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UPDATE 3-Australia's Treasury Wine posts record profit, but outlook muted
February 13, 2017 / 9:56 PM / 10 months ago

UPDATE 3-Australia's Treasury Wine posts record profit, but outlook muted

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By Byron Kaye

SYDNEY, Feb 14 (Reuters) - Australia’s Treasury Wine Estates Ltd, the world No. 1 stand-alone wine company, posted a record half-year profit on U.S. and China sales, but its shares came off all-time highs on worries its rapid growth may have peaked.

The owner of the Penfolds, Wolf Blass and Rosemount wine labels said net profit more than doubled to A$136.2 million ($104.1 million) in the six months to Dec. 31, but forecast that second half pre-tax earnings would only match the first half.

Treasury’s shares have tripled since 2014 under Chief Executive Michael Clarke as it rebuffed two takeover approaches, rebuilt its U.S. business, simplified its supply chain network and beefed up exports to Australian free trade partner China.

However, the rally has left the company with the most expensive shares of any wine company outside China - the stock trades at 48 times earnings, double the global average for winemakers - leaving it vulnerable to fears of slowing growth.

By mid-session, the stock was down 5.2 percent, its biggest intraday decline in two-and-a-half years, while the broader Australian market rose 0.4 percent.

“While this is a good result, it’s not a hit-it-out-of-the-park result,” said Daniel Mueller, a fund manager and analyst at Forager Funds Management. “(At) those high multiples, you need to grow very fast to justify them.”

After a troubled foray into the U.S. mass market, Clarke has taken the company’s U.S. portfolio away from low-end wines to widen margins. This included the A$754 million purchase of the U.S. assets of Diageo Plc, which took effect from January 2016.

The Diageo assets, which didn’t contribute to the prior first half result, helped lift Treasury’s U.S. pre-tax profit 75.4 percent in the December half year.

Treasury said Australia-based Clarke now plans to split his time between the city of Melbourne and California’s Napa Valley until the end of 2017, but denied the move was a sign of difficulties integrating the new acquisition.

“We have good momentum in our business and this is the time to accelerate that momentum,” Clarke told analysts on a call, adding that company-wide second-half pre-tax earnings would match the record first-half.

Asia pre-tax profit meanwhile grew 75.6 percent. The company has reported a pick-up in sales of its mid-range bottles to Chinese millenials intent on drinking more affordable product on a regular basis.

The move has helped buffer the company from a corruption crackdown in China which has quieted sales of prestige product.

$1 = 1.3082 Australian dollars Reporting by Byron Kaye; editing by Richard Pullin

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