Treasury Wine settles US dispute as shares surge

The Penfolds owner has resolved a damaging commercial dispute in its largest export market, driving the company’s share price to its best performance in more than four months.

Treasury Wine Estates will buy back unsold stock from Republic National Distributing Company (RNDC) in California, according to a statement released on Tuesday. The arrangement brings to a close a conflict that began last June when RNDC announced its withdrawal from the state, creating upheaval in a market the Melbourne vintner had spent years cultivating.

Under the agreement, Treasury Wine will acquire inventory from its Treasury Americas and Treasury Collective portfolios at the original purchase price, adjusted by a confidential sum that compensates RNDC for losses incurred through the closure, Reuters reported. The net cash requirement for the half-year ending June is expected to reach US$65 million, according to Bloomberg.

Chief executive Sam Fischer said in the company’s statement that “we are pleased to have reached this resolution” following what he described as a “significant impact” on Treasury Wine’s performance from RNDC’s California departure.

Market reaction and revised guidance

The shares climbed 8.12% to AU$5.59 during Tuesday’s session, marking the largest intraday advance since 27 September 2024, according to Reuters. The rally represented a welcome reversal for a stock that had fallen to decade lows just two months earlier.

The company simultaneously lifted its earnings forecast for the six months through December. Management now expects earnings before interest and taxes of approximately AU$236 million, up from previous guidance of AU$225 million to AU$235 million. The figure remains well below the AU$391.4 million recorded in the corresponding period a year ago. Full results are scheduled for release on 16 February.

Turbulence in key markets

Treasury Wine had already been grappling with disappointing returns from China, where consumer preferences have shifted away from the premium wines that form the backbone of the Penfolds range. The company recorded a AU$687.4 million non-cash impairment against its American operations in December and suspended what remained of its share buyback scheme.

RNDC operates as one of America’s principal wholesale distributors of wine and spirits. The firm’s decision last month to explore the sale of operations in seven states prompted Citi analysts to warn of potential damage to Treasury Wine’s earnings, as the vintner relies on RNDC distribution in at least five of those territories, according to Reuters.

The California situation had already compelled management to reduce profit expectations and withdraw formal guidance. In a research note, Morgans analysts said performance was running below expectations, particularly in the United States. Citi responded to the accumulating concerns by downgrading Treasury Wine to sell with an AU$4.80 target price, implying further declines ahead, as reported by the drinks business.

Related news

Treasury Wine Estates shares slide as US doubts deepen

Investor Olivier Goudet lifts Treasury Wine Estates shares

Treasury Wine Estates plans leaner future amid US and China slowdown