January 28, 2020 / 9:27 AM / a month ago

Treasury Wine lowers outlook, U.S. tactics, Australian fires threaten margins

(Reuters) - Australia’s Treasury Wine Estates (TWE.AX) on Tuesday lowered its fiscal 2020 and 2021 earnings expectations, citing pricing pressures and increased competition at its United States business.

FILE PHOTO: Bottles of Penfolds Grange, made by Australian wine maker Penfolds and owned by Australia's Treasury Wine Estates, sit on a shelf for sale at a wine shop in central Sydney, Australia, August 4, 2014. REUTERS/David Gray

The impact of global trade disputes and severe weather and fires in Australia also threaten to erode margins.

The owner of the Penfolds and Wolf Blass labels expects EBITS (earnings before interest, tax, and the agricultural reporting standard SGARA - self-generating and regenerating assets) growth of about 5% to 10% for 2020. That compares with an earlier range of 15% to 20%.

Treasury blamed unexpected changes in its U.S. management team and higher costs from promotional activity in the U.S. market, where suppliers have moved surplus wine across the market at lower prices.

Private label businesses generally source wine from third-party manufacturers, which they sell under their own brand - an increasingly popular trend in the United States.

“Further, impacts from the trade war and above average recent vintages have led to increased levels of supply across the market, which has contributed to high levels of discounting,” Treasury said in a statement.

Treasury added that drought, heat and fires in Australia have created challenges that threaten to drive up the cost of its 2020 Australian vintage wine, which is currently in harvest.

The company reported half-year net profit after tax at A$229.2 million, up 5% from the previous year.

Unable to continue the aggressive pricing activities it employed in delivering the first-half result, Treasury said it would instead focus on “sustainably growing profit” into 2020 and 2021, albeit at lower growth rates than expected.

Reported EBITS growth for fiscal 2021 was expected to recover slightly from 2020 and was seen at about 10% to 15%, helped by continued demand for its luxury wine labels - a category that includes Penfolds, Beringer and Stags’ Leap.

Reporting By Rashmi Ashok and Rushil Dutta in Bengaluru; Editing by Tom Hogue and Barbara Lewis

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