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Why the Treasury Wine (ASX:TWE) share price is falling

Spilled wine and a glass on its side, indicating a share price drop for ASX wine companies
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The Treasury Wine Estates Ltd (ASX: TWE) share price is dropping lower this morning as the company announced its half-yearly results. Shares in the company are currently falling to a price of $9.78. As such, shares in the wine producer are down 1.21% since last nights close.

How did Treasury Wine perform in the first half?

Treasury Wine today announced its half-yearly report to the ASX. The company announced a sharp decline in net profit after tax (NPAT) down 24% to $175.3 million as the China conflict hurt the company’s earnings. As a result, the company’s earnings per share was also down by 24%.

The well documented ongoing impacts from the global pandemic and the disruptions to sales in China were key drivers of lower earnings in 1H21. Earnings before interest and tax (EBIT) came in at $284.1 million. Moreover, the company saw its cost of goods sold increase by 2.8%. Driven by a favourable portfolio mix shift, lower volume and higher costs.

Nonetheless, it was not all bad news for the wine producer as the company continued with the execution of its COVID-19 recovery plan. Treasury Wine stated that its plan ahead agenda is driving strong momentum towards recovery in all regions.

Furthermore, thanks to careful management the company retains a strong balance sheet. Net debt was down to $403.7 million in the first half to $1,030.5 million. With total available liquidity remaining strong with approximately $1.5 billion on hand at the end of last year.

The company will also pay an interim dividend of 15 cents per share, fully franked. Representing a payout ratio of 62% of NPAT. This is consistent with the company’s dividend policy.

Management Comments

On today’s results announcement, TWE’s Chief Executive Officer, Tim Ford commented:

Our first half fiscal 2021 results demonstrate that we are making progress against our TWE 2025 strategy, despite a period of significant disruption. Our progress is the result of disciplined execution of the plans we put in place to manage through these disruptions and highlight the strength of our business models in all regions.

Looking Forward

As Management noted, it expects the difficult current conditions to continue through the remainder of fiscal 2021.

In China, Treasury Wine expects that demand for its portfolio will remain extremely limited. However, the company is confident around its plans for reallocation of its luxury brands away from China as it continues to engage with its customer and consumer base.

Nonetheless, it does not see these benefits having effect until the end of FY21. It expects 2H21 EBIT to be below that of this report.

The Treasury Wine share price has had a difficult year, falling by 12%. This is well below the flat All Ordinaries Index (ASX: XAO) return in the same period.

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Motley Fool contributor Daniel Ewing has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Treasury Wine Estates Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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