Shares in the US premium wine company The Robert Mondavi Corporation fell sharply today as it announced that tough trading will see it post a third-quarter net loss. The company also lowered its 2003 earnings outlook due to write-offs and lower-than-expected sales in January and February and said it will cut 10% of its workforce. It blamed weaker US travel and entertainment spending.

The company expects to report a net loss of US$0.05 to US$0.10 per share for the quarter ending March, 31, 2003, compared to a US$0.46 per share profit during the prior year period. For the full year it expects to report net income of US$0.91 to US$0.96 per share, compared to $1.56 per share during the prior year period.

The company said it had identified three major factors that are negatively affecting its business: a weak US economy, which has depressed the travel and entertainment sector and dampened demand, especially for high-end wines; an oversupply of grapes, which is leading to intense price competition and a proliferation of new brands; and increased buyer power at the trade level.

R. Michael Mondavi, chairman of the board said: "We believe these three factors will be present for a while and we will not see relief from the intense competition until there is a material change in at least one of them. Therefore, we are initiating a series of fundamental changes in our business model that will immediately improve our competitive position."

The operational changes will centralise all marketing and sales responsibilities under Dennis Joyce, the newly appointed as executive vice president of marketing and sales, and all of the California production and vineyard operations under Peter Mattei, senior vice president of Production. Both Joyce and Mattei will report to Gregory M. Evans, president and CEO.

The changes will result in 80 to 90 job losses, mostly in the company's Napa County headquarters. The cuts will apparently be across the board, including finance, brand management, marketing and production. One vice president and one or two directors will also lose their jobs.

"Both moves are expected to increase top line and market focus, reduce product costs, and yield significant operating expense savings," said Evans. "Annualized operating expense savings of about US$6m are expected beginning in fiscal 2004 as the company implements a 10% workforce reduction. Annualised savings from production and vineyard operations of about US$30m are expected to begin in fiscal 2005, but will not be fully realised until fiscal 2007 due to the company's long production cycles."

Looking ahead to fiscal 2004, Evans said: "Next year we expect 5% growth in our net revenues, with approximately half of that coming from the core business and the other half from new products. Although operating margins are likely to decline 20 to 40 basis points as operating expense savings from the restructuring are reinvested in the business, full-year earnings are expected to improve to US$1.80 to US$1.95 per share."

The ramifications of Mondavi's announcement soon spread with shares in Australia's leading wine producers also falling on the news.