Penfolds maker’s profits set to plunge on China, US weakness

A further deterioration in demand in US and Chinese markets is set to spark a 40 per cent plunge in Penfolds producer Treasury Wine Estates’ profit for the first half of the financial year, with the company now conceding any improvement in the near term is “unlikely”.

The news sent the company’s share price tumbling, falling 16.4 per cent to $4.60 after market open before recovering to close at $4.94. It continues a torrid 12-month run which has more than halved the winemaker’s sharemarket value since January.

In an ASX announcement on Wednesday morning, the winemaker said it would significantly cut its inventory in both China and the US and curtail imports to boost sales and improve the perception of its upmarket Penfolds brand, something newly appointed chief executive Sam Fischer said was “critical”.

“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,” he said.

Treasury said its first-half earnings were now expected to come in at between $225 million to $235 million, a 40 per cent decline on the $391 million in the first half of the 2025 financial year.

The news comes after Treasury earlier this month wrote off over $687 million in value for its Americas business, which it had grown extensively under former CEO Tim Ford.

In the Americas division, depletions – which measure wine sold to consumers, rather than just distributors – were sluggish, falling 4.6 per cent for the year-to-date, with Treasury saying it would cut 300,000 cases from its inventory in the region, worth $125 million.

Talking to analysts following the announcement, Fischer was served a spray by veteran Bank of America retail analyst David Errington, who questioned the need for the company to have a presence in America at all.

“Why are you committing to the US? Why? Because to me, it sounds like the US is in real trouble,” Errington said. “I’ve seen three [Treasury] CEOs lose their job over the US. I don’t want to see a fourth.”

Under Ford, Treasury spent billions of dollars expanding in America, purchasing high-end California producer Daou Vineyards for $1.6 billion in 2023 and luxury chardonnay maker Frank Family Vineyards for $434 million in 2021.

Fischer defended the company’s US expansion, saying the country was the largest luxury wine market in the world and the winemaker just needed to nail its execution, with the executive set to visit its operations there in the new year.

“If you’ve got a strong position that allows you to get a decent share with distributors, then there’s no reason why, through great execution, you can’t see consistent returns,” he said.

Notable changes could be on the cards, however, with Fischer also announcing a full re-assessment of Treasury’s portfolio and operating model in an internal review dubbed “TWE Ascent”, with the goal of cutting $100 million, per year, in costs over the next two to three years.

TWE Ascent will analyse the company’s position in key markets and its structure, with Fischer saying management hoped to see the first cost savings in the 2027 financial year.

“We have commenced work to identify opportunities to simplify the way we operate, to strengthen our execution focus right across the business and to realise significant cost benefits,” he said.

These opportunities could see the company refocus some of its efforts on different wines, including lighter varietal and refreshment styles, Fischer said.

“I’m energised by the opportunity to accelerate a transformation agenda to reshape TWE for its next era, leveraging these strong foundations. I look forward to providing our investors with updates on our progress over coming months.”

Penfolds, which makes up 60 per cent of Treasury’s earnings, has seen weaker sales growth for its “ultra-luxury” division, with sales in China especially coming in below expectations. As a result, Treasury will reduce its inventory in the country by 400,000 cases, valued at $215 million.

Treasury has been looking for a new distributor in the US after a key player, Republic National Distributing Company, in June said it would stop operations in California from September. The company said negotiations were still ongoing.

It also cancelled a $200 million share buyback, which the company had previously paused with just $30.5 million already completed.

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