Treasury Wine downplays US ‘speed bump’

31 January, 2020 by James Atkinson

Outgoing Treasury Wine Estates CEO Mike Clarke has promised to rectify the company’s American woes following an FY20 earnings downgrade this week.

TWE now expects EBITS growth of between five and ten per cent in FY20, which is below the previously guided 15 to 20 per cent range.

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Clarke said the culprit was the underperforming Americas division, which reported a 17 per cent decline in EBITS to $98.3m and an EBITS margin of 16.1 per cent (down 3.6 percentage points).

“A loss of execution momentum, contributed to by unforeseen changes in regional management, was exacerbated by the persistence of challenging conditions in the US wine market which accelerated in Q2 post vintage,” the company said.

In a conference call this week, TWE executives faced a grilling from Bank of America Merrill Lynch analyst David Errington as to why they persist with the troubled US division.

“I don’t know one person who is investing in this stock who wants to own the US asset,” Errington said.

“I’ve covered Treasury probably in different shapes and forms for over 25 years, and I’ve never seen this business succeed in the United States.

“Why would you persist with this business that’s done nothing but offset this fantastic asset that you’ve got in Australia?”

Clarke responded that TWE has made strong progress in America since he has been in the job, together with COO Tim Ford and CFO Matt Young.

“I’m going to be quite controversial; it would have been fantastic if the people before Tim, Matt and Mike, would have actually rolled up their sleeves and fixed America prior to us doing our jobs,” he said.

“The reality is, we’re in charge of running this business and we’ve inherited this business the way it is.

“I think we’ve improved shareholder value over the last six years… we’ve hit a speed bump this year, and we’re going to address that.

“We haven’t finished fixing the US business, we will get it fixed.”

TWE reported a six per cent increase in EBITS for the half year to $366.7 million, with net profit after tax up five per cent to $229.2 million.

The Australia & New Zealand division reported ten per cent EBITS growth to $85.9 million, while Asia reported 19 per cent EBITS growth to $175.5 million.

“Recent drought, heat and fires in Australia have created some likely challenges with respect to the cost of the 2020 Australian vintage, which is currently in harvest,” the company said.

“While final impacts on the vintage are to be determined, TWE’s diversified multi-regional sourcing model, combined with past investments in luxury inventory which are allocated across multiple financial years, provides a degree of flexibility to manage vintage related impacts.”