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Treasury Wine slumps on profit warning
Treasury Wine slumps on profit warning

Winemaker Treasury Wines Estates says price increases, the release of more luxury wines and more promotional activities will help lift earnings in the second half of the financial year.

TWE’s brands include Penfolds, Beringer, Lindeman’s, Wolf Blass and Rosemount Estate.

“A lot of high-end luxury wines will be released in the second half,” TWE chief executive David Dearie told reporters after the company’s annual general meeting in Melbourne today.

“We also take price increases in February of each year.

“The third reason is activities that we’ve got planned in the second half that we didn’t have last year - promotional activities and actions with retailers.”

Mr Dearie said the luxury Penfolds label would be a focus, but TWE would also be doing more with high-end Australian labels such as Pepperjack and Wynns, sometimes referred to as “masstige” wines.

“The second half we’re forecasting at the moment to be a big half,” Mr Dearie said.

Mr Dearie said traditionally the second half was stronger, given there were a lot of holidays in the October/November/December period, including Christmas and Thanksgiving in the United States.

Today, shares in TWE fell more than 7 per cent after the winemaker said trading in the first three months of the financial year had been slow.

TWE said earnings in the first half of the 2012/13 financial year would be about 20 per cent lower than earnings in the same period one year ago.

Despite the slower start to the current financial year, earnings growth for the full year, on a constant currency basis, was expected to be in the mid-single digit range.

TWE shares closed 40 cents, or 7.27 per cent, lower at $5.10.

TWE had said previously that earnings growth in fiscal 2013, on a constant currency basis, was expected to be below the average of 15.8 per cent over the past two years.

“As previously stated, our fiscal 2013 performance is impacted by the weather-affected 2011 vintages in Australia and California, which saw fewer wines produced and at a higher cost,” TWE said in a statement.

It also expects a rise in expenses as it builds its own IT system after demerging from the Foster’s Group in May 2011.

“In light of these challenges and a slow first quarter trading performance in Australia and the Americas region, we have further refined the guidance provided at the full year results,” TWE said.

Morningstar analyst Nathan Zaia said TWE’s performance at this stage was not necessarily indicative of performance in the longer term.

“It’s obviously a soft first quarter, but I think investors shouldn’t really lose track of the long-term picture,” Mr Zaia said.

“This is just one quarter. You shouldn’t get caught up in these short-term glitches.
“Obviously demand is soft in the world for everything. Consumers just don’t want to spend.”

TWE said that it still had a positive outlook for fiscal 2014, underpinned by an exceptional 2012 vintage.

At the release of its full year results in August, TWE had said that earnings in the 2013/14 financial year were expected to rebound to above average growth.