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Drinks

Treasury Wine Lowers Outlook, As US Tactics, Australian Fires Threaten Margins

Australia's Treasury Wine Estates on Tuesday lowered its fiscal 2020 and 2021 earnings expectations, citing pricing pressures and increased competition at its United States business.

The impact of global trade disputes and severe weather and fires in Australia also threaten to erode margins.

Growth Expectations

The owner of the Penfolds and Wolf Blass labels expects EBITS (earnings before interest, tax, and the agricultural reporting standard SGARA - self-generating and regenerating assets) growth of about 5% to 10% for 2020. That compares with an earlier range of 15% to 20%.

Treasury blamed unexpected changes in its U.S. management team and higher costs from promotional activity in the U.S. market, where suppliers have moved surplus wine across the market at lower prices.

Private label businesses generally source wine from third-party manufacturers, which they sell under their own brand - an increasingly popular trend in the United States.

Trade War

"Further, impacts from the trade war and above average recent vintages have led to increased levels of supply across the market, which has contributed to high levels of discounting," Treasury said in a statement.

Treasury added that drought, heat and fires in Australia have created challenges that threaten to drive up the cost of its 2020 Australian vintage wine, which is currently in harvest.

The company reported half-year net profit after tax at A$229.2 million (€208.1 million), up 5% from the previous year.

Unable to continue the aggressive pricing activities it employed in delivering the first-half result, Treasury said it would instead focus on "sustainably growing profit" into 2020 and 2021, albeit at lower growth rates than expected.

Reported EBITS growth for fiscal 2021 was expected to recover slightly from 2020 and was seen at about 10% to 15%, helped by continued demand for its luxury wine labels - a category that includes Penfolds, Beringer and Stags' Leap.

News by Reuters, edited by ESM. Click subscribe to sign up to ESM: European Supermarket Magazine.

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