Treasury Wine Estates Ltd. (TWE), Australia’s largest winemaker, posted first-half profit that beat analyst estimates as rising Asian sales and cost-cutting limited negative currency movements. The shares surged.
Net income rose 31 percent to A$52 million ($53 million) in the six months ended December from A$40 million a year earlier, the Melbourne-based company said in a statement today. That exceeded the A$47 million median estimate of six analysts surveyed by Bloomberg News.
Better availability of luxury and premium wines over the next six months should support demand for higher-value labels that make up as much as 70 percent of operating profit, Chief Executive Officer David Dearie told an investor call. Treasury has been buying land and planting new vines to develop higher- margin wines as the strong Australian dollar makes cheaper labels less profitable.
“Treasury Wine has performed better than the branded Australian market,” Stuart Jackson, an analyst at JPMorgan Chase & Co. in Sydney, wrote in a note to clients Feb. 5. Asian growth was “extremely robust,” he wrote.
Treasury shares rose 8.2 percent to close at A$5.30 in Sydney, their best performance since July 2011 and a four-month high. The move capped a 36 percent gain over the past year that’s outpaced the 20 percent advance in the benchmark S&P/ASX 200 index.
Forecast Earnings
The winemaker is counting on luxury and high-end products to boost earnings as the strength of the Australian dollar makes lower-priced export labels unprofitable and domestic liquor chains push for cheaper products under their own labels.
The dollar means it’s “hard to compete at more commercial or popular price points,” Dearie said in the investor call. A lack of investment in rebranding Australian wines was exacerbating this effect and the country’s federal and state governments need to do more to support the industry, he said.
The global wine industry is “edging ever closer to supply and demand balance,” Dearie said in a statement, reaffirming a forecast that Treasury’s earnings would grow this year in the “mid-single digits”.
Strong Dollar
The earnings measure excludes interest, tax, and adjustments for the value of vineyards, and assumes no move in exchange rates. The Australian dollar rose 1.4 percent against the U.S. dollar during the six-month period, and ended the year up about 15 percent from its level three years earlier.
Oversupplies of wine have depressed industry profits in recent years.
Global stocks of wine declined by nearly four billion liters between 2006 and 2011 to at least a 10-year low as production slipped below consumption, according to an October report by Rabobank International.
Treasury’s sales during the period declined 1.4 percent to A$851 million as volumes fell 2.5 percent to 16.5 million nine- liter cases.
Treasury, spun off from Fosters Group Ltd. in 2011 before the brewer was taken over by SABMiller Plc (SAB), has posted profit increases in three consecutive semi-annual periods, according to data compiled by Bloomberg.
Earnings before interest, tax, one-time items and adjustments for the values of its vineyards dropped 20 percent to A$73 million as a result of the strengthening of the Australian dollar, the company said.
Overseas sales accounted for about 65 percent of total revenue during the year ended June 2012.
Source: Bloomberg