Treasury Wine Shares Slump as China Austerity Hits Earnings

(Bloomberg) - Treasury Wine Estates Ltd. (TWE), the Australian maker of A$785-a-bottle ($686) Penfolds Grange, said first-half earnings fell as China’s crackdown on official gift giving curbed demand for premium vintages. The shares slumped by a record.

Profit before interest, tax and other items dropped to between A$42 million and A$46 million in the six months ended Dec. 31, from A$73.4 million a year earlier, the Melbourne-based company said in a regulatory filing based on unaudited figures.

Treasury Wine, the world’s second-largest publicly traded wine maker, has sought to tailor products to Chinese consumers, who overtook the French to become the biggest drinkers of red wine in the world last year, according to Bordeaux-based Vinexpo. The Chinese Communist Party’s quest to restore discipline among its ranks has led to a campaign to stamp out gift giving and extravagant official spending, hitting premium liquor producers, Swiss watchmakers and expensive restaurants.

“Chinese austerity may be an ongoing issue for some time,” said Will Seddon, who helps manage about A$550 million at White Funds Management Pty. in Sydney. Given “the structural nature of at least some of their issues, I’d say there might still be further downside risk to 2014 earnings.”

China Austerity

Full-year earnings will be between A$190 million and A$210 million, compared with an earlier forecast for as much as A$250 million, the company said. Treasury Wine plunged as much as 22 percent in Sydney trading and closed 20 percent lower at A$3.64.