Treasury Wine Estates unveils $100m cost-out plan amid downturn in US, China

New Treasury Wine Estates boss Sam Fischer has his hands full executing a turnaround for the struggling winemaker, which has announced an overhaul program targeting $100 million in savings amid weakening demand in the US and China.

At the same time, Australia’s biggest vintner on Wednesday cancelled its $200m share buyback, first announced at the full-year results in August.

Mr Fischer is now forced to transform the embattled winemaker — behind the famed Penfolds brand, along with 19 Crimes, Wolf Blass, Lindeman’s, Squealing Pig, Blossom Hill and Wynns labels — at the start of his tenure as chief executive.

Fronting shareholders for the first time since he stepped into the role on October 27, Mr Fischer said the company was seeing continued weakness in economic and category dynamics, particularly in the US and China, its two biggest markets.

TWE now expects first-half earnings before interest and tax of between $225m and $235m, about 30 per cent below consensus.

The company said it would take “deliberate strategic action” by cutting shipments of 700,000 cases of wine across the US and China — equivalent to $340m in net sales revenue — over a two-year period, starting from the second quarter.

It would also significantly restrict shipments that were contributing to parallel import activity, or unauthorised selling, in China “to protect the strength of the Penfolds brand”.

TWE’s share price plunged 11.5 per cent to $4.86 in early trade before recovering slightly to close at $4.98.

“We are currently experiencing category weakness in the US and China, two of our key growth markets, which will impact our business performance in the near-term,” Mr Fischer said.

“Maintaining the strength of our brands and the health of their respective sales channels is of critical importance to our management team and our board as we navigate through the current environment.”

Earnings at the company’s flagship luxury brand Penfolds are expected to hit $200m in the first-half, an 11 per cent miss on RBC Capital Markets’ expectations.

TWE said Penfolds’ depletions — wines sales from distributors to retailers and consumers — in China rose 21 per cent in the three months to October, but growth was expected to slow as consumer preferences shift from large banquets to lifestyle-oriented occasions.

Meanwhile, depletions for Treasury Americas’ — which includes the Californian wine operation DAOU — declined by 4.6 per cent in the year ending November amid changing consumer drinking patterns.

TWE is now implementing an overhaul program program, called TWE Ascent, which will target $100m in cost improvements per year. Most benefits will not start flowing until the 2027 financial year and beyond.

It comes just over two weeks after TWE told shareholders 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.

The non-cash impairment was “in response to further moderation in US wine category trends”.