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McDonald's provides update on E. coli outbreak as shares fall on scandal
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McDonald's provides update on E. coli outbreak as shares fall on scandal

McDonald's (MCD) is working on damage control as news of an E. coli outbreak sent its stock down as much as 7% on Tuesday.

About a fifth of McDonald's restaurants in the U.S. are not serving Quarter Pounders or onions due to the outbreak, Yahoo Finance has learned. That's around 2,700 restaurants, based on a total of 13,484 locations in the US (as of the second quarter).

While the CDC issued a food safety alert on Tuesday, McDonald's learned of the outbreak late last week, according to company spokespeople. The company quickly removed two ingredients from affected restaurants at the time, when reported cases were lower. There are currently 49 cases, including one death.

This number is probably much higher. It takes three to four weeks for the CDC to determine whether a sick person is part of an outbreak. From September 27 to October 11, the timeline reported by the CDC, McDonald's is expected to have sold about 1 million Quarter Pounders in the affected region.

McDonald's hasn't exactly identified the cause of the outbreak, but it could be the onions.

According to spokespersons, the beef patties came from multiple suppliers, so an outbreak would mean widespread cross-contamination. Additionally, E. coli is typically killed at 160 degrees, and McDonald's safety protocols require burgers to be cooked at 175 degrees.

But all affected locations source their onions from a single facility. If these are the cut onions, it would be the first time that onions would be carriers of this particular strain of E. coli.

EFFINGHAM, IL – MARCH 30: A Quarter Pounder hamburger is served at a McDonald's restaurant in Effingham, Illinois on March 30, 2017. McDonald's announced today that it will begin making the burger with fresh beef patties instead of the frozen beef it currently uses. (Photo illustration by Scott Olson/Getty Images)
A Quarter Pounder hamburger is served at a McDonald's restaurant in Effingham, Illinois, on March 30, 2017. (Illustration by Scott Olson/Getty Images) · Scott Olson via Getty Images

Some quickly recall the E. coli outbreak at Chipotle (CMG), which affected multiple ingredients from 2015 to 2018 and resulted in a $25 million FDA fine for the company.

McDonald's is trying to stop the comparison. Given the lower number of reported cases, the company believes the issue occurred further up the supply chain and is likely limited to two ingredients. The CDC noted that it had no effect on other ingredients.

In a note to clients, TD Cowen analyst Andrew Charles said it was “probably premature to compare the two.” The burrito chain experienced two unrelated food safety issues in the fourth quarter of 2015: E. coli and norovirus. At the time, Chipotle was unable to quickly identify the cause and it took several years for the company to recover in terms of same-store sales.

Charles called it a “low conviction estimate” and said McDonald's sales decline would likely last for about a month.

This outbreak comes at a time when McDonald's is addressing issues such as value perception and market share, while competitors such as Yum! Brands (YUM), Burger King (QSR) and Wendy's (WEN) have doubled their own pricing packages.

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