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Treasury Wine Estates share price on watch after half year results release

James Mickleboro
wine

The Treasury Wine Estates Ltd (ASX: TWE) share price will be one to watch on Thursday following the after-hours release of its half year results.

How did Treasury Wine Estates perform in the first half?

As per its trading update at the end of January, Treasury Wine Estates had a softer than expected first half.

According to the release, the wine giant reported net sales revenue of $1,536.1 million for the six months ended December 31. This was a 2% increase on the prior corresponding period.

The company’s top line growth was driven by an 8% improvement in revenue per case due to its premiumisation strategy, offset by volume declines across the Commercial portfolio.

First half EBITS came in 6% higher at $366.7 million with an EBITS margin of 23.95%. Management notes that this is another step forward in its journey towards an EBITS margin of 25% and beyond.

Treasury Wine Estates’ EBITS growth was the result of a strong performance across the Asia, ANZ, and EMEA regions driven by Luxury and Masstige growth. This was offset partially by a loss of execution momentum and challenging U.S. wine market conditions.

The company’s US Luxury & Masstige depletions grew 6% while Commercial depletions declined 10%. This means Treasury Wine Estates has outperformed the US Luxury & Masstige market in both value and volume terms over the past 26 and 52 weeks.

This ultimately led to the company reporting net profit after tax and earnings per share growth of 5% to $229.2 million and 31.9 cents, respectively.

Segment performance.

The Americas business was the biggest drag on its performance, reporting a 17% decline in EBITS to $98.3 million. It recorded an EBITS margin of 16.1%, down 3.6ppts. As mentioned above, a loss of execution momentum, contributed to by unforeseen changes in regional management, was exacerbated by the persistence of challenging conditions in the US wine market.

The standout performer was the Asia business which posted 19% EBITS growth to $175.5 million. This was driven by strong demand and continued execution across key markets, but was offset slightly by a temporary reduction in volume due to a reset in distribution with one large customer. Its EBITS margin lifted 4.2 ppts to 43.1%.

Back home the Australia & New Zealand business reported 10% EBITS growth to $85.9 million and an EBITS margin of 26.4%. The latter was up 3 ppts. This solid result was driven by continued momentum in premiumisation and lower costs, but partly offset by market wide declines in Commercial volumes and temporary changes in the buying patterns of key retailers across parts of its Luxury portfolio.

Finally, the Europe, Middle East and Africa business reported a 1% decline in EBITS to $32 million and the narrowing of its EBITS margin by 0.3 ppts to 16.8%. Benefits from Masstige-led premiumisation were offset by higher costs on Australian sourced Commercial wine.

The company’s Chief Executive Officer, Michael Clarke, said: “While we are very pleased with our performance across the Asia, ANZ and EMEA regions, our first half performance in the Americas has been a setback and is disappointing given the high expectations we have for growth in this important market.”

“The fact that we have continued to deliver sustainable, margin accretive growth despite this setback in one of our key markets is testament to the fundamental strength of our global business model, which sources multi-regionally, sells multi-regionally and is the most self-distributed wine business, globally.”

Outlook.

As it previously announced, Treasury Wine Estates expects reported EBITS growth of 5% to 10% in FY 2020. This is below the previously guided 15% to 20% range.

Looking further ahead, in FY 2021 the company expects reported EBITS growth to accelerate to between 10% and 15%. This reflects continued premiumisation and growth in Luxury wine availability, balanced against the risks associated with challenging US wine market conditions.

Though, it excludes any initiatives from the strategic review into the Commercial wine business and the coronavirus outbreak.

In respect to the latter, the company warned:

“EBITS growth expectations exclude any potential impacts of the recent coronavirus outbreak. TWE’s primary focus is the safety and wellbeing of its people, all of whom are well, in good spirits and currently working from home pending their planned return to the office later in February.”

“While at this stage it is too early to assess financial impacts, should there be a sustained material impact on consumption, this would impact F20 earnings. TWE notes that Asia is a predominantly Luxury wine sales region, and that it has the flexibility to allocate Luxury wines to later fiscal periods and other geographies in order to deliver sustainable earnings growth.”

The post Treasury Wine Estates share price on watch after half year results release appeared first on Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Treasury Wine Estates Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2020