Treasury to destroy large amounts of ‘old and aged’ wine in US

Penfolds, Beringer and Lindemans owner Treasury Wine Estates (TWE) is planning to destroy large amounts of wine in the US after shipments fell by up to 2m cases.

Shares in the Australia-based company slumped by 14% following the announcement of a write-down of A$160m in the 2013 financial year, plus an expected A$30m drop in sales in 2014.

TWE CEO David Dearie told analysts that the company had shipped 15.7m cases of wine to the US in the 2012 financial year, but this figure was set to fall by a projected 1.5-2m cases in 2014.

As a result, the company is set to destroy ‘old and aged’ wines, at a cost of A$35m, as well as discounting wine at a further cost of A$40m.

The reduction in US shipments would also lead to TWE having too much bulk wine and excessive grape contracts, which in turn would cost the business an estimated A$85m.

Dearie said: ‘Excess inventory affecting TWE’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elements: over-ambitious forecasting of new commercial product launches, improved distributor logistics, and old and out-of-date stock which both TWE and our distribution partners would prefer to destroy.’

He said the wines affected were mostly ‘commercial’ and ‘tail’ brands, produced both in Australia and in the US, but would not discuss which brands were specifically affected.

However, Dearie maintained that the US was a ‘top strategic priority’ for TWE, rejecting suggestions that the company should sell its US business.

There have been persistent rumours over the past year that TWE could be a takeover target – but significant share price falls could impact its potential price-tag, previously rumoured to be as high as A$4bn-plus.

The company will release its full-year results on 22 August.

Written by Richard Woodard