Constellation Brands (STZ) is back in the headlines and this time it’s not for a daring exploration of the cannabis market. After President Trump tweeted out the plans to impose tariffs on Mexican goods, the conglomerate behind Modelo and Corona saw their stock prices plunge, recording a 5.8% drop on Friday (6.31).
On Thursday (6.30) night, Trump tweeted out, “On June 10th, the United States will impose a 5% Tariff on all goods coming into our Country from Mexico, until such time as illegal migrants coming through Mexico, and into our Country, STOP. The Tariff will gradually increase until the Illegal Immigration problem is remedied,..”
Typical of many POTUS’ policy tweets, the post contradicted the positions of many aides including Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer. After initial confusion, the administration released a schedule of tariffs escalating up to 25%.
However, Trump did not actually specify exactly what actions he expects of Mexico in exchange for an end to the tariffs. In a series of rambling tweets and retweets, he pushed the broad concept that Mexico must stop both illegal immigration and drugs to end the action.
What is clear is that the tariffs are trouble for Constellation Brands. Investors are not quite sure how much of Constellation’s beer is imported from Mexico, but estimates land between 95% according to Morgan Stanley and 98% according to BMO. Following regulatory approval of a plan to offload their low-end wines to E & J Gallo, over two thirds of Constellation’s revenue is projected to come from beer sales.
Morgan Stanley also predicted that a 5% tariffs on Mexican goods would trim about 4% off of Constellation’s overall profit. In the event that the the tariffs rose to to 25%, the bank projected a 19% drop in profits.
So far, Constellation has declined to comment.