On Monday, Constellation Brands (NYSE:STZ) saw its shares fall following President-elect Donald Trump’s announcement of imposing significant tariffs on the United States' main trading partners, which could have substantial implications for the company. Trump, set to take office on January 20, has declared a 25% tariff on imports from Canada and Mexico to combat illegal drugs and immigration issues. Furthermore, Trump plans to implement an additional 10% tariff on goods from China, escalating his previous tariff threats.
The measures were detailed in Trump's posts on Truth Social and include some of his most concrete statements regarding economic policies since his election victory.
Constellation Brands, known for its imports from Mexico, is particularly vulnerable to these tariffs. Constellation's sales and segment EBIT are heavily reliant on Mexican imports, with year-to-date figures showing 86% of sales and 94% of segment EBIT originating from Mexico. Analysts have suggested that despite potential measures to mitigate the impact, such as cost savings or inventory adjustments, the tariffs could still pose a significant challenge for Constellation.
According to Roth's equity analyst, there are a few possible outcomes for Constellation Brands: the tariffs might not be implemented and could instead be a starting point for negotiations, the company might receive an exemption, or the brand's pricing power could absorb some of the cost increases. To fully offset a 25% rise in the cost of goods sold for beer, Constellation would need to increase beer prices by approximately 12%, to maintain steady gross profit dollars.
Similarly, shares of Brown-Forman also experienced a decline, indicating the broader impact of the tariff announcement on companies reliant on imports. The potential tariffs raise concerns for businesses that depend on international trade, as they adjust to the incoming administration's policy changes.
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