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Treasury Wine Issues Profit Warning As Virus Hits Demand

Published on Jul 14 2020 12:56 PM in Drinks tagged: Treasury Wine

Treasury Wine Issues Profit Warning As Virus Hits Demand

Treasury Wine Estates Ltd has flagged a plunge in core earnings for fiscal 2020 and withheld guidance for the year to June 2021, as coronavirus-related curbs on travel and social gatherings have hurt demand for its high-margin luxury wines.

This underlines the challenging outlook for the world's biggest standalone winemaker, which has said that it may spin off its prestigious Penfolds label and shrink its low-end US commercial division to shore up profits and navigate the upheaval brought by the crisis.

Treasury said that its core earnings in fiscal 2020 likely fell by approximately 21% from adjusted year-ago figures, with profits being down by approximately 14% in Asia, 37% in the Americas and 16% in Australia and New Zealand. It will unveil its final annual numbers on August 13.

Earnings before interest, tax, self-generating and regenerating assets (EBITS) are expected to be between A$530 million and A$540 million, CEO Tim Ford said in his first market update since taking the top job last week.

Treasury had said that it will not meet its lowered annual EBITS growth forecast of 5% to 10% that was issued in January.

Non-Retail Channel Sales Hit Hard

While Treasury's retail wine sales have risen approximately 15% since the start of the pandemic in the United States, its non-retail channels that include bar, restaurants, cellars and travel-related venues in Latin America have been hit hard.

"Sales in these channels are weighted towards higher-margin luxury wine, and their closure in recent months has certainly had an adverse impact on our portfolio mix in the half, particularly in the US," Ford said in a call with analysts.

Cautious About Asia Unit

The winemaker noted some green-shoots in China as the country reopened, but said that it remains cautious about its Asia unit as gatherings and social occasions, the driver of luxury wine consumption, are yet to fully recover.

News by Reuters, edited by Hospitality Ireland. Click subscribe to sign up for the Hospitality Ireland print edition.

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