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, Treasury Wine Estates CEO Tim Ford said yesterday.
“Clearly there’s no change at the moment, and that’s very important to note,” he said on an earnings call.
Once the company’s most lucrative market, exports of wine to China have dwindled after Beijing in late 2020 imposed tariffs of more than 200 percent on Australian products amid deteriorating ties between the two countries.
While there are expectations the trade barriers would 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 yesterday said it is returning to growth in China through its multicountry of origin strategy.
This includes its inaugural release of a French collection targeted almost exclusively at the Chinese market, it added.
“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 would continue to build out Penfolds’ Chinese wine portfolio and grow the business elsewhere in Asia, he said.
The winemaker posted earnings for the first half of this fiscal year that missed the average analyst estimate.
Shares tumbled as much as 7.6 percent in Sydney, the most in two years.
Jefferies Financial Group Inc 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 said 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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