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Treasury Wine Estates share price: latest business update examined

We look at some of the highlights from Treasury’s latest business update, including expectations around FY20 earnings (EBITS).

TWE Source: Bloomberg

Treasury Wine share price falls following trading update

Iconic Australian winemaker and distributor, Treasury Wine Estates (TWE), on Thursday provided the market with what was perceived as a disappointing preliminary FY20 trading update.

Indeed, in the first half-hour of trade the Treasury Wine Estates share price sunk as low as $10.610 per share – a dramatic decline when considering the stock's 52-week high of $19.470 per share.

Share price gyrations aside, today’s market update – coinciding with the recent commencement of Treasury’s new CEO, Tim Ford – though disappointing, should come as little surprise for those following the company. In February, for example, TWE withdrew its EBITS growth guidance as a result of the covid-19 pandemic.

Even so, as part of today’s trading update, Treasury said it expected its full-year earnings (EBITS) to come in at between $530 million to $540 million – implying a year-over-year decline of 21%. These results, said the company, were driven by the covid-19 pandemic, which has seen demand fall significantly.

On a more granular level, full-year EBITS from the Americas region are expected to decline by ~37%, the Asian region by ~14%; while earnings from TWE’s Australian segment are expected to drop by ~16%.

In spite of those declines, Treasury’s new CEO, Tim Ford said:

'Both myself and the leadership team, which I have immense confidence in, strongly believe that TWE is very well positioned to manage through and beyond the currently impacted trading environment in markets around the globe, and believe that the challenges we have faced will lay the platform for an even stronger business into the future.'

Is the situation improving?

Although today’s trading update highlighted a number of negatives, TWE reported that trends were improving in a number of the company’s key regions. Indeed, while depletions in TWE’s Chinese market declined more than 50% during February and March, between April and May they increased 1% – on a year-over-year basis.

Trends in the US market have also improved since early 2020, with TWE reporting strong value and volume growth since March.

By contrast, in Australia, retail channel performance has remained strong, though luxury wine sales have struggled.

Other bits and pieces

Elsewhere, further commentary was also provided on the previously announced, though yet to be finalised, Penfolds de-merger. Here it was noted that recent work undertaken by the company validates 'the expectation that value will be created through a separate focus for both Penfolds and TWE's other brands, globally.'

Should it go ahead, the company is aiming to have the de-merger finalised by the end of CY21.

At the end of fiscal 2020, TWE had total available liquidity of $1.4 billion – made up of $448 million in cash and $920 million in undrawn debt facilities.

The company said it would not be providing FY21 earnings guidance at this time, due to elevated levels of uncertainty as a result of Covid-19. Even so, providing some perspective on the company’s outlook, Mr Ford said:

'While it is right to remain cautious on the near-term outlook, given uncertain remains around the timing and pace of recovery in our key markets, we remain optimistic around our return to both margin and profit growth.

TWE’s full-year results are set to be released on 13 August.

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