McDonald’s Faces E. Coli Outbreak Linked to Quarter Pounders
Shares of McDonald’s (MCD) experienced a decline following an E. coli outbreak associated with its quarter pounders in various Western and Midwest states. The U.S. Department of Agriculture has identified onions used in the burgers as the probable source of the contamination.
The outbreak has resulted in approximately 50 illnesses and one fatality. Despite McDonald’s strong record in food safety, the company has committed to enhancing its safety protocols. In response to the incident, McDonald’s has withdrawn quarter pounders from around 20% of its locations and is collaborating with suppliers to restore the item to its menu within the coming weeks.
Impact of Food-Borne Illnesses on Restaurant Stocks
Food-borne illness outbreaks are rare among large publicly traded restaurants but have occurred at times, significantly impacting financial performance. Notable cases include:
Jack in the Box: A severe incident in the early 1990s involved over 700 illnesses and four fatalities due to E. coli contamination from undercooked burgers. This led to a decline in sales for four consecutive quarters, and the company’s stock plummeted but eventually recovered after several years.
Chipotle: In 2015, Chipotle faced significant challenges when an E. coli outbreak was followed by a norovirus outbreak. The company paid a $25 million fine related to the incidents. Consequently, Chipotle saw a 22% decrease in same-store sales, with its stock declining by 45%. It took until mid-2019 for the stock to fully recover and subsequently quadruple in value.
Wendy’s: A more recent incident in August 2022 involved an E. coli outbreak linked to romaine lettuce, sickening over 100 people. Despite initial stock dips, the company’s sales were largely unaffected, with same-store sales rising by 7.7% by the third quarter of 2022.
- Taco Bell: In late 2006, an E. coli outbreak related to lettuce resulted in over 70 illnesses and reduced sales. The stock initially fell but swiftly rebounded despite ongoing challenges with same-store sales.
Implications for McDonald’s
The trajectory of restaurant stocks affected by food-borne illnesses suggests that they typically recover and perform well long-term. While McDonald’s may face short-term impacts on same-store sales, if the issue remains isolated, a swift recovery in stock performance is likely. Comparatively, McDonald’s situation resembles the Wendy’s and Taco Bell incidents, which implies a potential for favorable stock performance in the future.
Currently, McDonald’s trades at a forward price-to-earnings (P/E) ratio of 23 times the next year’s estimates. The stock tends to stabilize within a trailing P/E range of 25 to 30. With ongoing expansion and growth in earnings-per-share (EPS), McDonald’s is expected to remain a strong long-term investment.
