One of Australia's biggest winemakers has warned that fierce competition will dent its profits for the year.

Southcorp, the producer of the Penfolds, Rosemount and Lindemans wines, has cut its full-year forecast by 14%.

The company also blamed the impact of Australia's recent drought and a write-off of its investment in the Californian company, The Independence Wine Co.

Southcorp's profit warning follows news last week of a mega-merger between the US drinks firm Constellation Brands and the Australian winemaker BRL Hardy.

"Competitive market and trading conditions, [and] structural changes in some parts of the industry... have adversely affected revenue growth," Southcorp said following a board meeting.

The announcement sent Southcorp's shares down as much as 7%, although they later rebounded to close down 2% at Aus$4.73 (�1.70; $2.80).

Stagnant

The company is now saying that its profits will show no growth this year.

TROUBLED VINTAGE

Its weakened position makes it more susceptible to further speculation over corporate action William Kostoff Burdett, Buckeridge

Read about the new wine mega-merger

It expects its end-of-year earnings in June to come in at A$287m, before interest, tax and amortisation.

Southcorp said an oversupply of wine in some markets combined with aggressive retail pricing had contributed to the drop in projected earnings.

Meanwhile, the drought reduced the company's grape intake from its key cool climate areas, forcing it to slash its forecast for grape and vineyard maintenance profits by 80%.

Southcorp's write-down of its 50% stake in The Independence Wine Co followed a dispute over future funding.

Market forces

The tie-up between Constellation and BRL Hardy will place new emphasis on "new world" wines from the US, Australia, New Zealand and Chile.

Southcorp's managing director Keith Lambert said he did not expect much change in competition as a result of the merger.

He added that the debt Constellation was taking on to buy BRL Hardy would not make Southcorp's Australian rival any tougher.

"I think it might paint a quite different dynamic than a more difficult one," Mr Lambert told analysts.

Analysts took a less sanguine view of Southcorp's profit warning, saying that the company could become a victim of further consolidation in the wine industry.

"Its weakened position makes it more susceptible to further speculation over corporate action," said William Kostoff, institutional sales head at Burdett, Buckeridge and Young.