Treasury Wine Fallows Vineyards, Sets Sales, Cuts Book Value of U.S. Operations 32%

Treasury Wine Estates' $394 million post tax write-down in its U.S. business, on top of wiping out $687.4 million of goodwill in June, resulting in non-cash write downs totaling A$1.33 billion carries an unmistakable message: Treasury doesn't expect a turnaround in the U.S. wine market anytime soon. .

What else does it mean? It means TWE CEO Sam Fischer is following the old Wall Street adage of getting all the bad news out in one fiscal year. That way, next year's results will look a lot better – if not great.

It doesn't mean, as one U.S. media outlet suggested, the TWE is planning to exit the U.S. Why? Two reasons:

First, TWE's U.S. luxury brands – DAOU, Frank Family Wines and Beringer/Beaulieu Vineyard – are profitable.

Second, we asked TWE if it planned to exit the U.S. The response:

"We remain confident in the long-term outlook for the luxury wine segment in the U.S. and in the continued strength of our priority luxury brands, led by DAOU, Frank Family Vineyards and Stags' Leap."

Third, in announcing its proactive measures, CEO Fischer said:

"The underlying momentum in our business remains positive, with our key brands delivering depletions growth ahead of their categories, led by Penfolds, DAOU and Frank Family Vineyards, and we expect to report F26 EBITS ahead of the guidance we shared in June.” (DAOU and Frank Family Vineyards are based in the U.S.)

Everyone knows why TWE is acting: Grape prices are too low, which means TWE can buy grapes cheaper than it can produce them. So it is fallowing its own vincyards on California's North Coast. It is also writing down inventory, primarily bulk wine, which TWE expects to manage through sale into bulk markets and internal reclassification. None of that means it is leaving the U.S.

"The Americas strategic review has highlighted a supply imbalance particularly in the North Coast, which we are taking proactive steps to address immediately," TWE told us.

In Wall Street terms, TWE is cutting its losses and letting its profits run.