Treasury Wines investor day provided a clear message about prioritising its 10 most profitable brands and creating more accountability in how it deals with distributors and retailers. The direction is logical, but it also results in a challenging FY26e and FY27e. There is also uncertainty about its medium-term revenue base given 65% of its volume is in wines that are not considered “core” to the group. Balance sheet repair is a focus and gearing should return to its target range by FY28e. We see FY28e as a “rebound” year.

Treasury Wines 1H26 EBITS had been pre-announced. The new news included a suspension of dividend payments given high gearing and clarity on its volume performance. The actions from new CEO Sam Fischer highlight a need to fix the supply-demand balance across its key markets and reduce debt. Depletions growth in Penfolds still looks encouraging. However, destocking over the next two years will result in a lack of any apparent earnings recovery.  The future growth of Penfolds is not appropriately reflected in the share price and long-term earnings upside exists once the destocking is complete.

Treasury Wines’ new CEO Sam Fischer provided an update that resets the company’s inventory position in its key Chinese and US markets. The disclosure confirms concerns that distributors hold too much inventory. The underlying earnings of Treasury Wines has been overstated in FY24/FY25 and will be understated in FY26e/FY27e. The company will need to rebuild trust and transparency with investors in order to achieve a higher multiple.

The downgrade by Treasury Wines to its FY26e outlook will raise questions about the path for Penfolds, quality of Americas earnings and changes that pending CEO Sam Fischer may implement. The drop in Penfolds growth is understandable given “crackdowns” by the Chinese government on official banqueting. The deeper concern is the reset in Americas luxury margins where the contribution outside DAOU looks small.

Treasury Wines FY25 result highlighted the divergent performance across its divisions. Penfolds had 17% EBITS growth and still has a good runway for growth, while the Americas was carried by DAOU acquisition synergies. Americas underlying EBITS and Treasury Premium Brands both declined. The company clearly believes its shares are under-valued with a $200 million buyback confirmed. The more interesting debate that could build is whether Treasury will consider a break-up. We value Penfolds at $7.52 per share, providing an underpinning for valuation.

Treasury Wines updated segment disclosure and perspectives on FY26e should provide relief that earnings will still grow in FY26e and the Board sees its shares as under-valued. The new segmentation shines a very bright light on the appeal of luxury wines and the challenge in commercial wines. Luxury wines accounts for 23% of Treasury’s volume and 86% of the group’s earnings. While the outlook for FY26e has been tempered a little, there are downside risks in Chinese demand and US distribution changes in our view.

Treasury Wines has provided an update on FY25e earnings and noted that its US distributor in California will exit the state. The loss of RNDC will be a short-term risk given the short-term timeframe of September 2025. We have a cautious outlook on the US business with EBITS ex DAOU down 24% in FY26e.

Treasury Wine’s share price suggests there is downside risks to consensus earnings. We agree and the opportunity for incoming CEO Sam Fischer will be a reset of expectations because the fundamentals of the business are solid. Treasury has repositioned its portfolio towards luxury wines where Chinese and global demand are both strong.

Australian wine export data for the December 2024 quarter showed continued demand from China for Australian red wine. China bottled wine volumes were 1.4 million cases with a value of $280 million. The past nine month export value to China is within 11% of the record 2019 levels. Volumes in other regions declined in the quarter.

Treasury Wines reported 1H25 EBITS of $391 million, growth of 35%.  Penfolds price realisation and performance relative to 1H20 are positive signs for future EBITS growth. The Americas is more challenged, but the segment’s earnings growth is likely to be largely driven by the DAOU brand over the next two years. Treasury’s decision not to divest its commercial brands may be financially logical but does raise the question about the potential to realise value in Penfolds if the valuation remains depressed.