Plenty Of US Headaches For Treasury Wine

Australia | Jun 11 2025

Treasury Wine Estates has downgraded FY25 guidance and revealed the loss of a major distributor in California. With a new CEO arriving in October, the company has plenty of uncertainties to deal with for the year(s) ahead.

-Treasury Wine Estates downgrades FY25 guidance
-Sales of lower-end wines continue to weaken
-Loss of a major US distributor
-New CEO takes the helm in October

By Greg Peel

Treasury Wine Estates ((TWE)) last week downgraded FY25 earnings guidance to $770m from a prior "approximately $780m", a downgrade which served only to meet already downgraded consensus forecasts. However, the update did raise some concerns.

Driving the downgrade were lower US shipments and demand for the company's "Premium" (ie cheap) segment wines under US$15, specifically the 19 Crimes brand, which has been experiencing accelerated revenue declines. At Treasury Wines' first half result release in February management downgraded guidance to $780m from a prior $780-810m.

Efforts to rebuild demand have been ineffective. Stability in 19 Crimes in the US is management's first priority, yet appears difficult to UBS, although undemanding comparable numbers from a year ago should become a positive. 19 Crimes comprises less than 15% of Americas earnings.

The cost of living is also biting in the US particularly at the lower end. The "Luxury" segment --wines over US$20-- remains the price point that continues to outperform, yet broader sluggishness in US consumer spending is also extending to this price point, UBS notes, exacerbated by slowing international tourism, which is a factor impacting on Californian wine demand.

California is the largest state by population and consumes more wine than any other state. US$20-plus wine (Penfolds) is a key price point for Treasury Wine, comprising more than 70% of earnings, and hence a bigger concern for FY26.

Morgans highlights in a short period of time, Penfolds has returned to being the number one luxury wine brand in China and is playing a key role in leading the revival of Treasury's luxury wine category.

Pleasingly, notes UBS, synergies from the recent Daou acquisition, previously upgraded from US$20m to US$35m by end-FY26, provide significant support to Americas earnings, as does Daou performance (still gaining market share), although ex-Daou Americas earnings are forecast to fall in FY26.

Trump's tariffs, whatever that outcome may prove to be, will only serve to increase pressure on US consumers.

More Trouble in California

At the update, Treasury Wine announced it has been advised by its main US distributor, Republic National Distributing Co, that it will be ceasing operations in California in September 2025. As at the end of the first half, RNDC California accounted for some 25% of Treasury Americas' net sales revenue, Macquarie notes, or around 10% of Group net sales revenue.

RNDC appears to have exited California due to the loss of the distribution rights for the products of Kentucky-based distiller Brown-Forman, whose flagship brand is Jack Daniels. It also lost those distribution rights for Brown-Forman products in another twelve US states, which Ord Minnett suggests raises questions about its continued presence in those markets.

Management at Treasury noted it has effectively managed distributor changes in the past, and is currently evaluating alternative distribution agreements for the state of California. The company's distribution relationship with RNDC spans across another 24 states, and will remain, management has assured, despite the changes in California.

While Citi estimates the impact to FY26 sales is likely to be immaterial, noting distributor transitions are not uncommon, the broker thinks there is still near-term risk given the materiality of RNDC California's contribution to sales, and RNDC's future with Treasury Wines in other states potentially is incrementally less certain given recent events including Brown-Forman ending its agreement with the company.

RNDC was Treasury Wines' largest distributor. Jarden sees the company as likely to go to one of its other three main distributors --with BreakThru the largest-- which should limit the impact, albeit there will likely be some. Alternatively, a change in distributor may turn around what has been an underperforming state.

In Morgans' view, this changeover is likely to have a short-term impact on Treasury Wines' FY26 sales but at a time when its Premium sales are under pressure. This broker notes a change of distributor in the first half caused some disruption to US sales, though they recovered in the second quarter.

UBS agrees the company is likely to switch to an existing distributor, noting existing relationships with BreakThru, but there is risk around a loss of promotional slots and hence this is a key focus.