The Treasury Wine Estates Ltd (ASX: TWE) share price is tumbling lower on Tuesday after the release of an update on its FY 2020 guidance.
At the time of writing the wine company’s shares are down 4% to $11.17.
What did Treasury Wine Estates announce?
This afternoon Treasury Wine Estates provided an update on its earnings expectations for FY 2020 as a result of the ongoing operational impacts from the coronavirus outbreak.
Although the full operating and financial impacts of the outbreak are yet to be fully determined, the company now has sufficient information to conclude that consumption across discretionary categories in China has been significantly impacted in February.
Furthermore, it has reason to believe that this impact on consumption will be sustained through at least March.
As a result, management no longer believes that it will achieve its previously downgraded FY 2020 guidance for reported EBITS growth of between 5% and 10%.
What else did the company announce?
The company also provided information to assist investors with their understanding of the potential impacts from the outbreak on its operating and financial performance in FY 2020.
It advised that infection containment controls mean its staff in China have not yet returned to the office and continue to work from home. The same situation is being experienced by the company’s partnership network. This includes wholesalers, retailers, and logistics providers.
Management notes that its depletions performance leading into the Chinese New Year continued to be strong and in line with its plans. This reflects strong marketing and pull-through programs across its brand portfolio prior to impacts from the outbreak.
However, post Chinese New Year consumption across discretionary categories has been significantly adversely impacted. The company intends to remain vigilant in ensuring its shipments into the market are appropriately calibrated to the rate of depletions once consumption normalises.
The company also has concerns that the coronavirus outbreak could impact its performance in markets outside of China. However, at this stage this is not expected to have a material impact on its FY 2020 performance.
Finally, management notes that Asia is a predominantly Luxury wine sales region. This means it has the flexibility to allocate Luxury wines to later fiscal periods or other geographies in order to deliver sustainable earnings growth. Should the impacts of coronavirus be resolved in FY 2020, it does not expect its FY 2021 plans to be impacted.