Going sour on Treasury

After a $160 million write-off, analysts have savaged Treasury Wine Estates with Merrill Lynch urging David Dearie to sell the company's US business.

Treasury Wine Estates chief executive David Dearie could be forgiven for wanting to retreat to a cellar and sample some Penfolds Grange in an effort to forget a conference call this morning. Analysts vehemently criticised Dearie after he announced $160 million of provisions that centre around the company’s US business. These one-off provisions will wipe out any chance of the company making a net profit in its 2013 financial year. The stock plunged as much as 13%.

Credit Suisse’s Larry Gandler called Dearie’s reiteration of a $216 million cash flow forecast for Treasury Wine as “disingenuous” after the company said it will destroy $35 million worth of “old and aged” wine in the US, provide $40 million in rebates and discounts in the US and write-off a further $85 million in “excess bulk, finished wine and some onerous grape contracts”.

Moreover, during its 2014 financial year, Treasury Wine will reduce its US shipments. That will cost the company another $30 million. All this prompted Merrill Lynch’s David Errington to tell Dearie he should sell his US business.

Errington’s rationale is that the company under Foster’s tutelage nor under Dearie has never been able over 13 years to make money for shareholders. This inability to “execute on a business plan”, as Errington says, has happened even as the value of Treasury Wine’s US business has increased in value.

The Merrill Lynch analyst reckons Treasury Wine could sell its 2200ha of US vineyards at between $US300,000 to $US500,000 a hectare. That could get Treasury Wine as much as the eye-popping figure of $US1.1 billion for its US vineyards and does not include any money the company could get for its wineries, bottling facilities and the value of its US brands (see Tim Treadgold's In vino, value?).

Errington may yet have his way if Treasury Wine shares continue to plummet. At 1306 AEST the stock was down 61 cents, or 10%, to $5.21. Treasury Wine shares were the worst performing among all S&P/ASX200 Index stocks today, according to Bloomberg data.

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