Trump tariffs could hike Constellation’s costs by USD 1 billion

USA | Constellation Brands anticipates a USD 1 billion financial hit this year from the 25 percent tariffs introduced by US President Trump, which took effect on 4 April. The levy applies to all imported canned beer and empty aluminium cans.

Although the company’s major beer brands like Modelo, Corona, and Pacifico are not subject to tariffs on Mexican imports, the aluminium packaging is. Constellation’s latest financial report shows that beer sales made up 78 percent of its total net revenue in the previous quarter.

In light of the new tariffs, the company has revised its future guidance, scaling back both its earnings and sales expectations. Beer sales in fiscal 2026 are now expected to be relatively flat, and projected annual growth over the medium term has been adjusted to 2 percent to 4 percent, down from the previous forecast of 6 percent to 8 percent.

Between a rock and a hard place

Observers say that the firm is not in trouble yet, but its stock has dropped 17 percent since the start of the year. Since it needs to plan to increase pricing on a lot of its products due to the effects of the tariffs, Constellation does not expect revenue to pick back up any time soon.

Last year, one analyst said that Constellation would need a 12 percent beer price increase to fully offset a 25 percent increase in costs of goods sold to keep gross profit dollars flat.

However, some observers hope that Constellation will get an exemption from the tariff - like some of Apple’s phones, which have temporarily been excluded from the 145 percent tariff on Chinese goods (but still face a minimum 20 percent levy).

It will be remembered that when the Justice Department (DOJ) reached a settlement with AB-InBev and Mexico’s Grupo Modelo in April 2013, which led to the sale of Modelo’s US business to Constellation, the DOJ required Constellation to produce its brands exclusively in Mexico. Hence it would be illogical to force a tariff on the same US company, whose location of production was determined by the DOJ. Besides, as a major US brewer that provides for an estimated 2.3 million jobs (including in agriculture, distribution and retail) it is imperative that Constellation remains competitive.

In mid-2023, Modelo became the top-selling beer brand in the US, as a boycott took a toll on sales of AB-InBev’s Bud Light.

Therefore, it would be an unmitigated disaster for Constellation, if it became a victim of Mr Trump’s tariffs war.