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Is Constellation Brands at Risk After Mexico Stops Producing Corona Beer?

By Rich Duprey – Apr 3, 2020 at 1:06PM

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Beer production is not an essential business in Mexico as it is in the U.S.

Constellation Brands (STZ -2.25%) just reported strong fourth-quarter sales and earnings growth on the strength of its Corona brand of Mexican beer, but those results could be tested in the coming weeks.

That's because unlike in the U.S., beer is not considered an essential business in Mexico and production is shutting down beginning on Sunday.

Bottles of beer with limes in the necks

Image source: Getty Images.

No mas cerveza 

The Corona and Modelo brands of beer are critical to Constellation Brands' performance, as beer accounts for 67% of total net sales. 

While beer consumption in the U.S. has been in a protracted slump, Mexican beer has been one of the few bright spots, recording steady annual growth. Constellation just reported beer depletions, a measurement of consumer demand, jumped 11% last quarter as Corona rose 5% and Modelo surged 18% year over year.

The brewer is dependent upon its Nava and Obregon breweries in Mexico for the production of its Mexican beer. Unless the Mexican government can be convinced to reclassify beer as essential, Constellation may see its strong performance severely undermined. Timing could be everything. 

The Chicago Tribune reports U.S. distributors have six weeks of Mexican beer on hand, which may be enough to see Constellation through, but Mexico is also just beginning to see a rise in coronavirus cases, so its response has lagged those of governments elsewhere.

Constellation isn't alone in its concern. Anheuser-Busch InBev (BUD -3.97%) owns Grupo Modelo and makes Corona and Modelo beer for distribution everywhere outside of the U.S. It sold the U.S. rights to the Mexican beer to satisfy antitrust concerns when Anheuser-Busch and InBev merged in 2013.

 

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Constellation Brands. The Motley Fool recommends Anheuser-Busch InBev NV. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Constellation Brands, Inc. Stock Quote
Constellation Brands, Inc.
STZ
$231.26 (-2.25%) $-5.33
Anheuser-Busch InBev SA/NV Stock Quote
Anheuser-Busch InBev SA/NV
BUD
$46.64 (-3.97%) $-1.93

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