Packages of Modelo Especial beer go on sale at a grocery store on June 14, 2023 in Los Angeles, California.
Mario Tama | Getty Images
Shares of Constellation brands fell 3.5% on Tuesday after President-elect Donald Trump announced plans to impose a 25% tariff on Mexican imports once he is inaugurated.
Constellation imports all of its beer from Mexico, including Modelo and Corona. Beer accounted for 86% of Constellation's revenue in the first half of the financial year.
Constellation shares are down more than 3% this year, including Tuesday's move. The brewer has a market capitalization of approximately $42 billion.
If implemented, Trump's proposed tariff would increase Constellation Brands' cost of goods sold by about 16%, according to a research note from Wells Fargo Securities analyst Chris Carey published Tuesday.
To offset the tariffs, Constellation would likely raise prices. The brewer has some pricing power, even among inflation-weary consumers. Last year, Modelo Especial overtook Bud Light as the best-selling beer in the US
It is unlikely that Constellation would move its beer production out of Mexico. Thanks to an antitrust settlement between Anheuser-Busch InBevGrupo Modelo and the Department of Justice in 2013, AB InBev had to sell Modelo's American operations to Constellation. That agreement requires Constellation to produce the beer brands where AB InBev makes them, according to a research note from Roth MKM analyst Bill Kirk.
In recent years, Constellation has spent billions of dollars to expand its Mexican manufacturing capacity.
It is unclear whether Trump will actually implement his planned tariffs. In his previous term, he proposed a 5% tariff on Mexican imports, with plans to increase duties to 25%, but those tariffs were not implemented.
In 2020, Trump signed a new trade deal with Mexico and Canada into law.
In the Monday evening post on his social media platform Truth Social, Trump also threatened an additional 10% tariff on goods from China and a 25% levy on Canadian imports.
Shares of automakers including General Motors and Stellantis also traded lower Tuesday on tariff fears.
