🐂 Not all bull runs are created equal. November’s AI picks include 5 stocks up +20% eachUnlock Stocks

McDonald's E. coli outbreak could worsen near-term sales decline

Published 10/28/2024, 07:16 AM
Updated 10/28/2024, 07:37 AM
© Reuters. FILE PHOTO: A McDonald's Quarter Pounder hamburger and coke, are seen in an illustration picture taken in New York City, U.S., October 24, 2024.  REUTERS/Brendan McDermid/File Photo
MCD
-

By Savyata Mishra

(Reuters) - McDonald's (NYSE:MCD) investors will look for signs of near-term sales disruption from the recent E. coli outbreak linked to its Quarter Pounder hamburgers when it reports third-quarter results on Tuesday.

Last week's outbreak has killed at least one person, while the number of infections have risen to 75, according to the U.S. Food and Drug Administration. Since then, the shares of McDonald's have dropped nearly 7%.

"We are concerned that reports of an E. coli outbreak ... could pose a major threat to consumer sentiment and McDonald's U.S. comparable sales," Baird analyst David Tarantino wrote in a note last week.

The brokerage downgraded the stock to "neutral", saying the fallout will depend on how long the issue takes to resolve and the media attention it gets.

Slivered onions used in the hamburgers are likely to be the source of the infection, with the Colorado Department of Agriculture over the weekend ruling out beef patties as the possible cause.

The slivered onions were supplied by Taylor Farms, the FDA had said. After a pause in the sale of the Quarter Pounder in a fifth of its U.S. restaurants since Oct. 23, the company said it will be added back to the menu this week.

Some analysts have said the outbreak would not be as severe as prior E. coli outbreaks, including at Chipotle Mexican Grill (NYSE:CMG) and Wendy's (NASDAQ:WEN).

"While we expect much of the (McDonald's conference) call's focus to be on any fallout from the recent E. coli news, we also expect any fallout to be minimal and short-lived," according to Wedbush.

The burger chain has struggled with weak demand due to low-income consumers paring back fast food spending.

McDonald's is expected to post a 0.72% drop in global same-store sales in the third quarter, while earnings per share is expected to be $3.20, according to estimates compiled by LSEG.

It had started to see signs of recovery following the launch of its $5 meal deal in June, which has been extended through the end of the year at most of its U.S. locations.

© Reuters. FILE PHOTO: A McDonald's Quarter Pounder hamburger and coke, are seen in an illustration picture taken in New York City, U.S., October 24, 2024.  REUTERS/Brendan McDermid/File Photo

Customer visits to McDonald's averaged a 0.27% rise through the July to September period, compared to a 2.2% decline in the prior three months, according to data from Placer.ai.

"McDonald's traffic was anemic before this incident, so any extended negative publicity could only make it more difficult to reignite sales in this environment," BTIG analyst Peter Saleh said.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.