Treasury Wine tips US glut down sink

Treasury Wine Estates chief executive David Dearie has defended the wine company's commitment to stay the course in the US market, despite an oversupply of wine among local distributors and warehouses bulging with unwanted aged stock triggering a surprise $160 million writeoff.

Shares in Treasury fell by more than 12 per cent when the world's biggest pure play winemaker and owner of brands such as Penfolds, Wolf Blass and Yellowglen announced it would take a pre-tax hit to its earnings to help rid the key US market of aged and excess wine stock as well as cope with a restructure of its distribution system into America, which will lead it to carry extra wine and onerous grape contracts on its balance sheet.

Under sustained pressure from analysts yesterday to explain the latest ills in Treasury's biggest export market, chief executive David Dearie said a decision to pour $35 million worth of wine down the drain and hand over another $40 million in discounts to middlemen was a one-off and absolutely necessary for the long term success of the US business.

"I have made these hard but necessary decisions to set our business up for future success," Mr Dearie said in an investor update.

"As a brand-conscious and quality-focused business we want to ensure our consumers are offered the best quality wine brands.

"The intent is to rebase the US inventory levels ... a one-off rebasing of inventory levels in the US ... taking that excess inventory out of the system and we don't see it as an ongoing process."

A more efficient distribution model into the US, the winemaker's most important market, would also see it ship less wine to the region in fiscal 2014, which would slice pre-tax earnings by $30 million.

Treasury shares were sold down heavily and later closed down 71¢ at $5.11.

Mr Dearie said this reduced shipment would equate to a reduction of between 1.5 million and 2 million cases exported to the US from the 15.7 million cases shipped off in 2012.

But analysts were scathing of the oversupply and distribution shake-up, pushing for Treasury on Monday to sell the US business it inherited from Foster's. "Foster's had this business for 13 years and in my recollection I can't remember ever getting the US right," said Merrill Lynch analyst David Errington.

But Mr Dearie said Treasury would eventually receive the benefit of a new leadership team and a gradual shift by consumers up the price curve to drink more luxury wines, which was well covered by Treasury's US wine portfolio.