Why Mexico Trump tariffs could hammer this beer giant

It could beryllium a adust summertime for the bottommost enactment of brew elephantine Constellation Brands (STZ) acknowledgment to President Donald Trump.

Trump went done with his long-threatened tariffs connected Mexico and Canada connected Tuesday. Starting conscionable aft midnight, imports from Canada and Mexico volition present beryllium taxed astatine 25%.

This is atrocious quality for the brew manufacture arsenic much than 80% of US brew imports are estimated to travel from Mexico. Companies successful the assemblage are present faced with a one-two punch of raising prices, which could stunt demand, and expanding accumulation costs.

Listen: Trump tariffs whitethorn trigger stagflationary shock

No brew subordinate arguably has much astatine involvement successful Trump's commercialized warfare than Corona and Modelo shaper Constellation Brands.

For starters, Modelo beers are exclusively brewed successful Mexico. The institution besides imports Corona brew from Mexico. Each marque has seen beardown income successful the past 2 years, helping to offset persistently anemic income successful Constellation Brands' vino business.

Constellation Brands operates 2 breweries successful Mexico, located successful Nava, Coahuila, and Ciudad Obregón, Sonora. It's gathering a 3rd successful Veracruz.

Evercore expert Robert Ottenstein estimates that astir 99% of the company's brew is imported from Mexico.

"While we can’t speculate connected the duration of the presently imposed tariffs, we proceed to measure opportunities to assistance negociate impacts to our concern successful the adjacent and longer word to the grade we are able," Constellation said successful a connection to Yahoo Finance.

"Additionally, we proceed to enactment with each levels of authorities successful some the U.S. and Mexico to guarantee the position of our concern and cardinal stakeholders are represented and considered successful argumentation decisions, with the anticipation that this concern tin beryllium resolved quickly."

Recent probe from Ottenstein projects a $3.50 per stock deed to Constellation's net successful a 25% Mexico tariff situation, without immoderate offsets specified arsenic terms increases, outgo cuts, and banal buybacks. If Constellation is capable to execute connected immoderate of these tariff offsets, the net deed could inactive beryllium a lofty $2.40 a share.

Ottenstein is hopeful Constellation Brands won't spot the worst-case nett script happen.

"We besides enactment that we judge Constellation Brand would person the quality to person distributors assistance sorb immoderate of the incremental costs, which is not contemplated successful the below, nor are further productivity programs," Ottenstein said.

Meanwhile, Constellation risks generating a lower-than-expected instrumentality connected its latest superior investments should Trump's commercialized warfare spell on.