Beer investors worry that Trump imposes tariff on Mexican imports
It’s not just car makers that worry over President Trump’s border tax threat, beer importers are concerned too. Although Republicans haven’t yet drafted legislation, Constellation Brands, the number three brewer in the US, is already pro-actively looking at ways to avoid raising prices.
Constellation has seen its share price falling to under USD 150 per share in early January 2017 on fears that President Trump may impose a border adjustment tax which would affect Constellation’s beer imports from Mexico – the Modelo and Corona brands.
The border adjustment tax essentially serves as a tariff on imports where the cost of imported supplies would no longer be deductible from taxable income.
Media say Constellation’s management did a decent job of assuaging fears. Management has been in discussions with US lawmakers about the potential rule change and is well prepared if it does go into effect. The company repeatedly stressed that no law has been written yet and it is no sure thing.
However, 60 percent of the company’s cost of goods sold stem from Mexico. Constellation said they could shift some of those costs within the supply chain to the US so they would remain tax deductible, like the natural gas needed to make the glass bottles.
Bullishly downplaying risks, Constellation said on 5 January 2017 they expect their beer business to grow sales by 16-17 percent for the full fiscal year ending February 2017, helped by last year’s acquisition of craft brewer Ballast Point.
