E. coli fallout on McDonald’s has been ‘worse than expected’ — analyst

The fallout from the E. coli outbreak at McDonald’s has been worse than expected, said Cleveland Research, and late October/November comparable sales were much softer than early estimates after a strong start to the quarter. This leads the research firm to lower its Q4 comparable sales estimate to negative 1.5% from positive 2% prior to the E.coli issue, with a downside bias given the added impact from offline espresso machines.

“McDonald’s appears to be investing in the hardest hit franchisees and also increasing marketing, promos, and discounts across the system to help regain traffic, but the impact/lift is uncertain at this point,” Cleveland Research said.

The E. coli outbreak last month from contaminated slivered onions in its Quarter Pounder reverberated through the fast-food industry, with McDonald’s (NYSE:MCD) experiencing a 10% drop in customer visits across the country within the first 4 days (-33% in Colorado) according to Placer.ai data. Although CFO Ian Borden assured analysts on the latest earnings call that the “public health situation” will not have a material impact to Q4 results, Borden acknowledged a shift to negative daily sales and lower guest counts in the days after the event, leading the company to invest $100M to help the franchises most affected by the outbreak.

In the first few days after the E. coli outbreak, McDonald’s (MCD) shares retreated 9% and continued to drift lower, currently down 11% from the pre-outbreak high.