McDonald’s stock price plummets after third-quarter earnings, E. coli outbreak

The fast-food chain beat third-quarter earnings and sales estimates.

mcdonalds (NYSE:MCD) has been dealing with an E. coli outbreak caused by sliced ​​onions in its Quarter Pounder burgers in about 10 U.S. states, including Colorado and Nebraska, in recent weeks.

The good news is that the outbreak has been contained and the Quarter Pounder will return to menus after being withdrawn from affected states. But now it doesn’t include onions.

However, although the outbreak did not affect third quarter sales, McDonald’s numbers were decent in the third quarter.

It is not yet known how the outbreak, which occurred last week, will impact fourth quarter results. According to reports, it has sickened approximately 75 people, resulted in approximately 22 hospitalizations and one death. This has also led to some lawsuits.

McDonald’s stock was mostly unchanged for the day, trading just below $297 a share on Tuesday due to uncertainty about the potential impact of the E. coli outbreak. It fell about 6% compared to last week.

Revenues exceeded expectations.

McDonald’s reported solid sales this quarter, reaching $6.87 billion, up 3% year-over-year. This exceeded the estimate of $6.82 billion.

Third quarter net income fell 3% to $2.26 billion, and earnings per share decreased 1% to $3.13 per share. However, on an adjusted basis, earnings per share were $3.23, up 1% year over year and beating estimates of $3.20 per share.

However, there were some mixed results for similar or same-store sales. Globally, comparable store sales were down 1.5% year-over-year, but up 0.3% in the United States.

In the United States, revenue increased due to higher average check growth, partially offset by a slight decrease in comparable guest volume. The main drivers in the US were $5 meals and effective marketing.

“We wanted to see three things in our $5 meal deal. First, brand awareness of value and affordability has improved. Second, it allows us to connect with single users, especially low-income consumers. Third, changes in guest volume to drive the short-term and long-term health of the business,” CFO Ian Frederick Borden said on the call. “The $5 meal deal did just that and continued to draw customers into our restaurants throughout the quarter, keeping the average check above $10 and driving profits for our franchisees.”

The overall decline was due to poor numbers in international markets. International operating markets saw a 2.1% decline in comparable sales, driven by declines in France and the United Kingdom. In the international development permits market, sales decreased by 3.5% due to the impact of wars and wars in the Middle East. In China, the numbers are lower.

Overall, company-owned restaurant revenue increased 4% to $2.66 billion, while franchise revenue increased 1% to $4.1 billion. Operating costs and expenses increased 6% year over year to $3.7 billion, while operating income decreased 1% to $3.19 billion.

“Getting this right”

McDonald’s executives began a call last week to address the E. coli outbreak.

“While the situation appears contained and did not impact our third quarter numbers, this is clearly an important development that is on the minds of many,” President and CEO Chris Kempczinski said on the call.

He said this was McDonald’s first serious public health issue in more than 40 years. The CEO called the situation “painful for us” and “very concerning.” After receiving information about the issue from the CDC, they linked the cases to sliced ​​onions at a facility in Colorado from a Taylor Farm supplier. The company stopped supplying onions from this facility and no contamination was found in the beef.

“On behalf of the entire system, we apologize for what our customers experienced. We offer our sincere and deepest condolences and are doing our best to make this right. One of our core values ​​is doing the right thing. This has been and will continue to be our guide as we address this situation,” Kempczinski said.

No material impact

McDonald’s executives said the company was confirming its previous outlook and did not expect any significant impact from the E. coli incident.

However, Kempczinski acknowledged that the company’s performance in 2024 had fallen short of expectations.

In an already difficult environment, McDonald’s could face a sales slowdown in the fourth quarter due to the E. coli fallout, which could potentially impact traffic.

Given the uncertainty and somewhat high valuation with a P/E ratio of 26, this might be a stock to hold off on for now.