelves and banquet tables.
Treasury Wine posted a near 13 per cent jump in annual revenue to $2.8bn.
The company said that earnings increased nearly 13 per cent to $658.1m, driven by strong growth in Penfolds and its Treasury Americas arm, including the second-half contribution from the acquisition of DAOU wines in California.
That business delivered second-half earnings of $US24.7m ($37.5m), in line with guidance. Business integration was under way and on track to deliver synergies of more than $US20m by the end of fiscal 2026.
However, net profit slumped 61 per cent to $98.9m on a large impairment to its cheaper commercial wines, which was already flagged earlier this month.
The low-growth commercial wines will soon be jettisoned as Treasury Wine looks to sell Wolf Blass, Lindeman’s, Yellowglen and Blossom Hill. TWE already sources about 80 per cent of its earnings from premium and luxury wines, which is where future growth is expected.
“They are still earning money these brands, albeit it a very small part of our business … and the reality is if you look at our strategy we are moving more towards a luxury brands business,” Mr Ford told The Australian.
“And we are in the best position that we have ever been with the luxury-led strategy. It is where the consumers are going and where the brands are performing well and a big part of our business now … It is now down to our execution to deliver the plan, as opposed to external factors.”
TWE began lifting Penfolds prices in July.
The company revealed on Thursday that it planned to cement its strong position in the higher-priced wine market by creating a Global Premium division by July 2025 through the merging of its premium brands arm and its fast-growing US operations.
Treasury Wine said at its results briefing that it expected to deliver $780m-$810m in earnings for 2025, reflecting continued strong luxury portfolio growth in Penfolds and Treasury Americas, with stability expected across the remainder of its global brand portfolio.
Price hikes for Penfolds wines, margin improvement within the 43 to 45 per cent range and the reawakening of the China market would push the Penfolds division to low double-digit earnings growth in 2025, the company said.
Among its key divisions, Penfolds posted a 15.5 per cent lift in earnings to $421.3m, although margins fell slightly to 42.1 per cent as costs rose. Momentum accelerated across the portfolio in Asia, particularly Hong Kong, Thailand and Taiwan, in addition to the commencement of Australian shipments to China in the final quarter, following the removal of tariffs.
The decline in margin at Penfolds reflected higher costs as it re-entered China and investments in teams on the ground.
Treasury America earnings lifted 13.1 per cent to $230.5m, driven by the second half contribution of DAOU and 14.1 per cent net sales revenue growth across Treasury Americas’ other luxury portfolio brands, supported by increased wine availability, particularly for Stags’ Leap and Frank Family Vineyards.
At its Treasury Premium Brands arm there was a 7 per cent slide in earnings to $76m as softer consumption trends saw drinkers turn away from cheaper commercial wines.
The slump in sales and earnings from commercial wines continues to be a headache for the group, with those wines triggering a $354m ($290m post-tax) impairment that lowered statutory profit results for 2024.
Treasury Wine last week revealed it would seek to divest former powerhouse brands such as Wolf Blass and Yellowglen as it shifts attention and resources to its luxury portfolio.
Mr Ford said the fiscal 2024 performance reflected the excellent momentum it continued to build behind its luxury brand portfolios in Penfolds and Treasury Americas.
“These two outstanding luxury wine platforms have very clear strategic direction and execution priorities, and we have great confidence in both as strong drivers of long-term growth for Treasury Wine Estates.”
The group declared a final dividend of 19c a share, up from 17c, and payable on October 1.
Shares in Treasury Wine rose 2 per cent to $12.35.
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