The Treasury Wine Estates Ltd (ASX: TWE) share price slumped 7% early today following soft earnings and China’s anti-dumping investigation into Australian wine exports. Here’s the run down from this morning’s AGM.
Performance update
The first quarter performance update was largely positive, driven by positive underlying trends across various geographies.
Treasury Wine experienced a progressive recovery in demand throughout the Asian region in Q1 with depletions up 14%. Depletion is defined as units sold at retail to the end consumer.
In China, positive momentum continued throughout key periods such as the mid-Autumn festival and Golden Week holiday period. Smaller Asian markets such as Southeast Asia is also experiencing a normalisation in consumption despite on-premise and travel retail channels being impacted.
In Australia and New Zealand, Treasury Wine products above the $10 price point are driving retail market growth. Its masstige portfolio is growing ahead of the market, up 21% in Q1.
The Americas region was the hardest hit by COVID-19 as a result of challenging wine market conditions and impacts to key sales channels outside of retail and e-commerce. Its Focus 9 brand has been a solid performer in retail channels, growing 32% in Q1.
The AGM presentation highlighted the oversupply of Californian wine in the US. The company will refocus its efforts on premium wines and reducing wine production volumes.
Finally, demand through its retail challenges remain strong in the UK with Treasury Wine’s portfolio growing 17% in Q1.
Chinese investigations into wine dumping
In mid-August, China launched an anti-dumping investigation into Australian wine exports. This follows claims that Australian winemakers were selling bottles of wine at below cost to deliberately crowd out local products and claim a bigger market share.
On Wednesday, Treasury Wine advised that the China Alcoholic Drinks Association had submitted a written request to the Chinese Ministry of Commerce that imports of Australian wine in containers of two litres or less into China be subject to retrospective tariffs.
Commenting on the investigation, Treasury Wine chairman Paul Rayner said:
We respect the process initiated by the Chinese government and will continue to fully cooperate as these investigations continue. These investigations do not change our long-term commitment to China as a priority market.
Treasury Wine’s dependency on China as a growth market and the recent investigation paints uncertainty over what will happen next.
The Treasury Wine share price has slumped more than 10% since Wednesday. After an initial 7% fall after the AGM this morning, shares have rallied slightly trading down 5.77% to $8.17 at the time of writing.
Looking forward
The company highlighted its increasing optimism around the prospects for earnings recovery from the second half of FY20 in each of its markets outside China. This optimism is supported by the positive underlying trends outlined across each of its markets through the first quarter.
Despite this, events in China have added significant uncertainty and the company did not provide any earnings guidance.
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Returns as of 6th October 2020
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Motley Fool contributor Lina Lim 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.
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