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Treasury Wine Estates share price jumps higher on FY 2020 results

treasury wine share price
Credit: Penfolds

In morning trade the Treasury Wine Estates Ltd (ASX: TWE) share price is charging higher following the release of its full year results.

At the time of writing the wine company’s shares are up 10% to $12.55.

How did Treasury Wine Estates perform in FY 2020?

For the 12 months ended 30 June 2020, Treasury Wine Estates’ performance was impacted by challenging conditions in the US wine market and the COVID-19 pandemic. As a result, the company reported net sales revenue (NSR) of $2,649.5 million in FY 2020, down 6% on the prior corresponding period.

This comprises NSR of $1,069.4 million in the Americas, $617.1 million in Asia, $370.6 million in EMEA, and $592.4 million in the ANZ region. While all regions posted NSR declines, the Americas and Asia segments were the worst performers. They reported declines of 5.7% and 14.5%, respectively, year on year.

Unfortunately, due to a 4-percentage point decline in its earnings before interest, tax, SGARA and material items (EBITS) margin to 20.1%, Treasury Wine Estates’ earnings fell harder. It posted a 22% decline in EBITS to $533.5 million. Management blamed the margin decline on an unfavourable volume and portfolio mix during the second half. This was driven by lower luxury sales due to the closure of key channels for higher-margin luxury wine.

On the bottom line, the company’s net profit after tax was down 25% to $315.8 million and its earnings per share fell 26% to 43.9 cents.

This led to the board declaring a fully franked final dividend of 8 cents per share, down 60% from 20 cents per share in the prior corresponding period. This brings its full year dividend to 28 cents per share, which represents a payout ratio of 64%. This is consistent with its long-term dividend policy.

FY 2021 outlook.

In light of the high level of uncertainty across key markets, Treasury Wine Estates won’t be providing any guidance for FY 2021.

However, it notes positive signs of a recovery in China, with depletions up 13% in the fourth quarter, including growth of approximately 40% in June.

Another positive is that the company is currently implementing a number of key restructuring initiatives, primarily in the Americas. These include key changes to its operating model and organisation structure, which are expected to lead to annualised cost savings of at least $35 million in FY 2021 and beyond.

It is also commencing with a restructure of its global supply chain, which is focused on driving optimisation and efficiency across all areas of production. This initiative is expected to deliver annualised cost of goods sold benefits of at least $50 million by FY 2023.

CEO Tim Ford commented: “While we have recently seen positive signs of recovery across a number of our key markets and channels, we are cautious on the near-term outlook given the uncertainty that remains around the pace of that recovery.”

“We remain optimistic around our ability to return to sustainable profit and margin growth over the medium to long-term. Supporting this optimism is our comprehensive strategic agenda, which is focused on building upon what is already a very strong business and positioning it for the next phase of TWE’s growth journey and the achievement of our ambition to be the world’s most admired premium wine company,” he concluded.

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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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