Australia's Treasury Wine Estates Ltd, the world's biggest listed winemaker, posted a forecast-beating record annual profit on Thursday as customs delays in China eased, offsetting sluggish U.S. sales.
The result suggests the company's problems in getting Australian products past Chinese docks have been a blip in its seemingly unstoppable push into the mainland market, rather than a protracted crisis as some analysts feared.
The maker of Penfolds, Wolf Blass and Lindemans wines revealed in May that it was having trouble clearing shipments through Chinese customs, sparking fears it was affected by diplomatic tensions between Australia and its biggest export partner, sending its shares sharply lower.
"It would appear that the delays have abated," Chief Executive Mike Clarke told analyst and media on a call.
The company would export more wine to China by selling straight to retailers, rather than storing it in its own warehouses, Clarke said.
"We've got a Penfolds release in October and what we do not want to happen is to have containers stuck on the wharf".
Full-year profit for the Melbourne-headquartered exporter jumped 34% to A$360.3 million ($260.68 million) for the year to end-June, beating the average analyst forecast of A$347.9 million, according to Thomson Reuters I/B/E/S.
And the company said it expects pre-tax profit to rise 25% in the year ahead, noting it had grown pre-tax profit by that amount every year, on average, for the past four years.
Pre-tax profit to Asia rose 37% to A$205 million, overshadowing a 25% jump pre-tax profit in the smaller market of Australia and New Zealand and a 21% pre-tax profit gain in even smaller Europe.
In the Americas, which include Canada and Central America, profits slid 1.5% partly a result of switching from lower-margin cheap wine to more profitable mid-range, or what the company calls "masstige" wine, a process that involved throwing away some two million cases.
"The momentum in our business, together with the strength of our organisational talent, brand portfolios, operating models and customer partnerships, enabled us to execute transformational changes to our operating model in the US and still deliver strong profit growth," Clarke said of the results.
"Over the past four years, we have delivered an EBITS CAGR of 25% whilst embedding meaningful changes that will drive continued long term, sustainable growth and value accretion for our shareholders.”
The company sold 34.6 million cases of wine globally in fiscal 2018, down from 36.4 million the previous year. But the company is making more money off each case thanks to its strategy of selling more expensive, higher-margin wine.
The company sold 41% more cases of wine in North Asia, which is mostly China, even as the average price of a case in Asia rose 13%.
Treasury Wine's shares fell at the open, in a flat overall market, as analysts fretted that the company was repeating problems in the U.S. which led to annual losses, a change of CEO and two takeover offers by private equity firms in 2014.
But the shares recovered and were up 5%, near a record high, by mid-session, as investors accepted the company's explanation for the latest U.S. issue.
"There's been a turnaround in the business, there's no question of that," said CMC Markets chief strategist Michael McCarthy.
"The problems in the U.S. operations in the past related to inventory management (but) the overall impression given by Treasury is that they've built processes to ensure that won't be an issue again."