“Category consumption trends for entry level premium wine in the United States remain challenging, and have shown signs of further deterioration in recent months,” Mr Ford said.
“Specifically the 19 Crimes portfolio has continued to perform below expectations.”
Heavy cost-cutting is already underway in the Treasury Premium Brands division. The Australian Financial Review reported on May 8 that up to 200 jobs would go in the first stage of the restructuring, with internal meetings held with staff at the time over the looming overhaul.
Mr Ford said on Thursday there would be a review of the commercial wine supply chain, with a big focus on the Australian operations, to reduce costs.
The company will also be “exploring divestiture and/or rationalisation of selected assets, either individually or in combination”.
Mr Ford said the commercial wine category generally faced falling margins, with inflationary costs in packaging and transport adding to profit pressures. “With changing consumer preferences and a tightening economic environment in most major markets, we’re taking the opportunity to make changes in our business now,” he said.
That would enable more resources to be ploughed into the luxury end of the market and the Penfolds business.
The company said on Thursday that it expected to produce earnings before interest, tax and the SGARA accounting standard and material items between $580 million to $590 million. Treasury Wine generated EBITS of $308 million for the six months ended December 31.
Barrenjoey analyst Tom Kierath said the full-year forecast for sales being down 2 to 3 per cent implied a sales decline of about 7 per cent in the June half. He has an “underweight” rating on Treasury Wine and a 12-month share price target of $10 on the stock.
Mr Ford in mid-February said the “execution” in the US market would improve for 19 Crimes, which also has a label featuring home cooking icon Martha Stewart. “We’ve learnt from that and we’ll fix it,” he said on February 15.
But Mr Kierath said there was no sign of that happening in the past few weeks: “It is clear challenging conditions in the Americas remain with the planned 19 Crimes improvement not yet evident,” he said.
The tough times in the lower-end of the wine market have also prompted Australia’s second-largest wine business, Accolade Wines, to undertake asset sales as its private equity owner The Carlyle Group battles substantial debt levels. Accolade is planning to sell one of its most prestigious brands, House of Arras in Tasmania. Accolade has 50 wine brands including big names such as Hardy’s, St Hallett, Petaluma, Banrock Station, Grant Burge and Mud House.
Other Accolade assets are up for sale. Vineyards and the cellar door operations of Banrock Station in South Australia’s Riverland region were put on the market in April for a sale and leaseback deal. The Banrock Station brand, positioned as a “green” brand with strong environmental credentials, will be retained by Accolade, but 235 hectares of vineyards and a well-known tourism centre and wetlands will be sold.
The commercial wines segment has been problematic for Treasury Wine in the last decade after it became a standalone entity when it was de-merged from beer group Foster’s. In January 2020 there was hefty profit downgrade at Treasury because of slowing commercial wine sales in the United States amid a broader wine glut.
In 2013 strife in the US claimed the scalp of then chief executive David Dearie, and resulted in the company using steamrollers to crush thousands of bottles of cheap wine which had built up in distributor warehouses in the US.