US hangover drains almost $700m from Penfolds owner Treasury Wine Estates

A changing US wine market will blow an almost $700 million hole in Penfolds owner Treasury Wine Estates’ books.

Australia’s biggest vintner told shareholders on Monday that it would write down the value of its Americas business by $687.4m because of a forecast 11 per cent yearly decline in future cash flows.

“While a number of TWE’s larger brands continue to grow ahead of market — including DAOU, Frank Family Vineyards and Matua — in response to further moderation in US wine category trends, TWE has applied more conservative long-term market growth assumptions, resulting in reduced long-term earnings growth rates, which will impact carrying values within the Treasury Americas and Treasury Collective-Americas cash generating units,” it said.

The non-cash impairment will see all goodwill in the division being written off.

TWE is also behind the 19 Crimes, Wolf Blass, Lindeman’s, Spealing Pig, Blossom Hill and Wynns labels

Its share price plunged to a 10-year low in October after the company announced it was scrapping its earnings guidance and pausing a share buy-back due to an uncertain outlook in China and the US.

They fell further on Monday’s blow, dropping 5 per cent in the opening few minutes before rebounding to be 2 per cent down at 11am AEDT to $5.71.

Trouble in its Americas business have been largely attributed to a distributor transition in California, after its incumbent provider Republic National Distribution closed operations in the state in September.

Treasury’s investors had been hoping that the removal of trade barriers imposed by the Chinese government during the COVID-19 pandemic would lead to strong sales growth in the important market.

However consumption to date has been slower than expected. It reported in October that stock depletions for Penfold in China throughout September had been lower than expected, which it blamed on a weaker mid-autumn festival season.

But TWE’s difficulties are part of a global trend that’s seeing winemakers grapple with weakening demand, partly due to changing drinking patterns among younger consumers.

The company said it would hold an investor call in mid-December following longtime beverage executive Sam Fischer’s transition into the chief executive role.