USA & Mexico: Constellation Brands' stock drops 6% as new tariffs could raise Corona, Modelo import costs

Shares of Constellation Brands STZ dropped more than 6% in premarket trading on May 31 on the back of President Donald Trump 's threat to slap tariffs on all Mexican imports, Yahoo Finance reported.

The drop put the maker of Mexican beers like Corona and Modelo on track for its biggest one-day loss since Jan. 9, when it fell 12.4%.

On May 30, Trump tweeted the state will impose a 5% tariff on all goods coming from Mexico starting June 10 "until such time as illegal migrants coming through Mexico, and into our Country, STOP."

The White House then said in a statement that levies on Mexican imports would increase up to 25% if immigration issues along the U.S.-Mexico border persisted. Mexico President Andres Manuel Lopez Obrador responded to the threat in a letter to Trump, saying: "Social problems cannot be resolved with taxes or coercive measures."

Tariffs on Mexican goods would dent Constellation Brands' stock and bottom line. According to Morgan Stanley, about 75% of its beer portfolio is "entirely imported" from Mexico. The bank also notes that a 5% tariffs on Mexican goods would shave off nearly 4% from the company's overall bottom line. A 25% levy, meanwhile, would slash Constellation Brands' profit by 19%.

Jim McGreevy, Beer Institute President and CEO, issued the following statement on President Trump’s proposed tariff on Mexican imports – including beer:

“The Beer Institute and its members urge President Trump and his administration to reconsider imposing another tax on the beer industry.

“The beer industry is a thriving economic engine for America. Imposing a tax – and tariffs are taxes – on the largest import country of the beer industry would harm the 2.1 million Americans who owe their livelihoods to beer. Whether it be the truck driver, farmer, distributor, local retailer or favorite tavern, every community in America will be affected by this decision.

“The last thing we need is more hardship imposed on the beer industry and American beer drinkers.”

By the end of the year, America will have imported more than 360 million cases of Mexican beer. Most Mexican beer sold in this country is made from barley and hops grown in the United States. Beer accounted for more than 1 percent of Mexican goods imported into the United States last year – that’s $3.6 billion out of $346.5 billion.

The proposed tariff, which will start at 5 percent of the import value and increase by 5 percent each month until it reaches 25 percent, will constitute a $12.5 million cost increase to beer industry importers during the month of June alone, and that cost will reach $374 million by the end of 2019. If the tariff remains at 25 percent, the cost to the beer industry will be $984 million per year.

31 May, 2019