Treasury Wine Estates plans leaner future amid US and China slowdown
The Australian wine giant is resetting expectations as demand weakens in its two largest export markets. New chief executive Sam Fischer is prioritising brand protection, cost cuts and balance sheet discipline over expansion.
Treasury Wine Estates’ new chief executive, Sam Fischer, is planning a smaller, less ambitious future for Australia’s largest wine producer.
This is in response to extensive slowdowns in demand in China and the US, its two biggest export markets.
In addition, Treasury will take drastic actions to protect its prestigious Penfolds range against parallel imports (the grey market) and counterfeiting, especially in China.
It is also abandoning its share repurchasing programme at the same time as flagging a review of dividends, potential sales of non-core assets, and reconsideration of planned capital investment.
Earnings warning and sharp market reaction
The company told investors that it expected earnings for the six months to December 31 will be between AU$225 million and AU$235 million, 40% lower than last year and 30% less than the market was expecting.
Sales in America have dramatically underperformed expectations, running at only half the rate that analysts and brokers had predicted.
The company’s shares had been suspended at its request to prevent speculation about what Fischer would announce in his review, but once the news broke, Treasury’s shares slumped by a further 17% to an 11-year low of AU$4.57 before recovering slightly to just below AU$5. Seven years ago, they were priced at more than AU$18.
Management response to category weakness
“We are currently experiencing category weakness in the US and China, two of our key growth markets, which will impact our business performance in the near term.
“Maintaining the strength of our brands and the health of their respective sales channels is of critical importance as we navigate through the current environment,” Fischer said.
“TWE is a high-quality business with strong foundations in place for sustainable, profitable growth. Our powerful portfolio of brands, leading market positions in attractive growth markets, unparalleled supply chain and highly engaged, capable team are all considerable strengths that position us strongly to deliver sustainable, profitable growth over the long-term,” he said.
Cost cuts and transformation programme launched
“We have commenced work to identify opportunities to simplify the way we operate, to strengthen our execution focus right across the business and to realise significant cost benefits.”
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He said he was positioning the business for long-term growth through a company-wide transformation program, TWE Ascent.
The programme has a target of generating AU$100 million per annum in cost improvements, with initial benefits expected to commence in FY27 and full realisation over a three-year period.
China performance mixed as inventories cut
In China, Penfolds depletions rose 21% in the three months to October, though Treasury said growth is now expected to be lower than its original FY26 operating plan due to reduced large-scale banqueting activity.
The company plans to cut China distributor inventories by 400,000 cases worth about AU$215 million in net sales revenue, over the next two years. Shipments contributing to parallel imports will also be significantly restricted.
Americas business under pressure
The Americas division has become a significant headache for Treasury only two years after it spent heavily on buying DAOU. Some believe that at US$1 billion, it overpaid.
Treasury says that demand for luxury wines in the US, especially California, has fallen back further, declining by 2.4% over the latest 26 weeks. Treasury Americas depletions are down 4.6% year-to-date, despite growth outside California.
Distributor inventory outside California is put at 300,000 cases above the optimal level and so will be slimmed over the next two years.
Other regions hold up despite tariff headwinds
Treasury Collective continues to perform in line with expectations in Australia and in Europe and the Middle East, though the US premium wine segment remains in decline.
US tariffs on Australian and New Zealand wines are expected to hit Treasury Collective’s earnings by about $10 million, net of pricing actions.
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