Treasury Wine shares hit new low for 2023 on “challenging” performance outlook

Treasury Wine shares hit new low for 2023 on “challenging” performance outlook

Via Penfolds.

Shares in premium wine producer Treasury Wine Estates (ASX: TWE) have hit a new low for the year to date of around $12 per share this morning after the company released a performance outlook for FY23 detailing ‘challenging’ consumption trends.

Treasury Wine, which counts Penfolds, Wolf Blass, 19 Crimes, Squealing Pig and more in its brand portfolio, says these challenges relate to the entry-level premium wine market in the United States which is showing ‘signs of further deterioration’.

However, consumer demand for luxury wine ‘remains strong’ in all global markets according to TWE, with sales in the Penfolds, Treasury Americas and Treasury Premium Brands divisions in line with expectations.

Penfolds specifically continues to ‘deliver strong momentum in building distribution and consumer demand across a number of key global markets’ according to the vintner, whereas the 19 Crimes portfolio ‘has continued to perform below expectations’.

In this context, TWE expects earnings of between $580 to $590 million for FY23, representing growth of between 11 per cent to 13 per cent on the prior financial year. Group EBIT margin is expected to be approximately 23.5 per cent, compared to a 21.1 per cent margin in FY22.

On the flip side, net selling revenue (NSR) is tipped to fall by 2 to 3 per cent when compared to FY22, with declines in Treasury Americas and Treasury Premium Brands to be partly offset by growth for Penfolds.

“We continually and proactively assess our business performance, our structure and our cost base to make sure we’re in the best position to continue to deliver on our premiumisation and growth strategy,” TWE CEO Tim Ford said.

“With changing consumer preferences and a tightening economic environment in most major markets, we’re taking the opportunity to make changes in our business now, so we have increased flexibility in the future to continue to grow our premium and luxury portfolios.”

Alongside the performance outlook, TWE gave an update on the next step in the evolution of its premiumisation strategy, with the intention to strengthen the operating model and reduce the cost of its Premium Brands division.

These plans involve growing a number of brands including Wynns, Pepperjack, Squealing Pig and 19 Crimes across key global markets - a mandate that’s resulted in this division increasing its contribution to total sales according to TWE.

“The market trends and consumption outlook for commercial wine, however, remains challenged, most notably in Australia and the UK,” TWE clarified.

“In recent years, this has led to further declines in Treasury Premium Brands' lower margin commercial portfolio volumes, a market dynamic that is expected to continue in the future.

“In addition, the ongoing inflationary environment, particularly for packaging materials, is expected to place upward pressure on TWE’s cost of goods in F24.”

Shares in TWE are down 5.41 per cent to $12.07 per share at 11.26am AEST.

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