Treasury Wine share price on watch after FY 2020 guidance downgrade

The Treasury Wine Estates Ltd (ASX:TWE) share price could come under pressure on Wednesday after it downgraded its guidance for FY 2020…

The Treasury Wine Estates Ltd (ASX: TWE) share price could come under pressure on Wednesday after the release of an after-hours update on its first half performance.

a woman

What did Treasury Wine Estates announce?

After the market close on Tuesday, Treasury Wine revealed that its performance in the first half has been impacted by challenging conditions in the U.S. market.

As a result, the wine company only expects to report a 5% increase in net profit after tax to $229.2 million and a 6% lift in EBITS to $366.7 million for the first half.

This has fallen short of management's expectations, which has led to a downgrade to its full year earnings guidance.

Treasury Wine now expects EBITS growth of 5% to 10% in FY 2020. This compares to its previous guidance of 15% to 20% growth. After which, management now expects EBITS growth of approximately 10% to 15% in FY 2021.

What happened?

The company's CEO, Michael Clarke, explained: "The early announcement of our first half results, which remain subject to audit review, reflects the fact that we slightly missed our 1H20 EBITS versus our own expectations and based on our revised full year forecast our growth rate in F20 will be lower than previously guided. This is driven primarily by underperformance in our US results in the first half and is expected to continue through the second half."

One of the reasons for the underperformance was unexpected changes in its Americas leadership, which resulted in a loss of execution momentum.

In addition to this, unfavourable wine market dynamics in the United States also weighed on its performance. These market dynamics have prevented Treasury Wine from recovering higher U.S. Luxury and Australian Commercial costs. 

Mr Clarke concluded: "We are very pleased with our performance across Asia, ANZ and EMEA, all markets in which we are executing well and continuing to deliver improving financial returns for our shareholders. While current conditions in the US wine market are challenging, we are confident that we will re-gain momentum under the new Americas regional leadership team and return the region to growth once the market impacts subside."

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Treasury Wine Estates Limited. 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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