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.

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.

Treasury Wines has announced a write-down of $354 million pre-tax, or -33%, to its Treasury Premium Brands division. The write-down reflects weak profitability in commercial wine under $10 per bottle, of which Treasury is not alone. In many respects, we see the announcement as accounting catching up to the market reality for such wines. The bigger question on our mind is what form a divestment of commercial brands could take. These commercial brands are less than 5% of group gross profit but may be close to 20% of volumes. The challenges in commercial wine vindicates the increasing focus on luxury wines in the market. 

Treasury hosted a meeting with Treasury Premium Brands MD, Peter Nielson. The message was very clear about driving a higher EBITS margin. However, the path there is dependent on many factors. A better channel mix towards on-premise, more sales to Asia and leveraging 19 Crimes, Wynns, Pepperjack, St Huberts The Stag and Squealing Pig were all called out as drivers. We also see lower COGS as a factor in supporting margins over the next three years. Treasury Premium Brands accounts for 9% of our enterprise value. We expect the key business drivers to remain as Penfolds and the Americas.