McDonald's shares slide 6% as E. coli outbreak tied to its hamburger kills 1 in US

Shares of McDonald's fell nearly 6 per cent in premarket trading on Wednesday after an E. coli outbreak linked to the restaurant chain's Quarter Pounder hamburgers resulted in the death of one person and sickened 49 people in the US.

The outbreak was reported in 10 states and at least 10 people have been sent to hospital, the US Centers for Disease Control said on Tuesday. Cases started reporting late September and continued into October.

"This public health scare is the last thing McDonald's needs given that it's already been struggling to drive growth," said Susannah Streeter, Hargreaves Lansdown's head of money and markets.

The burger chain had posted a surprise drop in sales worldwide in July, its first quarterly decline in more than three years, as deal-seeking consumers pushed back on its higher priced menu items.

The outbreak could have been caused by the use of slivered onions used in the Quarter Pounder and was sourced from a single supplier that serves three distribution centers, McDonald's said based on its initial findings.

In the past, two notable E. coli outbreaks - at Chipotle Mexican Grill in 2015 and Jack in the Box in 1993 - had significantly impacted sales at the companies.

Chipotle took a year and a half to stabilize, while Jack in the Box sales declined for four straight quarters, Raymond James analyst Brian Vaccaro said.

The E. coli O157:H7 strain that led to the McDonald's outbreak is said to cause serious illness and was linked to Jack in the Box's 1993 incident, which killed four children.

Analysts said McDonald's fourth-quarter sales could see some pressure from the outbreak but it is too early to say if it would be worse than the previous two E. Coli cases.

McDonald's said it has removed slivered onions and beef patties used in the Quarter Pounder and temporarily halted its sale at restaurants in the affected areas.

"...while it is early, historical precedent suggests comp (comparable sales) pressures can trough quickly and prove transitory, assuming no recurrence," BMO Capital Markets analyst Andrew Strelzik said.

The timing was unfortunate for McDonald's and its investors, he said, as U.S. comparable sales had just begun to accelerate following the launch of $5 value meals.

The company's move to quickly identify the source of the outbreak and replenish supplies should fix the problem, J.P. Morgan analysts said in a note, adding that it does not expect this to "engulf the U.S. or certainly international".