McDonald’s is aiming to move past the E. coli outbreak that has sickened dozens of people in recent weeks, projecting the food safety scare will not affect its full-year finances.
The company’s quarterly earnings results, released on Tuesday, did not reflect any fallout from the recent health crisis, which was linked to the chain’s popular Quarter Pounder burgers and had spread to 13 states. Health officials said the outbreak sickened 75 people and caused one death in Colorado.
McDonald’s executives told investors on a call Tuesday morning that they did not expect the episode, which started in late September, to have any “material” effect on the company’s 2024 earnings.
But they did acknowledge that public perception issues could linger; regaining trust around food safety and rebuilding momentum in its business could be a challenge, they said. Since the start of the E. coli outbreak, the company’s daily U.S. sales have fallen and fewer customers have visited its restaurants, Ian Borden, McDonald’s chief financial officer, told investors on Tuesday.
“We stand ready to do more, if we need to, to make sure that we are bringing the full resources of McDonald’s to bear to re-engage the customer,” Chris Kempczinski, the chain’s chairman and chief executive, said on the call.
Jeff Farmer, an analyst at Gordon Haskett Research Advisors, said in a research note that foot traffic at McDonald’s in the United States was down 9.5 percent late last week from year-ago levels. He added that states with more reported E. coli cases had greater declines: 33 percent in Colorado and 26 percent in Wyoming.
McDonald’s is aiming to return to the success it saw in its latest quarter, before news of the food safety crisis started to spread. Thanks to $5 meal deals, McDonald’s managed to keep people coming into its restaurants, gaining market share with lower-income consumers for the first time in more than a year.
Although global same-store sales slipped 1.5 percent in the quarter ending Sept. 30 from year-earlier levels, same-store sales in the United States increased 0.3 percent in the quarter, the company reported Tuesday.
McDonald’s earnings are a closely watched barometer for consumer spending, especially among lower-income customers who have been tightening their belts over the past year. The company introduced the $5 meal promotion this summer and then extended it through the end of the year in a majority of its markets.
“We will stay laser-focused on providing an unparalleled experience with simple, everyday value and affordability that our consumers can count on as they continue to be mindful about their spending,” Mr. Kempczinski said in a statement.
Overall, McDonald’s reported that global revenue for the third quarter rose 3 percent to $6.8 billion while net income fell 3 percent to $2.3 billion.
On Sunday night, the Department of Agriculture in Colorado, the state with the most reported E. coli cases, said the beef patties on the Quarter Pounder were not the source of the contamination.
Instead, federal investigators appear to be scrutinizing slivered yellow onions from the Colorado Springs location of Taylor Farms, a multistate producer of vegetables and fruits. Last week, Taylor Farms voluntarily recalled several of its yellow onion products because of “potential E. coli contamination.”
McDonald’s — which had stopped serving the Quarter Pounder in some places — said in response to the findings that the item would be back on the menu at thousands of locations, but would not be topped with slivered onions in 900 of those sites. Several other fast-food chains, including Taco Bell, KFC, Pizza Hut and Burger King, have stopped including onions in some of their menu items in the affected region as a precautionary measure.
Any fallout from the E. coli outbreak will most likely be “minimal and short-lived,” analysts at Wedbush Securities said in a research note last week. An E. coli outbreak at Chipotle Mexican Grill starting in 2015 resulted in years of reputational harm and a $25 million fine, but McDonald’s “has the scale and expertise to respond and contain far more quickly,” the analysts said.
“We are anticipating this company’s leading supply chain will make quick fixes to this problem as already messaged, and don’t expect this to engulf the U.S. or certainly international,” JPMorgan analysts said in a note last week, stressing that they do not expect the episode to cause long-term harm to the brand.
McDonald’s strong supply chain and tracing capabilities are working in the company’s favor to avoid substantial harm as a result of the outbreak, according to Sara Senatore, a restaurants analyst at Bank of America. The effect will largely depend on how long the health scare remains in the news, and coverage already appears to be dissipating, she said.
Had it not been for the E. coli developments, investors would have been paying closest attention to signs of demand among U.S. consumers, and McDonald’s success in focusing on value given the pressure on consumer spending, Ms. Senatore added.
“They had been seeing more pressure than they had anticipated at the beginning of the year on consumer spending,” she said. “That would be the No. 1 focus.”
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