The Treasury Wine Estates Ltd (ASX: TWE) share price is on the slide on Wednesday morning.
At the time of writing, the wine giant's shares are down 7% to $13.33.
This follows the release of the company's half year results.
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Treasury Wine share price sinks despite solid earnings growth
- Net sales revenue (NSR) up 1.4% to $1,284.5 million
- NSR per case up 13.5% to $108.6
- Earnings before interest, tax, SGARA, and material items (EBITS) up 17.2% to $307.5 million
- Net profit after tax up 72.5% to $188.2 million
- Interim dividend up 16.7% to fully franked 18 cents per share
What happened during the half?
For the six months ended 31 December, Treasury Wine reported a 1.4% increase (1.1% decline at constant currency) in revenue to $1,284.5 million. This reflects a 13.5% jump in NSR per case, which offset lower volumes.
The key drivers of its growth were the Penfolds and Treasury Americas businesses, which reported 7.2% and 4.1% increases in revenue, respectively, thanks to distribution growth and strong consumer demand. This offset a 7% decline in Treasury Premium Brands revenue.
Things were much better for its EBITS, which grew 17.2% to $307.5 million. This was underpinned by margin improvement across all divisions. Treasury Wine's EBITS margin increased 3.2 percentage points to 23.9%. Part of this came from its global supply chain optimisation program, which delivered incremental cost of goods sold savings of approximately $28 million for the half.
How does this compare to expectations?
As strong as this result looks on paper, it fell short of Goldman Sachs' estimates due to weaker revenues.
The broker was forecasting sales revenue of $1,410 million and EBITS of $321 million. This may explain some of the weakness in the Treasury Wine share price today.
Management commentary
Treasury Wine's CEO, Tim Ford, commented:
We are very pleased to have delivered strong progress towards our financial growth objectives in 1H23, with EBITS growth of 17% driven by improved revenue per case and EBITS margin expansion across all divisions. Our Luxury wine portfolios in particular continue to perform exceptionally well across all markets and channels, and the fundamentals of the category are expected to remain strong at these higher price points.
We consider this set of results to be an important and additional proof point of our teams' ability to navigate the changing and variable economic, consumer and market dynamics, whilst maintaining our focus on the delivery of our financial objectives.
Outlook
Management advised that the company remains on track to deliver strong EBITS growth and EBITS margin expansion in FY 2023. It expects trading conditions for the remainder of the year to be broadly consistent with those experienced in the first half.
The company's FY 2023 EBITS margin is expected to be approximately 23%, with year on year expansion driven by portfolio premiumisation and the delivery of price increases across key portfolio brands. Management also expects the benefits of the global supply chain optimisation program to mitigate the impacts of inflationary cost pressures.
The Treasury Wine share price is still up 26% over the last 12 months despite this decline.
