Treasury Wine Estates Ltd (ASX: TWE) shares are pushing higher on Thursday morning.
The wine giant's shares are up 12% to $4.64.
This is a welcome lift after a very difficult period for investors.
Prior to today's rise, Treasury Wine shares were down approximately 50% over the past 12 months.
Image source: Getty Images
Why are Treasury Wine shares rising?
Investors appear to be responding positively to the company's Investor Day update and the transformation plan outlined by management.
Treasury Wine is aiming to become a more focused, simpler, and financially stronger wine business through a program called Ascent.
This strategy will focus the company on the brands and markets where it believes it can win, while cutting costs, simplifying operations, reshaping its supply chain, and strengthening its balance sheet.
What is changing?
A major part of the plan is a sharper focus on Treasury Wine's strongest brands.
The company is putting more emphasis behind its Power Brands and Regional Heroes. These include key brands such as Penfolds, DAOU, and Matua.
Management plans to increase investment behind these brands, while progressively reducing its focus on non-priority brands.
Treasury Wine is also planning to rationalise its portfolio over time. This could include transitioning, retiring, or selling some lower-priority brands and supporting assets.
The company believes this will improve returns and allow it to put more resources behind the brands with the best growth prospects.
Cost savings and supply chain changes
Treasury Wine advised that it is targeting $100 million per year in cost reductions, which are expected to be fully realised by FY 2029.
This will be supported by a new regionally-led operating model, simpler decision-making, and a more accountable performance culture.
The company is also planning a major supply chain transformation, particularly in Australia and the United States.
This includes reducing excess winery and packaging capacity, exiting surplus and underperforming assets, and better aligning production with long-term demand.
Americas review
The Americas business remains an important focus for investors.
Treasury Wine said the region contains market-leading luxury brands, but also faces challenges from elevated inventory levels and excess supply chain capacity.
The company is accelerating actions to address these issues, including reviewing options to improve long-term shareholder returns.
This is important because weakness in the Americas business has been one of the big concerns weighing on the Treasury Wine share price over the past year.
Outlook
Management provided an update on its outlook at the event.
It expects FY 2026 EBITS to be in the range of $480 million to $490 million.
For FY 2027, management then expects EBITS to be at least equivalent to FY 2026, while the company continues to rebalance customer inventory levels in China and the United States.
Revenue growth is expected from FY 2028 once this inventory rebalancing is completed.
The company also expects leverage to peak at approximately 2.9 times in FY 2026 before returning to its target of below 2.0 times by the end of FY 2028.
Unfortunately, dividends will remain suspended for now, with the board to consider resuming payments as leverage moves back toward target.
Overall, after a painful 12 months for shareholders, investors appear to be taking encouragement from Treasury Wine's clearer strategy, cost reduction plans, and pathway to a stronger balance sheet. However, there is still a long road ahead.
