President Trump announced a plan Thursday to slap Mexico with a 5% tariff, a move that has markets reeling and is already having an effect on the American beverage industry.
In a series of tweets Thursday and Friday, Trump said that tariffs would be placed on all Mexican goods starting on June 10 and gradually increase as a penalty for not preventing illegal immigrants from entering the United States.
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,..— Donald J. Trump (@realDonaldTrump) May 30, 2019
According to a White House statement, tariffs will increase by 5% each month up to 25% on October 1 until the administration decides the issue is resolved. Last year, the US imported about $350 billion in Mexican goods.
The market has reacted swiftly. The Dow industrials have fallen nearly 1% to below 25,000, and beverage companies that import products from Mexico are dropping.
For US consumers, Mexican beer and liquor is likely to get more expensive if the tariffs go into effect. That would hurt companies such as New York-based Constellation Brands Inc (NYSE:STZ), which produces Corona and Modelo beer brands in Mexico. Its shares were down 6.5% mid-Friday to $175.11.
On the other hand, smaller North American craft brewers could see a benefit. Terry Donnelly, CEO of Vancouver-based Hill Street Beverage Co (CVE:BEER) (OTCMKTS:HSEEF) believes that beverage industry players that don’t import from Mexico may see an uptick.
“The big players who import beverages from Mexico will be hit hard,” Donnelly said. “The little guys have an opportunity to take up the market share that’s offered to them as a result."
Among those concerned for Constellation is Bank of America Merrill Lynch analyst Bryan Spillane.
"A majority of its beer revenues and profits are derived from Mexican imports (excluding Ballast Point and Funky Buddha)," Spillane wrote in an analyst note, according to a published report. "We estimate ~65% of STZ beer [cost of goods sold] are Mexico based. Assuming no mitigation (e.g. cost reductions, peso devaluation, price increases) we estimate a 5% tariff would be a 4% headwind to [earnings per share] and 25% tariff would result in a 20% headwind."
Dutch brewer Heineken NV (OTCMKTS:HEINY), which owns Dos Equis and Tecate, dropped 2.8% to $52.34. Diageo plc (NYSE:DEO), the Don Julio tequila producer, is down 0.8% to $167.96.
Molson Coors Brewing Company (TAP), which doesn’t operate any Mexican brands, managed to climb 0.8% to $54.77. The Boston Beer Company Inc (NYSE:SAM) slipped almost 1% to $314.98, and New Age Beverages Corporation (NASDAQ:NBEV) lost 3.1% to $5.14.
Hill Street produces alcohol-free beer and wine, and is preparing cannabis-infused products which will debut when edibles become legal in Canada. Its stock edged up 0.3% to US$ on OTC markets and receded 6.5% to C$0.22 on the TSXV.
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