Businesses with ties to Mexico gird for Trump aftershocks

Constellation Brands derives about 70 percent of its profit from importing Corona and Modelo beer into the U.S.
Constellation Brands derives about 70 percent of its profit from importing Corona and Modelo beer into the U.S. AP

Companies with deep ties to Mexico — from Corona beer importer Constellation Brands to Ford Motor Co. and Fort Worth-based home builder D.R. Horton — are reeling after Donald Trump’s unexpected election as the 45th U.S. president.

Trump campaigned on vows to build a wall along the southern border, deport millions of Hispanic immigrants, dismantle the North American Free Trade Agreement and ignite a trade war with Mexico. That doesn’t bode well for companies like Kansas City Southern and Union Pacific, whose railroads haul goods between Mexico and Canada on the so-called NAFTA highway. Mexico sends almost 80 percent of its exports to the U.S.

It’s also not good for firms like Constellation, which counts Hispanic immigrants among its most loyal customers, and D.R. Horton, which relies on immigrant labor to build its homes.

“Companies with exposure to Mexico, we assume will see some pressure,” Pablo Zuanic, an analyst with Susquehanna Financial Group, said Wednesday. “If a company has exposure to the Hispanic immigrant community, we’re not sure what’s going to happen to that customer base.”

Kansas City Southern generates about 48 percent of its revenue in Mexico. Union Pacific would also be hurt because about 10 percent of its sales come from hauling goods to and from Mexico, according to Keith Schoonmaker, an analyst for Morningstar.

“If that trade is hampered, that’s certainly a negative for Kansas City Southern,” Schoonmaker said before the election results were known. “It’s pretty uncertain what the long-term renegotiation of NAFTA would look like, but even just the sentiment of ‘there’s a candidate who just won who thinks NAFTA is a bad idea’ – that certainly wouldn’t be a positive.”

On Wednesday, Mexican President Enrique Peña Nieto sent a series of messages from his official Twitter account, saying he’s ready to work with Trump to advance the countries’ relationship.

“Mexico and the United States are friends, partners and allies that must continue collaborating for the competitiveness and development of North America,” Peña Nieto wrote.

Among the most vulnerable U.S. companies under the incoming Trump administration is Constellation, which derives about 70 percent of its profit from importing Corona and Modelo beer into the U.S. That could get more expensive if Trump imposes tariffs or alters trade agreements with Mexico, according to Susquehanna.

When Trump launched his campaign in 2015, he referred to Mexicans who had crossed the U.S. border as drug dealers and rapists. Companies such as Macy’s and NBCUniversal reacted by severing ties with the real estate developer for fear of offending the U.S. Latino community. For those companies, it was an easy choice because Latinos are a growing, upwardly mobile group that brands are increasingly targeting.

A faltering peso would hurt the results of foreign companies operating in Mexico by making sales there less valuable. The NAFTA railway is integral to trade, especially for automakers who have expanded manufacturing capacity in Mexico over the past few years because of cheaper labor.