Best and worst performing ASX shares in the staples sector

I recently took a closer look at two ASX shares with highly contrasting stories in 2020.

I’m talking about Treasury Wine Estates Ltd (ASX: TWE) and Elders Ltd (ASX: ELD) – both consumer staples players with fortunes that have gone in opposite directions this year. 

At the time of writing, the Elders share price is the best performing consumer staples stock so far in 2020, with its share price climbing by 74% year to date (YTD). By contrast, the Treasury Wine share price has been the worst performer in the sector – with its share price plunging by around 44%.

Why the Treasury Wine share price has plunged in 2020

Treasury Wine is an iconic Australian company which was established in 1843, and was split from its parent Foster’s in 2011. It’s a well-known, global wine producer with an international portfolio of wine brands such as Penfolds, Beringer, Lindemans, Wolf Blass, Rosemount Estate and more. The company owns over 13,000 hectares of vineyards.

Unfortunately, Treasury Wine has become collateral damage of two major events this year – the coronavirus pandemic and Australia’s political spat with China.

China is currently launching an antidumping investigation into Australian winemakers’ exports to the country. Although most analysts have regarded the investigation as politically motivated, it nevertheless could have a significant impact on Treasury Wine’s future growth. This is due to the fact that China alone contributed 25% of the company’s profits in FY20, making it an extremely crucial market for Treasury Wine.

In addition, Treasury Wine faces competition from big retailers in Australia, where liquor stores owned by grocery giants Woolworths Group Ltd (ASX: WOW) and Coles Group Ltd (ASX: COL) still account for over 50% of total off-premises wine sales, a significant portion of which is the retailers’ private label brands. 

In its full-year results in August, Treasury Wine reported a 36% fall in net profit to $260.8 million, as the COVID-19 pandemic shut restaurants around the world, subsequently causing a United States wine glut. The company paid an 8 cent final dividend, fully franked, which is down 60% on the FY19 final dividend.

Why the Elders share price has sky-rocketed in 2020

Elders is an Australian agribusiness company that provides livestock, feed, wool agency services, grain, and real estate to rural customers primarily in Australia and New Zealand. It also operates red meat supply chains in Indonesia and China. It has 180 years of experience in the industry. 

The Elders share price is having a remarkable run in 2020 despite facing the impacts of drought, bushfire, and COVID-19. It managed to record a $52 million statutory net profit after tax according to its half year results announced in March. This represented a 90% increase from the previous year. 

The company’s revenue was also boosted by the recent acquisition of Australian Independent Rural Retailers (AIRR), which contributed $8.6 million to earnings before interest and tax (EBIT).

COVID-19 appears not to have had a significant financial impact on Elders, as prices of cattle and sheep continued increasing this year. The company’s FY21 earnings will partially depend on the winter crop harvest, which commenced in October.

Foolish takeaway

Both Treasury Wine and Elders are iconic Australian companies with long histories. The two businesses have had a contrasting year to date with regard to their financial and share price performance. External factors such as the pandemic and China appear likely to continue affecting Treasury Wine in the short term. Elders’ main markets are closer to home, and its fortunes have always been tied to Australia’s population growth and favourable weather patterns for its crops.

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Motley Fool contributor Eddy Sunarto has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Treasury Wine Estates Limited. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Woolworths Limited. The Motley Fool Australia has recommended Elders 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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