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TWE Narrowly Meets Guidance, Putting Bidding War In Doubt

August 21, 2014

Treasury Wine Estates (TWE) has revealed currency-adjusted EBITS of A$193 million ($179m) for its full fiscal year ended in June, meeting its guidance by a slim margin. With Treasury currently mulling offers for its business, it’s unclear if that performance will be enough to attract more potential bidders to the table. After the announcement, Treasury’s share price closed at A$5.20 ($4.83), in line with offers already lodged by KKR/Rhône Capital and a second party thought to be U.S.-based private equity TPG. Those bids value the group at around $3.2 billion.

For its full year, TWE posted global volume down 6.4% to 30 million nine-liter cases and net sales up 1% to A$1.7 billion ($1.58b), although net sales fell 5% on a constant currency basis. In the Americas, TWE says it has made progress, with total depletions exceeding shipments by nearly 750,000 cases for the year. While “non-priority commercial brands” continue to struggle, the company said “strong consumer responses to promotional campaigns underpinned 15% and 3% growth in Masstige and Luxury depletions in the second half of fiscal 2014, respectively.”

Overall, TWE’s Americas depletions held steady at 15 million cases for the year—with Beringer Classics, Chateau St. Jean, Matua, 19 Crimes and Sledgehammer making gains—though shipments fell 7%. The group added that its U.S. distributor realignment is progressing apace. Elsewhere, TWE was hit by challenging conditions in Australia and New Zealand, where volume fell 9%, and its EMEA volume slipped 1%. Shipments to Asia dropped 8%, amid government austerity measures in China’s wine market.

Despite analyst speculation that the company would be better off without its U.S. unit, which has struggled in recent years, CEO Michael Clarke said, “Our Americas business represents a key growth platform for TWE. The luxury category in the U.S. is the fastest growing category and to date, our participation has been limited due to supply constraints. We enter fiscal 2015 with strong brand health, increased and more targeted consumer marketing and a healthy supply of our flagship U.S. luxury wines, including Beringer Knights Valley, Beringer Private Reserve and Stags’ Leap.” Clarke added on a conference call that TWE may in fact be a buyer, not a seller, in the months ahead, and is eyeing more luxury wine assets in the U.S.

Still, the improving outlook stateside wasn’t enough to move shares higher than the existing bid prices for the business—at least in the immediate hours following the earnings release—leading analysts to wonder whether those two offers for TWE may be the best that will emerge. For its part, TWE says it will forge ahead with its plan to focus on higher price points, significantly up its marketing spend and cut costs in its turnaround effort.

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