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John Durie

The market’s love affair with Treasury Wine Estates CEO Michael Clarke is over

John Durie
Mike Clarke, chief executive officer of Treasury Wine Estates Ltd. Picture: Carla Gottgens/Bloomberg.
Mike Clarke, chief executive officer of Treasury Wine Estates Ltd. Picture: Carla Gottgens/Bloomberg.

The Michael Clarke magic which propelled Treasury Wine Estates’ share price up some five times in six years has broken, with the stock down 19 per cent or $2.3bn in early trade to a 28-month low of $13.52 a share.

The share price fall is an over-reaction to Tuesday evening’s profit warning based around the company’s underperforming US operations but that underlines the point.

Since turning the company around Clarke has walked on water as far as investors are concerned — but this aura was bound to break at some point. And it clearly has now on the eve of the great man handing the baton to Tim Ford in the September quarter this year.

Both Clarke and Ford blamed a structural change in the US for the profit warning but the fact is the group now has its fourth CFO in four years and third US boss in the space of 18 months.

Personal reasons were cited for the recent decision of nominated US boss Angus McPherson to stay at home in Australia but there is something about the Clarke management style which clearly has some issues.

McPherson was replaced by US veteran Ben Dollard as the company embarks on yet another review of its commercial wine division’s weak US performance.

Clarke says he knows what to do but continuous disclosure laws prevent him from saying anything. So instead we have a review, which at one point in his rein would have worked but right now sounds like more marketing bull.

The reality is, with the exception of the US the company is travelling well and veteran analyst David Errington asked just how long the company will persist with its loss-making love affair with the US.

Since 2000, when then Foster’s boss Trevor O’Hoy spent close to $3bn buying Beringer from private equity the US has always proved to be too hard top manage.

Throw in a couple of acquisitions and the investment now is more like $6bn in dollars — but more in terms of wasted man hours.

TWE bought forward its results to talk around its US inspired earnings downgrade and it shows the company is going okay.

America’s earnings fell 17 per cent to $98.3m, against a 19 per cent increase in Asian earnings to $5.5m, a 10 per cent increase in Australia to $85.9m and 1 per cent decline in Europe to $32m.

The structural shift cited was a move to private equity in the US, particularly in the low-end product ranges below $15 a bottle.

Asia is still the earnings star and continues to grow even if Clarke said it was too early to say what impact the coronavirus will have on the business.

It won’t be a positive.

Clarke has said he will step away in the September and had hoped for a European acquisition ahead of that. But today shows the market’s love affair with the great man has officially ended.

John Durie
John DurieColumnist

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Original URL: https://www.theaustralian.com.au/business/the-markets-love-affair-with-treasury-wine-estates-ceo-michael-clarke-is-over/news-story/0d23b48ae628087503dd2b6851c8f340