The giant brewer behind popular beer brands Modelo and Corona has reported significant financial challenges attributed to recent U.S. policy changes. Constellation Brands announced that its profit margins have been squeezed due to President Donald Trump’s aluminum tariffs, while sales have also been affected by the administration’s immigration crackdown.
In its latest earnings report, Constellation Brands revealed adjusted earnings per share of $3.22 for the first quarter ending May 31, falling short of LSEG analysts’ expectations of $3.31. The company’s revenue also disappointed, coming in at $2.52 billion against Wall Street’s forecast of $2.55 billion.
Impact of Tariffs on Aluminum and Imports
In March, President Trump increased levies on aluminum imports to 25%, further raising them to 50% in early June. These tariffs have escalated costs for products packaged in aluminum cans, including beer, soda, and energy drinks. Constellation Brands, which is based in Rochester, NY, is particularly vulnerable as it sells only imported Mexican beers, such as Corona and Pacifico, which are subject to additional 25% tariffs imposed on foreign beer imports in April.
The company’s operating margin fell by 150 basis points, or 1.5%, during the latest quarter, partly due to these tariffs. Shipment volumes in its beer business also dropped by 3.3% as a result of declining demand.
Immigration Crackdown Affects Sales
Beyond tariffs, Constellation Brands has been grappling with weaker demand, which CEO Bill Newlands attributes to “non-structural socioeconomic factors,” including the company’s divestiture of Svedka vodka. Newlands highlighted that Hispanic customers, who constitute approximately half of Constellation’s beer sales, have reduced their purchases amid concerns over the Trump administration’s immigration policies.
“The fact is, a lot of consumers in the Hispanic community are concerned right now,” Newlands stated during a company conference call.
“Over half are concerned relative to immigration issues and how those impact [them]. A number of them are concerned about job losses in industries that have a high Latino employment base.”
This apprehension has led to a cutback on discretionary spending among Hispanic consumers, affecting sectors such as restaurants, clothing, travel, and notably, beer.
Financial Performance and Future Outlook
Constellation Brands’ financial performance has been under pressure, with its shares falling 25% so far this year. The stock experienced a significant drop in January following weak fourth-quarter earnings and a full-year forecast that fell below expectations. Despite these challenges, Constellation maintained its full-year forecast, projecting comparable earnings per share between $12.60 and $12.90 and anticipating organic net sales to range from a 2% decline to a 1% gain.
The company’s beer segment remains its primary revenue driver, accounting for roughly 80% of total revenue, despite also selling wine and craft spirits. In the latest quarter, Constellation reported a net income of $516.1 million, or $2.90 per share, down from $877 million, or $4.78 a share, in the same period last year.
Looking Ahead
As Constellation Brands navigates these turbulent times, the company continues to focus on strategic adjustments to mitigate the impact of tariffs and shifting consumer behaviors. Industry analysts suggest that the company might explore cost-cutting measures or diversify its product offerings to stabilize its financial position.
The broader implications of these challenges highlight the interconnectedness of international trade policies and domestic economic conditions. As Constellation Brands and other companies adapt to these changes, the evolving landscape will likely shape future business strategies and market dynamics.
