Australia’s Treasury Wine Estates Ltd., best known for its Penfolds brand, is cautious about trade resuming with China and not banking on the removal of tariffs even as diplomatic ties show signs of warming.
(Bloomberg) — Australia’s Treasury Wine Estates Ltd., best known for its Penfolds brand, is cautious about trade resuming with China and not banking on the removal of tariffs even as diplomatic ties show signs of warming.
The company is working on the assumption that China will remain closed, said Chief Executive Officer Tim Ford. “Clearly there’s no change at the moment, and that’s very important to note,” he said on an earnings call Wednesday.
Once Treasury’s most lucrative market, exports of wine to mainland China have dwindled after Beijing slapped tariffs of more than 200% on Australian products in late 2020 amid deteriorating ties between the two countries. While there are expectations the trade barriers will start to ease as relations improve, the comments from Ford signal the industry remains cautious.
To dodge the import tariffs, Treasury launched made-in-China Penfolds last year. The company said Wednesday it’s returning to growth in mainland China through its multi-country of origin strategy. This includes its inaugural release of a French collection targeted almost exclusively at the Chinese market.
“There are positive tones so we’ve also started to think through what could occur and what would occur, and what we would do should it change,” Ford said. The company will continue to build out Penfolds’ Chinese wine portfolio and grow the business elsewhere in Asia, he said.
The wine maker posted first-half earnings that missed the average analyst estimate. Shares tumbled as much as 7.6% in Sydney, the most in two years.
Jefferies analyst Michael Simotas said that while the luxury segment performed well in all of Treasury’s key markets, entry-level premium wine and commercial wine were weaker than forecast. He expects downgrades and the stock to underperform. Goldman Sachs Group Inc. was more upbeat, rating the stock a buy and saying China’s reopening would be a crucial positive driver.
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