(Dec 17): Treasury Wine Estates Ltd’s stock sank after the company announced an overhaul including asset sales and cost cuts, as the Penfolds producer tackles weakening demand in its key markets.
The shares plunged 17% in Sydney, the most since August 2020, as the company on Wednesday cancelled an uncompleted AUD200 million ($171.12 million) stock buy-back and said it’s reviewing planned capital investments.
The moves come as chief executive officer Sam Fischer is forced to transform the struggling winemaker at the start of his tenure.
“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,” Fischer said in a statement.
Trading of Treasury’s shares was halted earlier this week. The stock slumped to its lowest in a decade two weeks ago after the company announced it would write down the value of its US business by nearly A$690 million due to a forecast decline in cash flows. A recent crackdown by Beijing on boozy government banquets is already having an impact in the China market, Melbourne-based Treasury has warned.
Treasury will reduce customer inventory in the US and China as part of Fischer’s reset, reflecting moderated demand expectations. The new CEO is also targeting AUD100 million in annual cost cuts, realised over two to three years.
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“The key unknown is how the company is going to drive sustainable top-line growth in China and the Americas, which, given category dynamics, is going to be challenging,” Citigroup Inc analyst Sam Teeger wrote in a note after the announcement.
Treasury’s Wednesday update was “materially weaker than expected,” added Teeger, who has a sell rating on the stock.
Challenges in the winemaker’s Americas business have been mostly attributed to a distributor transition in California, after its incumbent provider Republic National Distribution Co. closed operations in the state earlier this year.
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Ultra-luxury wines — a segment in growth globally — are performing below expectations, Treasury said.
Luxury wine trends continue to moderate in the US, declining 2.4% in the latest 26 weeks compared to the 3.5% growth reported in the company’s June update.
Uploaded by Jason Ng
