Wine glut gives Treasury a new earnings hangover
Unveiling on Thursday a 52.9 per cent slide in full-year profit to $42.3 million, Mr Dearie also said the company remained committed to its US arm, which he said would return to growth as it churned through a protracted wine glut and poor sales.
Treasury Wine Estates said pre-tax earnings for 2012-13 were $209.2 million, missing its own guidance of $216 million made just last month. It blamed the gap on $7 million unrealised loss on foreign exchange options.
Growth in Asia was met by improved growth in Australia, New Zealand, Europe and the Middle East, but this was not enough to counter dour conditions in its sizeable American business where, to the shock of investors, Treasury Wine Estates last month warned it would have to destroy $34 million of unwanted stock.
Mr Dearie said that after three years in the top job he was yet to see earnings growth across all regional divisions within the same year.
That failure to fire on all cylinders at once was on display for 2012-13. The company recorded growth in three of its four regions as, collectively, Europe, Middle East, Africa (EMEA), Asia and Australia/New Zealand pre-tax earnings were up 17 per cent.
Asia, long promised as the growth engine for the company, saw earnings leap 32.3 per cent to $54.5 million. In Australia/NZ, earnings were up 1 per cent to $110.1 million and EMEA - still a small part of the wine empire - was up 180.7 per cent to $16 million.
But the US continued to cast a pall over the group, as a wine glut, weak consumer confidence and changes to supplier arrangements forced a pre-tax expense of $154.7 million, part of which covered the cost of destroying up to 600,000 cases of poorer quality wine.
This led the Americas division to report flat sales of $704 million and a 15.4 per cent slide in earnings to $66.8 million.
It is forecasting pre-tax earnings this financial year to grow to between $230 million and $250 million. The uplift would be helped by quality, higher-priced wine created up to two years ago that is finally ready for sale in 2014 and 2015.
Frequently Asked Questions about this Article…
Treasury Wine Estates reported a 52.9% fall in full-year profit to $42.3 million. The company said a large pre-tax expense in the US (about $154.7 million) driven by a wine glut, weak consumer confidence and supplier changes was a major factor. It also missed its own pre-tax guidance ($209.2m v $216m) in part because of a $7 million unrealised loss on foreign exchange options.
The US was hit by a prolonged wine glut, weak consumer demand and altered supplier arrangements. That forced significant write-downs and the destruction of poor-quality stock, contributing to a $154.7 million pre-tax expense for the Americas. As a result Americas sales were flat at $704 million and earnings slid 15.4% to $66.8 million.
The company warned it would need to destroy up to 600,000 cases of poorer-quality wine. Part of the $154.7 million pre-tax expense recorded in the Americas covered the cost of that destruction. Earlier the company had also flagged $34 million of unwanted stock that would be destroyed.
No. Chief executive David Dearie said he does not believe the profit hit has made the world’s biggest pure-play winemaker any more vulnerable to a takeover or a forced break-up of its premium wine brands.
Three of four regions grew: Asia earnings rose 32.3% to $54.5 million, Australia/New Zealand were up 1% to $110.1 million, and EMEA jumped 180.7% to $16 million. The Americas lagged, with flat sales of $704 million and a 15.4% fall in earnings to $66.8 million.
The company is forecasting pre-tax earnings for the next financial year of between $230 million and $250 million. Management says the uplift should be helped by higher-quality, higher-priced wines made up to two years ago that will be ready for sale in 2014 and 2015.
Treasury Wine Estates said it missed its own pre-tax earnings guidance partly because of a $7 million unrealised loss on foreign exchange options, which reduced reported earnings for 2012–13.
Yes. CEO David Dearie said the company remains committed to its US business and expects it to return to growth as it works through the wine glut and weak sales. He also noted that, after three years as CEO, he has yet to see earnings growth across all regions in the same year.
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