(Adds details, executive, analyst comment; updates shares)
Jan 5 Constellation Brands Inc, which
makes most of its beer in Mexico, reported a
higher-than-expected quarterly profit, but investors remained
jittery about President-elect Donald Trump's proposals to
tighten cross-border trade.
The company's shares, which makes beers such as Corona and
Modelo in Mexico and imports them to the United States, fell as
much as 8.9 percent to $144.
"There is a high level of investor skittishness around the
stock due to potential tax changes from the new administration,"
SunTrust Robinson Humphrey analyst William Chappell Jr. wrote in
Trump and congressional Republicans have called for sweeping
corporate tax reforms, including one on foreign imports called
The proposal, which is meant to boost U.S. manufacturing,
would tax U.S. imports at the corporate income tax rate making
them 20 percent more expensive, while exports would be exempt.
A specific aspect of border adjustability could disallow a
deduction for foreign-sourced cost of goods sold (COGS), which
companies such as Constellation currently enjoy.
Constellation said it had modeled several potential
scenarios to offset any of the proposed tax reforms, including
The company said in case the proposal does come to pass in
its current form, it would consider measures including sourcing
natural gas in the United States instead of Mexico to produce
"That's just one example of things we can do in our supply
chain so we turn that into a US cost instead of a Mexican cost
and we then have a deductible expense for U.S. tax purposes,"
Constellation said on an earnings call with analysts.
Currently, the United States accounts for 40 percent of
Constellation's COGS for beer including freight, while Mexico
accounts for the rest.
The company has breweries in Nava, Mexicali and Obregon in
Constellation also raised its adjusted profit forecast to
$6.55-$6.65 per share for the year ending February, from
$6.30-$6.45 it had previously expected.
Beer sales rose 16 percent on higher volumes and pricing,
and a boost from its acquisition of craft beer maker Ballast
Point last year.
The Victor, New York-based company's sales rose 10.3 percent
to $1.81 billion, in-line with the average analyst estimate,
according to Thomson Reuters I/B/E/S.
Net income attributable rose 50 percent to $405.9 million,
or $1.98 per class A share in the third quarter ended Nov. 30.
Excluding certain items, the company earned $1.96 per share,
beating the average estimate of $1.72 per share.
(Reporting by Gayathree Ganesan and Siddharth Cavale in
Bengaluru; Editing by Shounak Dasgupta and Saumyadeb