Shares in Treasury Wine Estates will be hammered when ASX trading resumes today after a surprise after-hours earnings downgrade off the back of weaker than expected interim earnings.
Treasury reported a net profit after tax of $229.2 million for the first half, which was up 5%. The full audited figures will be released on February 13.
Despite the weak earnings news, the company will pay a higher dividend for the December half-year of 20 cents a share, up 11% from the December 2018 half.
The country’s biggest wine producer blamed the ongoing drought and bushfires and the (very surprising) underperformance of its United States division for the downgrade.
Treasury said in the statement that its competitors in the US market had engaged in persistent and “aggressive” discounting while unexpected changes in its US management team had also damaged revenues and earnings.
While still expecting earnings to grow, the rate is a fraction of the original forecast. Sales growth also weakened – up 1.9% to $1.536 billion.
Treasury said it now expects reported EBITS (Earnings Before Interest, Tax and the agricultural accounting standard SGARA) growth of 5% to 10% in the 2019-20 financial year. This is down from earlier guidance of 15%-20% growth.
The company also confirmed it was undertaking a strategic review of its internal operating model, with a focus on “accelerating returns from premiumisation and managing the commercial wine business differently”. That sounds like the company is about to overturn the up till now successful management model of departing CEO, Michael Clarke.
While Treasury was scheduled to release its half-year results to the market on February 13, Mr. Michael Clarke said their early release “ reflects the fact that we slightly missed our first half EBITS versus our own expectations and based on our revised full-year forecast our growth rate in F20 will be lower than previously guided.
“This is driven primarily by underperformance in our US results in the first half and is expected to continue through the second half,” he said.
The company said that the recent drought, heat, and bushfires in Australia had most likely created challenges for the cost of the upcoming Australian vintage, now being harvested. But it said its multi-regional sourcing model gave it the flexibility to source wine.
Treasury’s US performance was affected by higher cost of goods sold on Australian-sourced commercial wine, and US-sourced luxury wine, with earnings from the Americas division falling 17% to $98.3 million in the first half.
Shares in Treasury slumped 5.8% on Tuesday to end at $16.68 before the company’s first-half results were released, on a day when the wider market fell 1.3%.
