The Treasury Wine (ASX:TWE) share price surged 17% last earnings season

The Treasury Wine share price seems to be doing just fine without China.

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A happy couple drinking red wine in a vineyard as the Treasury Wine share price rises today

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The Treasury Wine Estates Ltd (ASX: TWE) share price has been in full recovery mode after the Chinese Ministry of Commerce (MOFCOM) announced harsh tariffs on Australian wine exports.

While the Treasury Wine share price is down around 34% from its late 2019 highs, it's also up 30.8% year-to-date, mostly thanks to a 17.46% surge following the release of its February half-year results.

Here's why Treasury Wine's half-year results were a big deal.

Why the Treasury Wine share price surged after half-year results

China and its growing middle class was once a focal point in Treasury Wine's growth story.

But after MOFCOM slapped an anti-dumping and countervailing duty rate of 175.6% on Australian wine in containers of two litres or less, Treasury Wine was effectively shut out of China.

According to the company's FY20 results, China represented approximately two-thirds of its Asia region earnings or 30% of overall group earnings.

Treasury Wine's half-year results would reflect the impact of Chinese sales, with underlying net profit after tax (NPAT) sliding 24% to $175.3 and underlying earnings per share (EPS) falling 24% to 24.3 cents.

But instead of seeing the glass half-empty, Treasury Wine took it upon itself to redefine its business, implementing a new divisional operating model, aimed at maximising the benefits and operating leverage across brands, rather than regions.

The three new divisions would be Penfolds, Treasury premium brands and Treasury Americas.

Treasury Wine said that it would focus on growing its revenues in the United States, exit non-priority brands and re-allocate products from China to other markets.

The company expected that these new initiatives would see modest benefits towards the end of FY21.

No China? No worries?

The Treasury Wine share price rallied again following its investor day presentation on 13 May.

The announcement revealed its new operating model and ex-China growth plans paying dividends, with forecasted  FY21 earnings before interest, tax and SGARA (the difference between the fair value of harvested grapes and the cost of harvested grapes) to be in the range of $495 million to $515 million.

The company said these figures were ahead of market consensus expectations, and represented a 33% increase in the second half of FY21 compared to the prior corresponding period.

Foolish takeaway

Treasury Wine has come up with a clear roadmap to grow its business without dependency on Chinese sales.

The Treasury Wine share price will be in focus on Thursday, 19 August when the company releases its full-year FY21 results.

Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Treasury Wine Estates Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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