McDonald's shares drop on E. coli outbreak

McDonald’s shares fell 4.3% in midday trading on Wednesday, as the head of its U.S. business scrambled to limit the damage from an E. coli outbreak linked to Quarter Pounder burgers in several states that has killed one person and sickened nearly 50 others.

McDonald’s USA President Joe Erlinger on Wednesday said the world’s biggest fast-food chain could rebuild trust with the public as it works to soften the blow of the E. coli outbreak, which resulted in the death of one person and caused 49 other people in the U.S. to fall ill. Previous E. coli outbreaks at big U.S. fast-food chains have caused consumers to shun those stores for months.

Erlinger pointed to the Chicago-based company’s steps to quickly pull the Quarter Pounder from its menu in the areas where the outbreak has occurred during an appearance on NBC’s “Today” show on Wednesday.

“Given the recent events of the past 24 hours, our priority is to reinforce the confidence of American consumers,” he said.

The outbreak sickened people in 10 states, with 10 hospitalized due to serious complications, according to the U.S. Centers for Disease Control and Prevention. A serious kidney disorder known as hemolytic uremic syndrome was reported in one child, the CDC said.

The CDC and McDonald’s are scrutinizing McDonald’s supplies of slivered onions and Quarter Pounder beef patties as they investigate the cause of the E. coli outbreak, the company said.

At midday, the company’s stock was down 4.3% at $301.29 on the New York Stock Exchange.

“This public health scare is the last thing McDonald’s needs, given that it’s already been struggling to drive growth,” said Susannah Streeter, Hargreaves Lansdown’s head of money and markets.

In the past, two notable E. coli outbreaks – at Chipotle Mexican Grill in 2015 and Jack in the Box in 1993 – significantly hurt sales at those chains.

Chipotle took a year-and-a-half to stabilize, while Jack in the Box sales declined for four straight quarters, Raymond James analyst Brian Vaccaro said.

Chipotle shares fell nearly 50% during the 2015-to-2018 period when cases of norovirus infections were reported after the E. coli outbreak.

The E. coli O157:H7 strain that led to the McDonald’s outbreak is said to cause serious illness. It is the same as a strain linked to a 1993 incident at Jack in the Box that killed four children.

Analysts said McDonald’s fourth-quarter sales could experience some pressure from the outbreak but it is too early to say whether it would be worse than the previous two E. coli cases.

The company’s move to quickly identify the likely source of the outbreak and replenish supplies should fix the problem, J.P. Morgan analysts said in a note.

BMO Capital Markets analyst Andrew Strelzik said McDonald’s U.S. comparable sales had just begun to accelerate following the recent launch of $5 value meals.

In July, McDonald’s posted a surprise drop in sales worldwide, its first quarterly decline in more than three years.