Treasury Wine Estates has abandoned its profit guidance following weaker-than-expected sales of the premium Penfolds brand in China and ongoing problems in its US business, sending its shares to their lowest in a decade.
The nation’s biggest winemaker, currently without a chief executive ahead of Sam Fischer taking up the role on October 27, has seen about $5 billion in sharemarket value wiped off in the past 12 months as cost-of-living pressures and changing consumer tastes crimp demand.
Wilson Asset Management portfolio manager John Ayoub said Fischer and the board, led by chairman John Mullen, had big decisions to make about the structure of the company and whether to exit the United States market.
“Flick the US and there would be a raft of people who would look at Penfolds,” Ayoub said. They would also need to assess whether the global decline in wine consumption was a long-term trend or cyclical, he added.
The company said Penfolds’ sales in China had been slower than anticipated, forcing it to drop previous guidance for low-to-mid double-digit growth in underlying earnings for this financial year, and around 15 per cent increase in the 12 months to the end of June 2027.
Penfolds, which generates about 60 per cent of the company’s annual profit, failed to hit internal sales targets in September, even though sales had shown modest improvement in August.
Treasury Wine’s shares slumped 13.7 per cent on Monday to $6.02 and are down 47 per cent so far this year.
“Whilst depletions grew in September compared with the previous corresponding period, preliminary data indicates that depletions remain weak relative,” Treasury Wine said, referring to retail wine sales.
If that softer trend continued in the next few months, sales targets for the full year for Penfolds were unlikely to be achieved, the company said.
Fischer, who previously led the Lion beer business, faces a big turnaround job, although the profit warning does clear the decks ahead of his official start later this month. Fischer replaces former chief executive Tim Ford, who stepped down on September 30,
The company halted a $200 million share buyback because of the uncertainty, having already acquired $30.5 million of its own stock.
Changing tastes
The wine industry has been grappling with a decline in consumption in recent years, with people cutting back for health and financial reasons. Younger drinkers in particular are shifting to pre-mixed spirits such as Hard Rated, which has generated annual sales of $500 million-plus for Asahi.
However, Treasury Wine also faces issues in its key Chinese market after the Chinese government restricted public servants from attending large banquets, where Penfolds is often given as a gift.
Ford said in August he was confident Penfolds could navigate a period of softening sales in China, but analysts are more wary. RBC Capital Markets analyst Michael Toner said, “the complete withdrawal of guidance for Penfolds in FY26 and FY27 speaks to the high level of uncertainty caused by evolving consumption dynamics in the Chinese market”.
Treasury Wine has also been grappling with a forced change of distributor in California, warning in mid-August that it had contributed to a reduction in sales of $50 million and an inventory build-up of 400,000 cases of wine.
Shipments in the Treasury Americas business had also been affected by the disruption in the September quarter, the company said in Monday’s update, although the business had been “performing well” outside of California.
Previous distributor Republic National Distribution Company shut down its California operations on September 2, with Treasury switching to Breakthru Beverage Group. The company said on Monday that negotiations were continuing with Republic National over the management of remaining inventory with a sales value of $100 million, which is held by the distributor, and there may be an additional impact on Treasury’s shipments this year.
It also removed previous guidance for overall earnings growth across the company for the remainder of the financial year because of the combination of weaker China sales and uncertainty in North America. During Ford’s five-year tenure, the company expanded in the US with the $1.6 billion acquisition of Californian premium Daou Vineyards in 2023 and the $434 million buyout of Frank Family Vineyards in the Napa Valley in 2021.