Treasury Wine earnings forecasts cut by analysts as hopes turn to a China revival

As its 19 Crimes brand disappoints, analysts say better luxury wine sales and the reopening of China can help Treasury Wine Estates to turn the tide.

Treasury Wine Estates’ admission on Thursday of deteriorating conditions that its com­mercial and entry-level prem­ium wines would dent earnings growth has forced analysts to slash their own profit targets for the winemaker – although they said if the China market reopened it would be a huge boost for the company.

Treasury Wine shares fell 8 per cent on Thursday on the back of the company’s earnings downgrade and on Friday were again weaker, taking lost market capitalisation this week to more than $720m.

Treasury Wine revealed a host of issues at its earnings update, led by a pullback in demand for cheaper wine across key regions led by Australia, Britain and the US, and its once juggernaut label 19 Crimes booking a worsening sales performance.

Treasury Wine Estates chief Tim Ford with 19 Crimes ambassador and US rapper Snoop Dogg.

To arrest the earnings decline, Treasury Wine said it would review and restructure its Treasury Premium Brands division (which houses many of its cheaper commercial wines as well as premium labels) and consider selling off some wine brands.

UBS analyst Shaun Cousins said commercial wine was challenged globally, especially in the core Australia and British markets. This was a growing headache for Treasury Wine as commercial wine comprised 39 per cent of total sales for the group and 55 per cent of volumes in the first half of 2023, but also because it has low and falling earnings margins, with higher packaging costs another headwind.

Mr Cousins said Treasury Wine was enduring category and company-specific issues in sub-$US15-a-bottle premium wine, with brands such as 19 Crimes – a dominant brand for Treasury Wine – struggling.

Treasury Wine has reported a decline in revenue as its budget labels struggle.

Mr Cousins said new 19 Crimes classic launches previously slated for the second half of 2023 were now expected in the first half of 2024, so improvement was more skewed to the 2024 calendar year.

“A greater risk for Treasury Wine is that the sub-$US15 a bottle category remains long-term challenged, as is commercial,” he said.

UBS has cut its treasury Wine fiscal 2023 and 2024 earnings per share by 5 per cent and 14 per cent respectively.

Sam Teeger at Citi has cut 2023 earnings per share by 5 per cent following the trading update. “Conditions have deteriorated in the US in recent months, there are limited signs of a turnaround in 19 Crimes despite the March 2023 launch of Snoop Cali Blanc, both of which contributed to (Thursday’s) weaker than expected trading update, along with ongoing commercial weakness in Australia/New Zealand and Britain,” he said.

Jarden analyst Ben Gilbert said the risk/reward position of Treasury Wine was starting to look attractive, while the hopes of China dropping its Australian wine tariffs promised a huge boost for its leading luxury brand Penfolds.