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Constellation Brands upbeat on future, despite perceived danger of Donald Trump - Analysis

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The CEO of Constellation Brands has told analysts that Donald Trump's presidency will have "no impact whatsoever in the near term". 

Is Donald Trump a cause for concern at Constellation Brands?

Is Donald Trump a cause for concern at Constellation Brands?

Earlier this year, SIG's Pablo Zuanic suggested that a Trump administration could strip out Constellation's core beer base in the US, should he make good on a pledge to deport unauthorised immigrants. However, in notes to clients following Constellation's investor meeting on Wednesday, the day after Trump emerged victorious, several analysts appeared buoyed by Rob Sands' assessment of the situation.

Late yesterday, Wells Fargo's Bonnie Herzog quoted Sands as saying the situation would have "no impact whatsoever" on Constellation "in the near term". 

In suggesting that any threat to Constellation is "likely overblown", Herzog outlines three reasons for her assessment: "No imported beer is currently taxed, regardless of any trade agreements", she writes, noting also that in relation to Trump's plans to renegotiate the North American Free Trade Agreement, "the likely long-winded process of unwinding NAFTA (if that were to occur at all) would allow Constellation to adapt as necessary". Lastly, she says: "Constellation's beer has always been manufactured in Mexico, immunising it to some extent from Trump's rhetoric about losing US jobs to Mexican manufacturing."

At CLSA, Caroline Levy agrees that new taxes on Mexican beer would be unlikely. "Despite significant campaign rhetoric geared towards more protectionist trade policy, specifically with Mexico, Trump is likely to find raising taxes on imported beer a politically unpalatable move," she says.

Meanwhile, Stifel's Mark Swartzberg highlights Sands' remarks this week that jobs in Mexico help create jobs in the US. "Constellation has been communicating and will continue to communicate to decision makers in Washington that it estimates that for every job it creates in Mexico - it employs 2,000 people at its Nava brewery - ten jobs are created in the US," Swartzberg notes. 

However, SIG's Zuanic remains cautious, saying the "Trump overhang is real and here to stay". More than the risk to import duties, Zuanic believes that in the short term, the concern is "about lower spend by the company's core consumer demographic of Mexican Hispanics - 40% of the beer unit - and in the medium term about a shrinking base resulting from potential deportations."

What will the arrival of President Donald Trump mean for the drinks industry? - Click here for a just-drinks focus


Sectors: Beer & cider

Companies: Constellation Brands

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