Shares of Treasury Wine Estates (ASX: TWE) have fallen some 12% today on news the company will take a $160 million in writedowns that will see its full year earnings significantly affected.
The writedowns will in part provide for the company addressing "excess, aged and deteriorating inventory. This includes action to destroy their old and aged commercial stock, ensuring that only the freshest and highest quality wines are available for brand conscious US consumers."
The writedown also includes discounts and rebates needed to incentivise U.S. wine sales. In a statement, CEO David Dearie said, "We have been operating at the higher end of our desired distributor inventory levels in the US and while TWE has been focussing on reducing days' inventory organically, advances in logistics and warehousing, combined with a renewed focus on efficiency has resulted in US distributors significantly reducing their targeted inventory levels."
In the same statement, the company confirmed that 2013 EBITS would be in line with analyst estimates of $216 million – that is, before the unusual items.
Treasury Wine Estates shares have lately been trading for a rich valuation indeed, at nearly 40 times earnings. Since demerging from Foster's Group in 2011, shares of Treasury Wine Estates have risen nearly 50%, versus a just 5% rise in the S&P/ASX 200 index (Index: ^AXJO) (ASX: XJO).
Even with today's fall, shares still appear fairly pricey. In other words, thirsty investors should look elsewhere before uncorking this wine.
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Motley Fool contributer Catherine Baab-Muguira does not own shares of any company mentioned here.
