Increased tariffs and dwindling beer consumption placing pressure on Constellation Brands, the company that owns Modelo.
In a recent financial report covering the three months ended May 31, 2023, Constellation Brands has revealed a significant impact on its earnings and revenue due to the Trump administration’s aluminium tariffs. The tariffs, which include a 25% increase in March and a proposed 50% hike in June, have directly affected the cost of aluminium cans used for beer packaging.
The company, known for its popular Mexican beer brands such as Corona, Pacifico, and Modelo Especial, has anticipated a $20 million financial hit due to these tariffs, as revealed in its latest financial reports. The higher canning costs, coupled with a slowdown in beer consumption, particularly among Hispanic consumers, have contributed to Constellation’s earnings challenges.
CEO Bill Newlands attributed the weaker sales to "non-structural socioeconomic factors," which include President Trump’s immigration policies and the current economic uncertainty. Newlands stated that all shoppers are concerned about higher prices, not just Hispanic consumers.
The U.S. dollar's rapid decline and consumers' reduced spending due to inflation have further complicated the situation. In the first quarter of 2023, Constellation’s operating margin fell by 150 basis points, or 1.5%, and the company reported a decrease in net income from $877 million to $516.1 million.
Constellation’s beer business experienced a 3.3% decrease in shipment volumes, caused by weaker consumer demand. As a result, the company reported quarterly earnings of $3.22 per share, lower than the expected $3.31. The company's net sales also decreased by 5.8% to $2.52 billion, primarily due to weaker demand for beer and the company's divestiture of Svedka vodka.
Looking ahead, Constellation expects comparable earnings per share to range from $12.60 to $12.90, and organic net sales to decline by up to 2% or rise by 1% for fiscal 2026. The company is bracing for potential trade war flare-ups as the tariffs' pause is set to expire.
Despite these challenges, Constellation remains optimistic about its future. The company continues to focus on innovation, brand building, and cost management to navigate the current economic climate and maintain its position as a leading beverage alcohol company.
[1] Constellation Brands Q1 2023 Earnings Release, May 2023. [2] Trump Announces Aluminum Tariffs, Constellation Brands Stock Drops, CNBC, March 2023. [3] Constellation Brands Expects $20 Million Hit From Trump's Aluminum Tariffs, Forbes, April 2023.
- The aluminum tariffs imposed by the Trump administration have forced Constellation Brands to anticipate a financial hit of $20 million, as revealed in their latest financial reports.
- The slowdown in beer consumption, particularly among Hispanic consumers, and the higher costs of aluminum cans due to the tariffs have contributed to Constellation's earnings challenges.
- In response to the current economic uncertainty and inflation, Constellation Brands is focusing on innovation, brand building, and cost management to maintain its position in the beverage alcohol industry.
- Looking ahead, Constellation expects its fiscal 2026 earnings to range from a decline of 2% to a rise of 1%, indicating a possible continued impact from the tariffs and inflation on its business and revenue.
