McDonald's stock sinks after CDC reports E. coli outbreak linked to quarter pounder

McDonald’s stock (MCD) tumbled over 6% in early trading on Wednesday after the Centers for Disease Control and Prevention said the company’s Quarter Pounder burgers had been linked to an E. coli outbreak in some states, with most illnesses in Colorado and Nebraska.

“This is a fast-moving outbreak investigation,” the CDC wrote on its website. “Most sick people are reporting eating Quarter Pounder hamburgers from McDonald’s and investigators are working quickly to confirm which food ingredient is contaminated.”

The company’s stock sank as much as 10% in extended trading in the immediate aftermath of the news on Tuesday.

The CDC said McDonald’s has stopped using fresh slivered onions and quarter-pound beef patties in certain states while a source of the illness is confirmed.

One person has died from the outbreak, the agency said, and 10 hospitalizations have been reported across 10 states.

In an internal memo that McDonald’s shared on its website Tuesday evening, McDonald’s chief supply chain officer of North America Cesar Piña said the company is taking “swift and decisive action” and noted that the initial findings from the investigation “indicate that a subset of illnesses may be linked to slivered onions used in the Quarter Pounder and sourced by a single supplier that serves three distribution centers.”

“As a result, and in line with our safety protocols, all local restaurants have been instructed to remove this product from their supply and we have paused the distribution of all slivered onions in the impacted area,” the company said.

McDonald’s will temporarily remove the menu item from restaurants in the impacted areas, including Colorado, Kansas, Utah, and Wyoming, as well as portions of Idaho, Iowa, Missouri, Montana, Nebraska, Nevada, New Mexico, and Oklahoma. All other menu items are available.

Close-up of McDonald's Double Quarter Pounder with Cheese burger, San Ramon, California, August 3, 2024. (Photo by Smith Collection/Gado/Getty Images) — Close-up of McDonald’s Double Quarter Pounder with Cheese burger, San Ramon, California, August 3, 2024. (Smith Collection/Gado/Getty Images) · Smith Collection/Gado via Getty Images

“While the incident appears to be more contained than others we have seen in the industry, an expansion of the investigation or sustained publicity is what has the potential to weigh on consumer traffic,” BTIG analyst Peter Saleh wrote in a note to clients on Wednesday.

He added the incident could dampen the ongoing Chicken Big Mac and McRib limited-time offerings set to round out the year.

“We believe McDonald’s could reduce the advertising supporting these [limited-time offerings] receive in the near future, as the message may fall on deaf ears amid broader news coverage,” he explained. “The company may also want to shift its messaging to quality, and away from value, to reassure consumers about its food safety.”

“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.”

Fellow fast food giant Chipotle (CMG) went through its own E. coli outbreak in 2015, along with an outbreak of the norovirus. The company was forced to temporarily close 43 locations in Washington and Oregon as a result.

The CDC declared the outbreak over in February 2016, with the company undergoing an aggressive revamp of its food preparation methods.

But it took years for the Mexican food chain to rebuild brand trust and recover its stock price as a result of the crisis. Shares are up more than 500% since 2016.

In his note, Saleh, who maintained his Neutral rating on McDonald’s, said, “It’s premature to start making comparisons to the Chipotle precedent scarred in investors’ memories.”

“That incident was driven by repeated outbreaks across the country and continuous news coverage, and other quick-service chains have had localized E. coli outbreaks in recent years with almost no discernible sales impact,” he explained. “We are in a wait and assess mode for the time being.”

Jefferies analyst Andy Barish agreed, adding in a separate note that it’s “difficult to assess risk in the near term, but Chipotle not the obvious read-through, in our view.”

“The issue/source at MCD has been quickly identified and importantly isolated whereas there was little to no visibility at CMG in the early days of outbreak, followed by multiple store closures which is not the case with MCD at this point,” Barish said, maintaining his Buy rating on shares.

“Nonetheless, it remains too early to tell on the initial consumer response, but we think it may be much less severe than the case of CMG.”

Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.

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