Treasury Wine Estates Drops Sale of Budget Brands, Cuts Profit Forecast

Treasury Wine Estates (OTC: TSRYF), the producer of Penfolds wine, scrapped its plan to sell its budget wine division after failing to secure an attractive offer. The decision came alongside a lowered annual profit forecast, sending shares down as much as 8% before settling at a 4% loss.

The Australia-listed company's cheaper wine brands, including Wolf Blass and Lindeman’s, have struggled due to declining consumer demand. Treasury initially sought to sell the division but decided retention was the best course after receiving underwhelming bids.

Despite this setback, Treasury posted a 33% rise in net profit, reaching A$239.6 million ($150 million) for the six months ending December. The strong performance was driven by the first full reporting period of China exports since 2020 and contributions from its recently acquired U.S. winery, DAOU. However, profit from its premium brands segment, which includes lower-priced wines, halved due to weak demand.

With the commercial portfolio remaining, analysts warn it could drag on earnings. Citi noted that Treasury's decision to retain the unit may continue weighing on profitability. UBS described the profit forecast cut as "disappointing but somewhat reflected in the share price." The stock is down 4% over the past year, while the broader market has gained 12%.

Treasury now expects pre-tax profit of approximately A$780 million for the fiscal year ending in June, down from its earlier estimate of up to A$810 million. The company declared an interim dividend of 20 Australian cents per share, up from 17 cents last year.

Treasury’s struggles with lower-end wine sales align with a global trend of younger consumers moving away from alcohol, posing long-term challenges for the segment.