Australian winemaker Treasury Wine Estates (TWE) has cut its earnings guidance due to the growth of private label wines, disruptive leadership changes and aggressive market pricing in the US.
Ahead of the release of the company’s audited first half results on February 13, TWE chief executive Michael Clarke flagged that earnings are now expected to rise by just 5 per cent to $229.2 million and not 15 per cent as previously thought.
“Suppliers are trying to move surplus wine across the market at lower prices, resulting in an accelerated growth of private label, which is up approximately 15% in a market that is flat to down,” Clarke said in a statement to the ASX.
As a result of this “significant market shift”, Clarke said the business was unable to recover or offset higher US Luxury COGS and higher Australian Commercial COGS. That combined with aggressive market pricing and the rise in private labels saw the business walk away from just under half a million cases of commercial volume in the US.
Clarke, who is set to retire next year, predicted a similar situation in the second half, with stronger growth expected in 2021.
“We have looked at whether we can recover this first half shortfall in the second half, but given the continued market dynamics int he Us, we believe that those aggressive one-off recovery activities, for example pricing, would not be repeatable in F21,” he said.
Clarke said the business is instead focusing on their “journey of sustainably growing profit”, albeit at slightly lower growth rates than previously expected, and reshaping the US management team to rebuild momentum.