Treasury Wines to take a $160m hit to maintain quality

Australian-based global wine company, Treasury Wine Estates have said that they will take a $160m hit to before tax earnings after ambitious sales forecasts saw an oversupply of wine to the US.

The move will see the company destroy old stock and heavily reduce the price of selected wines to maintain quality and cope with a restructure of its distribution system into America.

SMH reports that TWE’s shares fell 10 percent at the announcement of the write-off and they are down 7 percent at $5.41 in early trade.

The company also confirmed that it’s expected pre-tax earnings for the financial year ending June 30 2013 are expected to be in line with analysts’ consensus at $216m, excluding the one items such as the write-off.   

David Dearie, TWE’s chief executive said that the company had been operating at high distributor inventory levels and although the company aimed to reduce supply organically, a more pressing decision needed to be made.

“We have been operating at the higher end of our desired distributor inventory levels in the US and while Treasury has been focusing on reducing days’ inventory organically, advances in logistics and warehousing, combined with a renewed focus on efficiency has resulted in US distributors significantly reducing their targeted inventory levels,” said Dearie.

Dearie also stressed that the decision to destroy old stock was to ensure a high quality product and maintain brand reputation.

"Excess inventory affecting Treasury’s US supply chain has arisen as a result of three elements: over ambitious forecasting of new commercial product launches, improved distributor logistics, and old and out-of-date stock which both Treasury and our distribution partners would prefer to destroy,” he said.

TWE expects the reduced shipments to raise costs up to $30m in the year commencing from 1 July 2013.


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