US wine group The Duckhorn Portfolio made a trio of announcements yesterday (1 May) and the company’s shares ended the day down more than 9%.
Hardly a ringing endorsement of the latest news to emerge from the Duckhorn and Decoy brands owner but, at least on some parts of Wall Street, there was the feeling the market’s reactions to the disclosures was overdone.
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First, the company said it had finalised its deal to buy Brown-Forman’s Sonoma-Cutrer Vineyards wine portfolio. The transaction, closed on Tuesday, was first announced in November. Brown-Forman sold the assets for around $50m in cash and an equity stake in The Duckhorn Portfolio but no real new news yesterday, simply the completion of paperwork.
However, the company made two more significant announcements. Interim CEO Deirdre Mahlan was named the group’s new president and chief executive. Mahlan took the reins on an interim basis in September when Alex Ryan stepped down after 12 years at the helm.
Mahlan, a Diageo executive for two decades, had been on The Duckhorn Portfolio’s board since 2021. Her time at Diageo included five years as CEO of the drinks giant’s North America division up to 2020.
Since being named interim CEO, Mahlan has announced the deal for Sonoma-Cutrer and overseen the release of a couple of sets of quarterly results, including, most recently, the company’s fiscal Q2 numbers, which included a cut to its forecast for annual sales.
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By GlobalDataAlongside the news that Mahlan will be The Duckhorn Portfolio’s new permanent CEO, the group also yesterday issued a set of “preliminary” sales figures for its third quarter.
And, here, perhaps, could have been the spark for the fall in the company’s share price by the close of the trading day yesterday.
The Duckhorn Portfolio said it expects its third-quarter net sales “on a preliminary and unreviewed basis” to be in the range of $91m to $93m (compared to the previous year’s third quarter, that would represent a quarter of flat to 2% sales growth).
While the group said the sales had yet to be officially reviewed by accountants, it did provide some brief commentary on the context for the update.
“These results reflect continuing softness in the wine market and a lower-than-expected response rate to the company’s Kosta Browne appellation series offering,” it said. “While consumer demand softness continues, the company remains focused on delivering profitable growth that outpaces the industry.”
The Duckhorn Portfolio added it “anticipates” its third-quarter adjusted EBITDA margins to be “broadly in line with its fiscal year-to-date trend as it continues to exercise strict cost controls”. Investors are set to see the full third-quarter numbers on 6 June.
Given when The Duckhorn Portfolio lowered its forecast for annual sales in March, it pointed to weak growth in the US market for “luxury” wine, its latest thoughts on the trading landscape are likely to have concerned some in investment circles.
Nonetheless, there were some on Wall Street who are more positive about the outlook for the company.
“The softer third-quarter net sales guidance understandably stokes further concerns about the wine industry at large but we think the permanent appointment of CEO Deirdre Mahlan is decidedly positive for [The Duckhorn Portfolio],” Barclays analyst Lauren Lieberman wrote in a note to clients.
Lieberman noted how Barclays had been forecasting third-quarter net sales of around $103m, a figure that echoed the consensus among analysts.
However, she added: “We can understand the lighter-than-expected third-quarter net sales range exacerbates concerns about the health of the wine industry – a persistent topic brought even more to a head with The Duckhorn Portfolio’s second-quarter print when retailer and distributor inventory management was a meaningful negative surprise.
“That said, our sense is that today’s share reaction is not just a function of the third-quarter sales outlook but also the idea that The Duckhorn Portfolio’s external CEO search came up dry. But, in our view, we see this as a very positive outcome.”
Lieberman pointed to Mahlan’s experience at Diageo and said she would also give the company “a fresh perspective”, notwithstanding, of course, her role as board member and six months as interim boss.
“We know The Duckhorn Portfolio is re-assessing its distribution network, which is surely motivated in part by the Sonoma-Cutrer acquisition but we also imagine Ms. Mahlan’s fresh perspective on the business helps bring additional direction to the discussions of how to optimise the company’s route-to-consumers,” Lieberman said. “And we think Ms. Mahlan’s experience with scaled businesses and M&A is particularly relevant as The Duckhorn Portfolio officially moves into the integration phase of the Sonoma-Cutrer deal.”
