E-Malt.com News article: USA: Corona, Modelo beer prices won’t increase even if government places additional taxes on imports - Constellation
American lovers of Mexican beers likely wouldn't have to pay more for their Corona or Modelo if Republican-led tax reform places additional taxes on imports, executives of parent company Constellation Brands said on January 5.
But investors remained skittish on what impact tougher trade policies espoused by President-elect Donald Trump and House Republicans could have on Constellation's bottom line. The company's stock was down about 7 percent to $146.82 per share in January 5 trading, despite assurances by Constellation executives that the company could offset additional taxes known as "border adjustments" with supply chain changes — and not price hikes that would affect consumer demand.
"We don't expect consumer demand to be affected by border adjustments in any timeline relevant to our shareholders. ... I think (Republican tax reform) could be a net positive when it's all said and done," CEO Rob Sands said on the January 5 earnings call.
Sands noted the company had recently repurchased shares of its stock, which it felt were being undervalued because of the "changing political and legislative landscape."
Beer has driven the recent growth of Constellation, which also sells wine and spirits brands, like Robert Mondavi, Clos Du Bois and Svedka vodka.
In recent years, Mexican import beers have gone gangbusters in the United States, gaining market share from mainstream domestic beers and rivaling the rapid growth of craft beer. Constellation Brands' beer business, based in Chicago, continues to ride that wave with a stable of beers that includes Corona, Modelo Especial, Modelo Negra and Pacifico.
In results announced on January 5 for the fiscal quarter ending Nov. 30, Constellation Brands' beer sales grew about 16 percent from the same period a year ago to about $964 million.
Still, as it has since Trump's election victory on Nov. 8, Constellation remained hampered by analyst uncertainty Thursday. Border adjustments — part of the tax reform proposal outlined by House Republicans — would tax imports but exempt exports, regardless of where the company is incorporated.
Sands and Chief Financial Officer David Klein stressed on the earnings call that such taxes are still hypothetical at this point. But they also said that conversations with legislators have led them to believe that, should they become reality, there would be a deduction for costs of goods sold in the U.S.
That means Constellation could, if necessary, shift some of its costs — like natural gas needed to make glass bottles, for example — to the U.S. from Mexico to offset the tax burden, Klein said.
And there could even be a "carve-out" for Mexican beers in the border tax proposal, Sands said, because Constellation Brands is not a company that has outsourced jobs to Mexico and imported products back into the U.S. Instead, Constellation essentially bought a Mexican beer business and created jobs in the U.S., he said.
"Mexican beer could be exempt because it's an inherently Mexican product and not the type of thing that's being targeted," Sands said.
Any tax reform is likely at least a year from being enacted and would allow more time for implementing, he said. For now, Congress appears to have other priorities, he said.
"The first thing you're seeing in Congress, which you're seeing right now, is (the proposed repeal of) Obamacare. Congress has a lot on its plate right now," Sands said on the call.
In the quarterly results, net sales of about $1.8 billion represented an increase of 10 percent from the same period a year ago and aligned with analyst expectations. Comparable earnings per share of $1.96 represented an increase of 38 percent from the same period a year ago and beat analyst projections.
06 January, 2017