December is a crucial month for wine companies
INVESTORS in Treasury Wine Estates (TWE) are bracing for another profit downgrade from the ailing wine group because of soft profit figures for December.
Treasury was scheduled to announce its first-half results on February 20 but after top executives received the latest set of preliminary figures for December, the extent of the fall-off in the United States was enough to prompt an urgent request to the ASX for a trading halt yesterday, which has been granted until early Thursday.
The expected downgrade stems from a poor profit performance in December in the US market, and tougher times in Asia, where austerity measures imposed by the Chinese government have hit sales of higher-priced wines in China.
The downgrade will further damage investor confidence in Treasury, which has experienced a horrific run over the past seven months.
In July 2013 it announced $ 160 million in write-downs related to excess wine that had built up in third-party distributors’ warehouses in the US, and a shock decision to destroy $ 34 million worth of lower-end bottled wine to prevent it from heading onto retailers’ shelves.
Treasury executives and the board are currently reviewing the latest set of internal figures for the company, which sells brands including Penfolds, Wynns, Rosemount and Lindeman’s.
December is a crucial month for wine companies because of the large percentage of sales for Christmas parties, gift-giving and seasonal celebrations.
Part of Treasury’s strategy for dealing with its excess supply in the US was to move more shipments by discounting, but this appears to have worsened the situation for all wine companies, and this was alluded to by rival Constellation Brands three weeks ago.
Citi food and beverages analyst Gino Rossi said on Tuesday that market conditions were poor in the US.
“It’s not a good environment to be trying to clear excess stock,” he said.
Treasury’s interim chief executive Warwick Every-Burns warned at the annual meeting on October 23 that first-half profits were expected to be “lower than prior years” because of lower shipments to the US and increased brand investment in Asia, but said he remained committed to a previous forecast of full-year earnings for 2013-14 of between $ 230 million and $ 250 million.