Investors focus on Treasury Wine transformation, not profits

There is more meets the eye in Treasury Wine’s (ASX: TWE) first-half results, which at first glance, report a slight decline across most financial metrics.

Earnings fell -7% to $262.4m, reflecting a focus on the US market and pivot away from China.

Treasury Wine advised that excluding loss-making sales to China, earnings rose 28%.

“We are very pleased with our first half results, where we delivered comparable EBITS growth of 28% when taking into account the effective closure of the Mainland China market,” Treasury Wine’s CEO Tim Ford said.  

It appears that investors are more fixated on the company's transformation as opposed to the -7.5% decline in net profit to $109.1m.

The profit result was well-below Bloomberg estimates of $183m and Bell Potter forecasts of $166.9m. 

Treasury Wine declared an interim dividend of 15 cents per share, unchanged from last year.

Premiumisation transformation continues 

Treasury Wine said that its sales per case improved 16%, with a continuing focus on portfolio premiumisation.

Contribution from Luxury and Premium portfolios increased to 83% of Group sales, up from 75% a year ago.

Luxury and premium inventory now represent 88% of total inventory, up from 77% a year ago.  

Margins intact 

Earnings margins improved to 20.7%, up 0.8 percentage points from a year ago. 

Treasury Wines expects costs of packaging, shipping and labour to remain elevated, implementing price increases to partly mitigate the impacts across select portfolio brands. 

FY22 outlook 

Treasury Wine said that it enters the second-half of FY22 with a “shift in focus from a mindset of recovery and restructuring to one of growth and innovation”.

Maybe investors can finally witness the company's financial objective of high-single digit average earnings growth over the long-term come into fruition.

That said, the company expects trading conditions for the remainder of FY22 to be broadly in-line with the first half.