Tougher trade policies are unlikely to hurt Mexican beer imports into the United States, according to a statement of Rob Sands, CEO of Constellation Brands in an investors call last Thursday.
Constellation Brands is the main producer and importer of Mexican beer in the U.S. The company earns more than half of its profit with imports from Mexico and is thought to be negatively affected by cross-border trade restrictions planned by President-elect Donald Trump.
Sands said he was not shocked by Trump’s attack on Ford Motor Co to build a new plant in the US instead of Mexico. He explained that he sees a difference between an American product, like a Ford automobile, produced outside of the U.S. and then being reimported as opposed to an authentic Mexican beer, which cannot be produced domestically without losing its credibility. "Mexican beer could be exempt (from new border taxes) because it's an inherently Mexican product and not the type of thing that's being targeted," Sands explained.
Moreover, any tax reform in regard to foreign and especially Mexican products is "at least a year off," as Congress first will tackle Obamacare.
Last but not least, so called border adjustments, part of the tax reform proposal outlined by House Republicans, would tax imports but exempt exports that could mean a deduction for costs of goods sold from the U.S.. CFO David Klein explained in the same call that Constellation’s Cost of goods sold including freight for their Mexican beer originate to 40% from the United States and could be even increased which would make them a deductible expense for U.S. tax purposes.
All in all, Sands confirmed his belief that under every potential scenario Constellation will achieve its strategic goals including more than 10% EPS growth over the next 3 years.