TWE +4.91%: Surprised on the upside today, and as with many results this earnings season, the focus was firmly on the outlook rather than the headline numbers. Encouraging progress reducing Penfolds inventory in China was offset by continued weakness in the America. FY27 EBIT guidance was reaffirmed, although the heavy second-half weighting highlights that the turnaround still has plenty to prove.
Key results:
- Net sales revenue $2.56bn, down 13%, versus A$2.50bn expected.
- Earnings (EBITS) $492.3m, down 36%, versus A$488.8m expected.
- Penfolds EBITS $404.3m, down 15%.
- Treasury Americas EBITS A$90.2m, down 61%.
- Treasury Collective EBITS A$68m, down 48%.
The encouraging development is China, where Penfolds depletions rose 35% and management has completed around half of its targeted inventory reduction, with the balance expected during FY27. Conversely, there has been little progress clearing excess inventory in the Americas, where earnings fell 61%. FY27 earnings guidance has been maintained, but around 55% of earnings are expected in the second half, implying another softer first half before improvement later in the year.
MM’s view: There were some genuine green shoots here, particularly in China. The US is still the key issue and the heavy 2H weighting means execution risk remains elevated. That being said, expectations have fallen a long way following the recent downgrade, which lowers the bar, and the China inventory normalisation continues, so any tangible progress in the Americas will should turn the dial on investor confidence and an an improvement in earnings moving forward.
MM remains cautiously bullish TWE
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