A Cyclospora outbreak, traced to iceberg lettuce supplied by Taylor Farms de Mexico, has significantly impacted Taco Bell and its parent company, Yum! Brands. The Centers for Disease Control and Prevention (CDC) reported at least 1,947 illnesses across nine states, with 98 hospitalizations and two deaths in Michigan. Taco Bell removed the affected lettuce from its restaurants nationwide by July 17, and Taylor Farms issued a recall the following day.
The financial fallout for Yum! Brands has been considerable. While second-quarter results, reported on July 30, beat expectations with adjusted earnings of $1.62 per share on revenue of $2.17 billion, these numbers covered a period before the outbreak. Following the FDA's link of the outbreak to Taco Bell, daily traffic to the chain's locations plunged by double digits, with an 18% drop by July 15 and nearly 31% on July 17. Yum! Brands' stock fell 5% over the period, reducing its market value to approximately $42 billion, with shares trading about 2.3% lower at $149.72 on July 29.
Yum! Brands CEO Chris Turner acknowledged a "meaningful near-term sales impact," stating that Taco Bell's U.S. same-store sales were down 2% for the third quarter so far, a stark reversal from the 7% growth seen in Q2. Seven industry analysts revised their full-year earnings per share expectations for Yum! Brands downward. The uncertainty also affected other restaurant stocks; Sweetgreen, despite not being directly implicated, saw its stock fall 6.8% to $6.01, and its market value has declined over 51% in the past year, reflecting broader consumer aversion to fresh-ingredient concepts.
Analysts, including Logan Reich of RBC Capital Markets, anticipate a tougher second half of the year for Taco Bell and Yum! Brands, lowering Q3 and Q4 estimates. However, some believe that if consumer confidence in Taco Bell's food safety is not materially impaired long-term, the recent sell-off might present a buying opportunity. Yum! Brands maintains that the outbreak is an industry-wide issue and expects the sales impact to be temporary, with the company focusing on its "magic formula" of "brand buzz, innovation, value and digital" for recovery.
