Like Webjet and a couple of other companies, investors have known that Treasury Wine Estates (TWE) would be reporting a very strong profit for the year to June 30, but even after doing that, the market found something more to enthuse about and bid the shares up more than 11% in yesterday’s weak trading.
The company has been telling the market for a while now that it was doing better, via higher guidance and yesterday it delivered with a more than doubling of full-year profit to $179.4 million thanks to lower costs, higher margins, and especially a surge in US sales and earnings.
Shareholders who stuck with the company and supported it fighting off a couple of predatory private equity bids two years ago, have ben well rewarded. The share price at $10.65 (up nearly 11.5% yesterday), or more than double the reported $5.20 indicated price from the private equity sharks in 2014.
As well, the world’s largest independent winemaker will pay a final dividend of 12 cents, compared with 8 cents in the previous year, making for a total for the year of 20 cents, up 6 cents a share and a payout ratio of 67%.
The winemaker behind the Penfolds, Lindeman’s and Wolf Blass achieved the more than doubling of profit on a 19% rise in revenue to $2.34 billion for the year to June.
The company said it profited from strong, rising consumption in Asia, where its wine volume sales rose almost 40%.
Volumes also rose in Europe, but TWE reported subdued growth in its Australia and New Zealand division and Americas business.
A big earnings surged in the US market thanks to to the initial positive impact from the $754 million purchase of liquor giant, Diageo’s US wine assets which was settled earlier this year.
That deal has allowed TWE to improve its product range, especially in the more pricer brands, and that in turn has boosted its penetration into the US market.
The company said earnings before interest and tax were $342 million for the full year, compared with its guidance of $330 million to $340 million, including profits from the Diageo’s assets.
The winemaker expects to lift savings in supply chain costs to $100 million by fiscal 2020, while its target of an earnings margin in the high teens will now be delivered by 2018, two years ahead of target "Our 2016 result demonstrates that momentum across our business is accelerating," Treasury Wine chief executive Michael Clarke said.
“Treasury Wine is now delivering consistent earnings growth and margin accretion on a more balanced, sustainable and quality earnings basis,” he said yesterday.
The impact of the Diageo deal was seen in the 64% surge in earnings from the Americas market.
And seeing Diageo’s assets only contributed 6 months of revenue and earnings, TWE is looking to maintain the momentum in 2016-17. It is also hoping for more currency benefits (but will a stronger Aussie dollar crimp those hopes?)
The Asia business lifted earnings by 40% as consumer demand for imported wine brands lifted and demand in China improved.
In Australia and New Zealand, earnings grew by a very sedate 4%.
