Treasury in trouble again...

[JDSJDS]

I haven't seen this mentioned. It looks like Treasury is in trouble again, especially in the US. This was from the Wall Street Journal about 6 days ago.

SYDNEY–Treasury Wine Estates could consider quitting the U.S. after the Australian producer announced almost US$395 million in fresh impairments in response to global consumers’ reduced appetite.

“The operational and strategic review of the Americas remains ongoing, with Treasury Wine having appointed advisors to support the review of all available options across the Americas brand portfolio, operating model and asset base.”

Treasury Wine said it would immediately cut volumes and offload excess U.S. inventory through bulk channels. It had already flagged plans to sell some California wineries and consolidate production in an effort to reduce costs.

The latest move will incur a non-cash cost of 558.4 million Australian dollars, equivalent to US$394.7 million, and comes on top of the A$770.5 million impairment that dragged Treasury Wine to a A$649.4 million December-half statutory loss.

Treasury Wine, which produces Penfolds in Australia and operates U.S. brands including Daou and Frank Family Vineyards, will now recognize A$1.33 billion in U.S. asset impairments when it announces its annual results later this week.

[Sean]

The TWE annual result was posted last Thursday.
Some of the numbers are positive while others are horrendous.
Net Sales Revenue up 12.8% to A$2.6 billion.
EBITS up 19.2% to A$492 million.
The EBITS number came in ahead of guidance, so that got a positive reaction from brokers.
(That seems to be the universal test in reporting season these days.)
Statutory NPAT loss of A$1.1 billion after A$1.3 billion in post-tax material items.
No dividend again for shareholders.
Much of the impairment losses was the US division, which is no surprise.
It is a wine consumer wasteland for Australian businesses to wreck themselves on.
Remember them paying A$434 million for Frank Family in 2021 and another A$1.4 billion for DAOU in 2023 to get entry into the so-called luxury wine market.
Well how is that going?
The US investment is huge and probably worth half the company. Frank Family also has a board seat and paid ongoing vineyard & consulting fees.
The mid-financial year report card had already numbered in a huge US asset write-down. That half-year result was a A$650 million loss.
So this is looking like a huge mistake they still haven’t dug themselves out of.
But the new CEO is following a well trodden path of starting his tenure with a big write-down to clear the decks.
Also the premiumisation strategy is well under way. This time they will be dumping US brands as well as Australian ones.
They are super focused on the markets where they can win their biggest margins - so China & Asia features in that.
Funny the brands they think will achieve that.
The so-called Power Brands are Penfolds, Matua & DAOU.
Penfolds is obviously their best earner bringing in 39% of the Net Sales Revenue this financial year. Also has a ridiculous EBITS margin of 40%.
In comparison, the Treasury Americas margin is a paltry 15.7%.
In Australia, Pepperjack, Squealing Pig, Wynns & Coldstream Hills get a mention in the annual report.
In the USA, Frank Family, Beaulieu Vineyard & Stag’s Leap.
They are cutting back the brand portfolio from 70 to 30, so many familiar names will disappear.
Some of them have already been trashed by Treasury (get the irony of that), so probably not much value to anyone now - old names like Beringer (Foster’s paid A$1.5 billion in 2000 for that), Lindemans, Wolf Blass & Seppelt.
They don’t care about the fallout from shedding grape contracts, vineyards and wineries while they do that - ie. the human cost & longer term damage to those rural economies.
What they do care about is the share price.
The SP hit a 12 month low in April at $3.34 & now up to $5.90 on a strong uptrend.
I guess if you got a longer memory you will know it is a long way off the $18 highs in 2018.
Macquarie dumped their stake, but the buying is trudging on.
So you can run a company into the ground and announce a billion dollar loss, and the share price still goes up.
How does that make sense? WTF do I know.

[JamieAdelaide]

Always extraordinary reading.

Frank Family is being dumped in Hong Kong for half the price of the USA.

[GraemeG]

I've always reckoned it's a hard sell to ship your wine into a wine-producing country and expect to have long-term success. They tried that enough already, so buying a local operation was always a better bet. But it seems a rule that Oz wine companies ALWAYS overpay when buying overseas businesses. 30+ years ago I worked for Burns Philp, who burnt endless vaults of shareholders' money buying a spice business called Tone Brothers in the USA to take on McCormicks; a family business who effectively had 80% MS. The purchase strategy seemed to be to just keep piling money on the table until the owners couldn't believe your offer. And of course, it went about as well as you'd imagine...
Why am I not surprised that Treasury have made the same mistake?
Fancy managing to trash Beringer in the US, and Lindemans in Aus! Just astonishing. Penfolds might be doing alright financially right now; I guess because it's the only brand with any real international cachet it will be OK. But I wouldn't but it beyond them to bugger it up as well.
Surely Treasury shares must be junk level status? You'd only buy them if you were prepared to effectively gamble the capital, and hope you could ride the price sine-wave better than romantic mug punters. You certainly wouldn't buy them expecting regular dividends!

[Mike Hawkins]

It’s fairly easy to see how this will be turned around. Keep flogging labels and wineries, retain the decent vineyards, and reallocate those grapes to Penfolds given the decent margins. I can see a time where Penfolds volumes will double or triple, particularly at the lower ‘bin’ levels. It will be a shame to witness, so I hope I’m wrong.

[ticklenow1]

The thing that gets me is, all those CEO's that made the horrendous decisions to buy these underperforming assets, no doubt got huge bonus's and moved onto other jobs without a blemish....and the workers always get the blame for underperforming companies.

[Chuck]

World wide wine consumption down 10% from peak as supply increased. A recipe for disaster. To be fair no-one could have picked that as majors chased growth at all cost. Hopefully smaller family owned wineries etc that kept to their knitting with low to no debt will pull through but at the expense of profits. They have been here before but how long does this go on? There's one or two SA based groups that went on debt fuelled buying binges over recent years that could be in trouble. They are discounting their wines incredibly and trashing labels just to keep the lights on.

[GraemeG]

It’s fairly easy to see how this will be turned around. Keep flogging labels and wineries, retain the decent vineyards, and reallocate those grapes to Penfolds given the decent margins. I can see a time where Penfolds volumes will double or triple, particularly at the lower ‘bin’ levels. It will be a shame to witness, so I hope I’m wrong.

Surely that's been a long term approach that's already long underway. Whatever vineyards made the Lindemans trio, Seppelt Dorrien, etc, no doubt feed into Penfolds now. The notion that you could throw Bin 169, RWT/798, Bin 150/Marananga plus more one-offs into the annual mix without affecting the quality of Bin 389 is frankly laughable. No wonder they're coy about production volumes...

[phillisc]

It’s fairly easy to see how this will be turned around. Keep flogging labels and wineries, retain the decent vineyards, and reallocate those grapes to Penfolds given the decent margins. I can see a time where Penfolds volumes will double or triple, particularly at the lower ‘bin’ levels. It will be a shame to witness, so I hope I’m wrong.

Surely that's been a long term approach that's already long underway. Whatever vineyards made the Lindemans trio, Seppelt Dorrien, etc, no doubt feed into Penfolds now. The notion that you could throw Bin 169, RWT/798, Bin 150/Marananga plus more one-offs into the annual mix without affecting the quality of Bin 389 is frankly laughable. No wonder they're coy about production volumes...

I wouldn't mind actually if TWE split Pennies and sold off the rest...then hopefully the labels we all revered from days gone by get a bit of love under new ownership.
Cheers Craig