Constellation Brands: There’s Still Room to Run, Even with Tariffs

The U.S. beer market is a battleground of tariffs, supply chain complexities, and shifting consumer preferences. Yet, Constellation Brands (STZ) remains a force to be reckoned with, dominating 82.5% of Mexican beer exports to the U.S. as the owner of iconic brands like Corona, Modelo Especial, and Pacifico. Despite facing a 25% tariff on aluminum cans—a critical component for its canned beer dominance—the company has shown resilience through strategic adjustments. But can it sustain growth in this environment? The answer lies in its compliance with the USMCA agreement, operational agility, and a focused approach to cost management.

The Tariff Landscape: Challenges and Compliance

The U.S.-Mexico-Canada Agreement (USMCA) has been both a shield and a constraint for Constellation. Under the deal, Mexican beer qualifies for 0% tariffs if it meets strict rules of origin—such as using ingredients from all three member countries. This exemption applies to the beer itself, but not the aluminum cans, which face a 25% tariff under U.S. trade policies. The separation of the can’s aluminum value from the beer’s content is key: by documenting this split, Constellation avoids tariffs on the beer’s value, focusing mitigation efforts on the can’s cost.

Navigating Aluminum Headwinds

The aluminum tariff has hit Constellation’s margins, particularly since ~40% of its Mexican beer export revenue comes from canned products. However, the company is countering this through:
1. Supply Chain Diversification: Expanding its Veracruz brewery to reduce reliance on imported cans and increase local production.
2. Cost-Cutting Measures: Aiming for $200 million in annual savings by fiscal 2028 through restructuring, including potential divestitures of non-core wine brands.
3. Consumer Engagement: Targeting Hispanic demographics, its core market, with localized marketing and affordable pricing to offset inflation-driven spending declines.

Financial Outlook: A Path to Stability

Despite lowering long-term earnings guidance to 39–40% operating margins by fiscal 2027–2028, Constellation’s moves signal pragmatism. CEO Bill Newlands has emphasized that USMCA compliance remains intact, and the company’s modular brewery expansions in Mexico will enhance efficiency. Additionally, the separation of beer and can values—as validated by logistics firms like Hillebrand Gori—minimizes tariff impacts on compliant shipments.

Risks and Market Dynamics

• Hispanic Consumer Sentiment: Economic pressures, including immigration concerns and inflation, have dampened spending on social gatherings. Constellation’s Q4 2025 report noted slower sales growth projections (0–3% in 2026, 2–4% in 2027–2028).
• Trade Policy Uncertainty: While USMCA compliance shields beer content, any further tariff hikes or regulatory changes could disrupt margins.

Why There’s Still Room to Run

1. Market Share Dominance: With 82.5% of Mexican beer exports to the U.S., Constellation’s scale provides pricing power and economies of scale.
2. Cost Savings Materializing: The $200 million target aligns with its 2028 margin stabilization goal, suggesting resilience even amid tariffs.
3. Brand Resilience: Corona and Modelo remain cultural touchstones, with global appeal beyond the U.S. Hispanic market.

Conclusion: A Glass Half Full

Constellation Brands faces headwinds, but its proactive strategies—USMCA compliance, supply chain adjustments, and cost discipline—position it to navigate tariffs and economic volatility. With a $30 billion market cap and a 2.5% dividend yield, the stock offers a blend of stability and growth potential. Key data points reinforce this:
- Margin Stability: The 39–40% operating margin target by 2028 is achievable if cost savings materialize.
- Market Reach: Its 82.5% dominance in Mexican beer exports leaves limited room for competitors to erode its position.
- Consumer Loyalty: Hispanic demographics, though economically strained, remain culturally tied to brands like Corona, which can be leveraged through localized marketing.

While tariffs and inflation pose risks, Constellation’s agility in adapting to trade policies and its deep-rooted brand equity suggest there’s still room to run. Investors who focus on its long-term structural advantages may find the stock a solid bet for 2025 and beyond.