21st Century Business Herald reporter Shu Xiaoting reports from Beijing
On October 22nd Eastern Time, the Centers for Disease Control and Prevention (CDC) announced that an outbreak of E. coli related to McDonald's Quarter Pound burger resulted in one death and 49 illnesses. Colorado and Nebraska have reported the majority of cases. The CDC quoted the Food and Drug Administration as saying that preliminary investigations have shown that onion slices on a quarter pound burger "may be a source of contamination.
Shortly after the CDC released the news, McDonald's stock price plummeted 10% in after hours trading, dropping from above $314 to $280 before rebounding to around $296 and dropping 5.8% at the end of after hours trading.
Before the post market decline on the 22nd, McDonald's stock price had risen by about 24% in the past three months, partly due to investors believing that the company's $5 package launched in June could translate into sales growth.
McDonald's China stated to 21st Century Business Herald reporters on the 23rd that McDonald's China does not sell the products mentioned in the news, nor does it use related ingredients. Food safety is our top priority, and we continue to strictly implement food safety and quality management standards
McDonald's outbreak of food safety incident
The Centers for Disease Control and Prevention (CDC) in the United States issued a food safety alert on October 22, stating that the E. coli outbreak is related to McDonald's quarter pound burger. Ten states have reported at least 49 cases of illness, including one elderly death. Ten people have been hospitalized, including one child with hemolytic uremic syndrome. This symptom is a serious complication caused by Escherichia coli infection. Most diseases occur in Colorado and Nebraska. Most people who are sick have eaten a quarter pound burger from McDonald's.
The US Food and Drug Administration (FDA) stated that the investigation is "rapidly underway" and onion slices may be the source of contamination.
In the past, two famous outbreaks of E. coli - at Chipotle Mexican Grill in 2015 and Jack In the Box in 1993- severely impacted the sales of these companies.
Currently, McDonald's has stopped selling quarter pound burgers in its stores in Colorado, Kansas, Utah, Wyoming, Idaho, Iowa, Missouri, Montana, Nebraska, Nevada, New Mexico, and Oklahoma.
McDonald's stated in a statement on the evening of the 22nd that preliminary investigation results indicate that onions are related to a "single supplier serving three distribution centers". The company stated, "We are working closely with our suppliers to replenish the supply of quarter pound burgers in the coming weeks, and the timing will vary depending on the local market. At the same time, all other menu items are not affected
Global same store sales decline for the first time
On October 22nd, after the US health authorities released news about the E. coli infection incident, McDonald's stock price fell by 10% in after hours trading.
However, the latest news released by MarketBeat website shows that according to the ratings of 30 Wall Street analysts on McDonald's over the past 12 months, the stock has a unanimous rating of "moderately buy". Out of 30 analysts, 9 gave a 'hold' rating and 21 gave a 'buy' rating. According to 30 analysts' 12-month target price for McDonald's, the average target price is $319.52, with a maximum target price of $360 and a minimum target price of $265. The average target price is expected to increase by 1.55% compared to the current price.
Investors will closely monitor McDonald's latest financial report released on October 29th. Market analysts predict that the company's earnings per share (EPS) for the third quarter are expected to be $3.17, a decrease of 0.63% compared to the same period last year; The expected revenue is 6.78 billion US dollars, an increase of 1.29% compared to the same period last year.
Before the outbreak of the E. coli infection, McDonald's had already gone through a difficult year. The company's financial report released on July 29th showed that global same store sales declined for the first time in nearly four years in the second quarter, due to consumers who are tired of inflation reducing their dining out or choosing cheaper food. In addition, McDonald's revenue and profit in the second quarter did not meet expectations, with revenue of $6.49 billion and analyst expectations of $6.62 billion, a decrease of 0.1% compared to the same period last year. The net profit margin is 32.25%, and the return on equity is negative 178.68%. Earnings per share were $2.97, $0.10 lower than analysts' general expectation of $3.07.
In response to market pressure, the company launched a $5 per meal discount at its US stores at the end of June, which has recently been extended until December. The food targeted by this activity does not include quarter pound burgers.
Zhang Antian, Senior Macroeconomics Analyst at China Merchants Securities Research and Development Center, told 21st Century Business Herald reporters that the market expects McDonald's same store sales in the United States to slightly decline by -0.11% in the third quarter, with an overall decrease of -0.72%. Under this expectation, whether McDonald's financial report at the end of October includes information that its key $5 package strategy has achieved better than expected results will affect the market's judgment of its future price war, and the most critical information for future price rebound.