What We Learned This Week

Quarter Pounders Sending People to the Hospital: The CDC has identified McDonald's Quarter Pounders as the source of a recent E. coli outbreak in the U.S., which has already resulted in 10 hospitalizations and one death. Naturally, the stock took a hit following the news, especially since the Quarter Pounder is a key revenue driver for the company. McDonald’s is actively investigating the source of the contamination and has halted sales of the product in affected markets. Early indications suggest sliced onions from a single supplier may be the culprit, which could make the issue more contained and manageable. However, E. coli outbreaks can quickly spiral if the source isn't pinpointed swiftly, leading to more widespread impacts. A similar outbreak hit Chipotle in 2015, resulting in major store closures, a years-long recovery in sales and stock price, and a complete overhaul of food safety practices. While McDonald’s may be able to address the situation quickly if the contamination is limited, any health-related incidents involving severe illness and death are cause for serious concern.

Some Good News Out of Detroit: GM has steadily pulled ahead of its American automaker peers, and its latest earnings report confirms it’s still on that trajectory. Once again, the company beat expectations on both the top and bottom lines, raising full-year guidance for the third time this year. What’s particularly impressive isn’t just the strong sales of gas-powered vehicles but the operational discipline that’s driving exceptional bottom-line performance. GM has shown a masterclass in managing production, inventory, and supply chains, avoiding the overproduction that has plagued many in the auto industry. This has allowed GM to sidestep costly discounting and inventory write-downs, helping it deliver free cash flow nearly double what analysts predicted.

In contrast, Ford has been bogged down by quality control issues and warranty costs, putting a strain on its cash generation. Meanwhile, Stellantis (parent of Chrysler, Dodge, Jeep) seems to be unraveling at the seams. GM’s brand positioning, particularly with Chevy, GMC, and Cadillac, remains strong across market segments, with excitement around halo products like the upcoming Corvette ZR1 keeping consumers engaged. Under the leadership of CEO Mary Barra, GM has expertly navigated a challenging market environment marked by high interest rates and economic uncertainty. Ford, on the other hand, has some catching up to do on the operational front.

“Kitchen Sink” Quarter for Starbucks: Starbucks just reported a dismal set of results, missing expectations across the board—from sales to earnings to traffic, and China’s performance was particularly weak. But none of this comes as much of a surprise. This was the first earnings release under new CEO Brian Niccol, who recently joined from Chipotle. It’s not uncommon for a new CEO to use their first report to air all the bad news and essentially reset expectations. By pinning the weak results on the prior leadership, Niccol can start with a clean slate, setting the bar low so future improvements can be credited to his leadership. While the stock might take a hit in the short term, this “kitchen sink” approach is a strategic move. Niccol has already outlined key focus areas, including overhauling marketing to reach beyond loyalty members, simplifying the menu, adjusting pricing, and improving customer handoffs at the counter. Now that expectations are reset, all eyes will be on Niccol’s first conference call at the end of October to hear more about his strategy for turning things around.