Australia’s Treasury Wine Estates flags inflation headwinds, shares drop

(Reuters) – Australia’s Treasury Wine Estates (OTC:) warned on Thursday that inflation was squeezing demand for its commercial-grade wine and driving up packaging costs, sending its shares nearly 8% lower.

The winemaker flagged challenging market conditions and consumption outlook for commercial wine, most notably in Australia and the UK, and said it was undertaking a review of its supply chain particularly in Australia.

It is also considering divestiture of selected assets, either individually or in combination.

Treasury Wine estimated a 2%-3% drop in fiscal 2023 group net sales revenue and flagged upward pressure on its cost of goods in fiscal 2024 from inflation, particularly for packaging materials.

Shares of the company fell as much as 7.8% by 1240 GMT, marking their biggest intraday percentage drop since Feb. 16, 2021, and was the biggest laggard on the benchmark stock index.

Treasury Wine, however, expects a rise in fiscal 2023 earnings before interest, tax, SGARA and material items (EBITS) to between A$580 million and A$590 million ($393.41 million-$400.20 million).

This compares with fiscal 2022 EBITS of A$523.7 million and analysts’ average estimate of A$523.8 million, according to Refinitiv.

The company expects an EBITS margin of approximately 23.5% for the 2023 financial year, compared with 21.1% in fiscal 2022.

Consumer demand for luxury wine remains strong in all markets across the globe, with sales in the Penfolds, Treasury Americas and Treasury Premium Brands divisions in line with expectations, the company said.

($1 = 1.4743 Australian dollars)