Treasury Wine Estates Ltd (ASX: TWE) shares are falling on Tuesday.
In morning trade, the wine giant's shares are down 3% to $7.86.
Why are Treasury Wine shares falling?
This is the second day of declines for the Penfolds owner's shares. On Monday, investors out of the blue sold down Treasury Wine's shares by 4% to $8.10.
It now seems likely that some of them got wind of something happening in the United States before the rest of the market.
According to an announcement this morning, one of its US distributors, Republic National Distributing Company (RNDC), will cease operations in California from 2 September 2025.
This is a big blow for Treasury Wine. It notes that in the first half of FY 2025, RNDC California accounted for approximately 25% of Treasury Americas' net sales revenue (NSR) and approximately 10% of group NSR.
Management highlights that its relationship with RNDC spans a total of 25 US states, including California. However, the closure of its California operations is not expected to impact the remainder of its business. It notes that RNDC has reiterated its commitment to investing behind and driving Treasury Wine's portfolio in the remaining 24 states.
Though, time will tell if RNDC survives its current struggles.
What's next?
Treasury Wine advised that it has begun evaluating alternative distribution arrangements for its portfolio in California to determine an appropriate path forward.
But management appears confident it will find a suitable replacement. It said:
TWE has begun evaluating alternative distribution arrangements for its portfolio in California to determine an appropriate path forward. As the leading Luxury wine supplier in the US market, TWE is confident that its history working with an extensive network of US distributors, combined with its proven experience in effectively managing distributor changes, which it has done a number of times in the ordinary course through recent years, positions the Company strongly to transition to a new route to market in California in the near-term.
It also released an update on its earnings, which could be putting additional pressure on Treasury Wine shares.
Management notes that RNDC's September closure of its California operations is not expected to impact its results in FY 2025. However, it expects FY 2025 EBITS to be approximately $770 million. This is down from its previous guidance of approximately $780 million.
Management advised that this is being "driven by lower than expected Premium portfolio shipments in the US, where economic uncertainty and weaker consumer demand has recently impacted wine category performance at price points below US$15."
