Treasury Wine Estates share price: The Q1 results unpacked

We examine the highlights from Treasury’s first quarter trading update, released to the market last Thursday.

Treasury share price rallies following first quarter update

The Treasury Wine Estates (ASX: TWE) share price has risen strongly following the release of its first quarter (Q1) results last Thursday, up over 10% in that period. The stock opened stronger on Monday, up 4.23% or 37 cents, to $9.12 per share, by 10:20AM.

Overall, this comes as the wine maker reported that demand continues to recover in Asia, while the company’s masstige portfolio outperformed the broader Australian market during the quarter. Despite that, TWE’s earnings and profits continue to plunge, with management reporting double digit EBITS and NPAT declines.

Speaking to the impact that the coronavirus pandemic has had on the business, Treasury’s Chairman, Paul Raynar said:

‘I want to take this opportunity to acknowledge the dedication and resilience of our team during this past year, who alongside our customers and suppliers, adapted well to the changing environment and trading conditions.’

First quarter results in focus

Despite a challenging operating environment, Treasury saw its net service revenue per case increase 2.6% to $81.9 during the quarter, though overall revenue fell 6.4% to $2.65 billion.

On the bottom-line the picture was even worse: Earnings (EBITS) fell 21.7% to $533.5 million, while TWE's EBITS margin declined to 20.1%. Profits (NPAT) also crashed, dropping 25.3% to $315.8 million, against earnings per share of 43.9 cents.

The company's Return on Capital Employed metric also edged lower, coming in at 10.6% during the quarter; while TWE's cash conversion came in at 94.7%, and improvement of 16.3 basis points.

Looking at some of the company's geographic highlights, TWE saw depletion in Asia rise 14%, while it was noted that consumption was normalising in key South-East Asia markets. In the America's, it was noted that 'TWE's Focus 9 brands continues to outperform the market in retail channels, growing 32% in Q1'. Finally, in Australia & New Zealand (ANZ), wines above the $10 price point were the major growth drivers, with TWE’s masstige portfolio up 21% in the first quarter.

Elsewhere, TWE noted that it had currently put its previously planned Penfolds de-merger on hold, reporting that management 'is assessing internal operating model opportunities to deliver long-term value through a separate focus across its brand portfolios.'

Looking at other developments, TWE said it was working to respond to the China Ministry of Commerce’s anti-dumping and countervailing duty investigations. Despite the challenges imposed by such investigations, Treasury’s Paul Rayner said:

'I want to make the point to shareholders that these investigations do not change our long-term commitment to China as a priority market.'

TWE last traded at $9.05 per share.

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