Treasury Wine Estates Ltd (ASX: TWE) share price is trading 5% lower today as the company faces its second class action in a month, alleging it misled the market about the performance of its US operations.
The action, led by Maurice Blackburn, alleges Treasury Wine engaged in misleading and deceptive conduct and breached its continuous disclosure obligations between 30 June 2018 and 28 January 2020. On 28 January, Treasury Wine downgraded its FY20 earnings growth forecast from 15%-20% to a new range of 5%-10%.
Market reaction to the downgrade was swift, with Treasury Wine shares dropping 20% over the following 2 days. Shares in Treasury Wine are yet to recover their January highs of over $17 and are currently trading at below $10.
Second class action
This is the second class action Treasury Wine has faced in a month. In April, Slater & Gordon Limited (ASX: SGH) launched its own class action alleging Treasury Wine misled shareholders after revising its guidance in January.
Treasury Wine blamed its January downgrade on the underperformance in the US. The division had faced a wine glut as well as leadership challenges. But Maurice Blackburn alleges Treasury Wine had issues in the US even before the forecast outlining growth of 15% to 20% was released in February 2019.
US performance in doubt
The claim alleges that from at least 30 June 2018 to 28 January 2020, US performance was in decline, “with diminishing sales, a weak US brand portfolio overall, and slowing growth of its key brand 19 Crimes, added to which were unsustainable levels of inventory held by its distributors.” Maurice Blackburn says Treasury Wine failed to disclose this or correct prior representations that it had reset the US business for sustainable growth.
The class action alleges that from 14 February 2019 to 28 January 2020, Treasury Wine’s earnings growth forecast was made without a reasonable basis. Treasury Wine is accused of failing to disclose this or inform the market this forecast was not achievable.
Who is eligible to claim?
People who bought shares in Treasury Wine between 30 June 2018 and 28 January 2020 are eligible to claim under the Maurice Blackburn action. The claim period is greater than that applying to rival actions as Maurice Blackburn has identified substantial problems with Treasury Wine’s US business which pre-dated February 2019.
The lead plaintiff in Maurice Blackburn’s action has taken aim at Treasury Wine, telling the Sydney Morning Herald: “Investors are entitled to be informed about the health of companies they are investing in. Treasury has betrayed those of us who in good faith put our money into the company. We deserve transparency and proper information to inform our decision making.”
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Motley Fool contributor Kate O'Brien 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.