It appears that beer giant Constellation Brands is bracing for a challenging summer as it faces the repercussions of tariffs imposed by President Donald Trump on imports from Mexico and Canada. Effective from midnight, these tariffs, set at 25%, threaten to significantly impact the beer industry. This is critical as over 80% of U.S. beer imports derive from Mexico.

No other beer business stands to lose more from this trade situation than Constellation Brands, which produces renowned brands like Corona and Modelo, all brewed in Mexico. The company has recently seen these brands perform well, counterbalancing less robust sales in its wine sector.

Constellation operates two breweries in Mexico and is actively constructing a third facility in Veracruz. Analysts estimate that an overwhelming 99% of its beer is imported from Mexico. In response to the tariffs, a representative from Constellation indicated their commitment to collaborating with both U.S. and Mexican government officials to present their concerns and seek resolutions.

Research forecasts a potential decline of $3.50 per share in Constellation’s earnings due to the tariffs unless mitigative actions such as increasing prices, cutting costs, or executing stock buybacks are implemented. Even with some potential adjustments, a significant earnings drop of about $2.40 per share remains likely.

Contingency plans could potentially see distributors absorbing some of the added costs, but the extended effects of these tariffs also put the returns on Constellation’s recent investments in question. The company has dedicated substantial resources—over $900 million—to increasing its beer production capabilities in Mexico for the 2024 fiscal year alone.

As the situation evolves, Constellation’s stock has encountered challenges, plummeting 21% this year amid reduced guidance and disappointing sales figures. Its current trading multiples place it significantly lower than comparable beverage companies, raising concerns about its long-term financial health amid changing trade policies.

Furthermore, analysts express cautious optimism that Constellation Brands will still find a way to gain market share despite the immediate hurdles, although they recognize the persistent obstacles affecting the broader alcohol consumption market.