Coca-Cola more optimistic on Q3 demand after pandemic-induced Q2 mauling

Houston — Coca-Cola executives expect demand for its products, heavy users of aluminum and polyethylene terephthalate, to continue to rebound in the coming months on a lifting of coronavirus pandemic-induced shutdowns that hammered its second quarter of 2020 results, they said July 21.

"We've just closed the books on what has arguably been the toughest and most complex quarter in Coca-Cola history," CEO James Quincey said during the company's Q2 earnings call on July 21. "From the initial lockdowns and closures of hundreds of thousands of our customer outlets, with a gradual reopening and now another round of spikes in various countries, the impacts have been profound."

Coca-Cola's Q2 net income fell nearly 32% to $1.78 billion from $2.61 billion in the year-ago period. The company's global unit case volume, or cases of 24 beverage servings, fell 16%, particularly in away-from-home channels, such as bars, food service restaurants, and at-work locations where bottled beverages are sold.

"[At] some of these places, simply put, there was no foot traffic," said Quincey. "And so the declines were significant."

However, the level of year-on-year decline has fallen to 10% in June from 25% in April, reflecting reopenings of economies from coronavirus pandemic-related shutdowns, the company said.

"As we went through the quarter and restrictions generally eased globally, our business saw improvements from the 25% volume decline in April to the single-digit declines we are seeing now in July," Quincey said.

Despite a slowdown in volume loss, Quincey noted that since many offices have yet to return to capacity, if at all, at-work continues to be one of the most-affected channels, even more so than "casual dining or even bars and restaurants."

He said the uncertainty caused by the pandemic remains significant as regions experience a resurgence in infections, prompting some renewed shutdowns or very slow emergence from them.

"In addition to the near-term realities of the pandemic and consumer shifts, the uncertainty around the trajectory of the macroeconomic environment is significant. We generally align with forecasts that imply the global economy could take two to three years to fully recover," Quincey said.

Chief Financial Officer John Murphy said the company expects its top-line trajectory to correlate closely to consumer mobility and health of those away-from-home channels.

"The pandemic is not behind us," Murphy said. "There is still a good reason to be cautious as global COVID infections continue to increase, with case growth generally shifting from developed to emerging markets."

He said that while the company sees sequential improvement, recovery will likely not be linear, with some markets such as Iran, Australia, Romania and the US seeing second spikes.

Upstream

Further upstream, however, Mexican polymer producer Alpek told a different story about Q2 late last week, taking a bigger hit from historically-low crude and feedstock prices, which resulted in "both an inventory loss and negative raw material carryforward effect."

Alpek saw stronger-than-expected demand for PET beverage bottles in Q2 amid a surge in restaurant takeout and delivery orders as dine-in services, including over-the-counter fountain drinks, remain limited in many parts of the world.

"The general population has become increasingly concerned with safety and hygiene," CEO Jose de Jesus Valdez said during the call. "As a result of this new focus, we believe PET has gained market share in the food-service category as fountain dispensers are being replaced by PET packaging."

S&P Global Platts last assessed US import PET at $970/mt, delivered West Coast, down nearly 30% on the year. US domestic PET was assessed at $981/mt, roughly 21% below the year-ago price.