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Treasury Wines: We’re on track to deliver strong multi-year growth

The Treasury Wine Estates Ltd (ASX: TWE) share price has recovered around 20% since it handed in its profit report on February 14 2019 to a mixed reception from investors.

Today the company’s management team reaffirmed its guidance for it to deliver EBITS growth around 25% in fiscal 2019 and 15% to 20% in fiscal 2020. Those are some impressive forecasts, although a lot can change out to June 2020.

Today the group also warned investors not to read too much into the data of industry body Wine Australia over  wine exports for the quarter ending March 31 2019.

“The use of short term trade export and import data can be misleading with respect to TWE’s underlying trading performance in the Asia region as it does not consider key structural differences in the Company’s business model, the premium mix of TWE’s portfolio, nor the variability in its export shipment profile,” commented Treasury’s CEO.

In the past Treasury has also been dogged by unverified media reports that Chinese wholesalers and distributors had a lot of unsold inventory sitting on their shelves to suggest Treasury’s short-term growth may not be as strong as it appears on face value.

For example a company can take in cash from wholesalers before its product is actually bought by consumers, or can even book revenue in accrual form before the cash is even taken in from the wholesaler.

Historically we’ve seen other semi-fast-moving China-facing consumer goods companies such as Blackmores Limited (ASX: BKL) and Bellamy’s Australia Ltd (ASX: BAL) report wild swings in China sales due to any number of reasons including inventory management.

I’m not a buyer of Treasury shares due to its debt profile, varying profit margins, and unpredictable nature of the industry it operates in as I see it. However, that’s not to say it might not produce strong returns over the long term.

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Motley Fool contributor Tom Richardson owns shares of Blackmores Limited.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia owns shares of and has recommended Blackmores Limited and Treasury Wine Estates Limited. The Motley Fool Australia has recommended Bellamy's Australia. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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