25 product recalls that rocked their company's stock price
25 product recalls that rocked their company's stock price
It's hard to imagine that there are any investors on Earth who want to hear the word "recall" mentioned in the same sentence with a company whose stock they own. That's because product recalls are bad for business—and often equally bad for the shares of stock those companies rely on for capital. Recalls put businesses in the spotlight for all the wrong reasons. When they involve neglect or willful deceit, they're often accompanied by huge fines, and when injuries or deaths are attributed to faulty products, massive lawsuits often follow. Even so, recalls are a critical and necessary part of the U.S. business world—their core purpose is to get potentially dangerous products out of circulation and back to the factory.
In some rare cases, recalls are actually good for a company's image in the long run. This was the case with a recall of Extra-Strength Tylenol capsules during which parent company Johnson & Johnson displayed textbook corporate responsibility in the face of drug-tampering, making the company an attractive long-term buy to investors who were impressed by the corporation's competence and integrity. Most times, however, product recalls bring nothing but headaches. Major recalls force companies to track down millions, tens of millions, or, in some cases, hundreds of millions worth of products and bring them back to be fixed or destroyed. Drugs, car parts, toys, and electronics dominate the list of the biggest recalls in history. Ironically, some of the most dangerous and deadly among them involved products that were meant to heal or protect.
In many cases, corporate executives have magnified their own problems leading up to or during recalls by lying, attempting to deceive regulators, covering up known dangers, or even committing outright fraud. In the most egregious cases, fines have climbed into the billions of dollars. Here's a look at some of the biggest recalls in history, what happened, how each company handled it, and the effect it had on the price of that company's stock.
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In 1982, a still-unknown assailant opened bottles of Extra-Strength Tylenol on store shelves in the Chicago area and poisoned them with deadly potassium cyanide. Seven people, including a little girl, were killed in a case that sent a wave of panic across the country. Shares of Johnson & Johnson, the corporation that makes Tylenol, plummeted by 17% but recovered in less than two months as the company put on a clinic in corporate responsibility that is still taught in business schools today. The company issued a massive recall, remained visible, shared information, and pioneered modern tamper-evident packaging.
In 2004, drug maker Merck saw its stock drop by 36% from $45 to $33 a share in a single day before eventually freefalling to $26. The popular drug Vioxx was linked to heart attacks, and unlike Johnson & Johnson, Merck handled the situation poorly. After the news broke, it became clear that Merck knew about and intentionally concealed the risks during clinical trials and after the drug was on the market.
In 2006, Dell conducted one of the biggest electronics recalls in history when it pulled 4.1 million laptops because their lithium-ion batteries had caused some computers to catch fire. The stock's price dipped to around $20 after the news broke but quickly rebounded to $25 as Dell took action.
Hasbro Easy Bake Oven
Hasbro had a bad year in 2007: the company's popular Easy Bake Ovens were linked to incidents of young children suffering severe burns. Hasbro pulled 1 million units in the second major recall of the product that year. Company shares, which were above $32 in March, fell to roughly $20 by August and didn't recover until 2008.
Graco high chairs
In 2010, the Graco company recalled more than 1 million high chairs that proved prone to tipping over. The company experienced only a small and temporary drop in share price, considering the recall's scale.
In 2009, a salmonella outbreak devastated the peanut industry and the companies that sell many peanut-related products. As a result of Peanut Corp. of America's neglect, nine people died and a top company executive was sent to prison for 28 years. Although brands like Peter Pan and Smucker's had nothing to do with the recall or the tainted products, their shares suffered as peanut butter sales plummeted by 25%.
Toyota floor mats
In 2010, Toyota shares dropped by 15% as the company was caught up in one of the costliest recalls in history—it was forced to pull more than 8 million vehicles from circulation. As many as 89 people are believed to have died in faulty Toyotas, most notably from floor mats that forced involuntary acceleration. The recall cost Toyota $2 billion, it was fined $1.2 billion, and the company's shares plummeted further in the wake of the recall as drivers lost confidence in the manufacturer.
In 2009, Pfizer joined the list of drug makers forced to pull their most popular drugs off the market due to the risk of heart attacks and other potentially fatal side effects. The FDA recalled Bextra, a $1.3 billion jewel in Pfizer's crown, and the company was fined $2.3 billion for a total financial hit of at least $3.3 billion. Since then, the company's stock has trailed the S&P 500 by 50 percentage points.
GM ignition switches
In 2014, GM was forced to recall more than 30 million cars worldwide after it was revealed that faulty ignition switches led to power failures that disabled critical systems such as brakes and airbags, leading to the deaths of 124 people. Between lawsuits, fines, and the recall itself, GM paid $4.1 billion, and the company's shares lost 15% of their value that year.
Takata holds the distinction of conducting the biggest recall in history: the company began recalling faulty airbags in 2008, and the recall continues to this day. Virtually every automaker in the world used Takata airbags, which were linked to 20 deaths after some airbag inflators exploded and sprayed shrapnel at the passengers they were designed to protect. The recall, which could run through 2023, involves 100 million inflators.
Samsung Galaxy Note 7
The high-end Galaxy Note 7 was pitched as Samsung's best phone ever and perhaps the greatest phone ever built. Unfortunately, flawed batteries caused some of these phones to catch fire, forcing Samsung to recall 2.5 million of the devices. Shares immediately dropped to four-year lows as investors bailed out of the stock to the tune of $14.3 billion.
Firestone barely survived the year 2000; the defective tires it produced for Ford were linked to more than 270 deaths in the United States alone. The fallout ended the company's century-old relationship with Ford and cost it $3 billion. Firestone's market price dropped by 50%.
Volkswagen diesel engines
For Volkswagen, 2015 was the year of Dieselgate, a scandal that sent the company's stock price tumbling to a low of $22.73. The company intentionally used software to trick emissions-testing machines into passing VW cars during inspections, despite the fact that they were emitting 40 times the pollutants allowed under U.S. law. VW was forced to recall 11 million cars and set aside $18 billion to cover costs and fines.
Fisher-Price Rock 'N Play
In 2019, Mattel took a major financial hit due to a massive recall of its popular Rock 'n Play Sleeper. More hurtful, however, was the damage to the company's reputation—the Barbie doll maker's name is now synonymous with infant deaths.
Fiat Chrysler vehicles
In 2018, Fiat Chrysler took a minor hit in the wake of a 4.8-million-vehicle recall: the company's stock fell 2%. The company voluntarily pulled the vehicles from circulation after a defect was discovered that could keep the cruise control feature engaged even after the driver braked to shut it off.
Torrent's losartan potassium
Drug maker Torrent announced big losses in 2019, mostly due to a recall of its hypertension drug losartan potassium. Torrent was forced to pull more than 1 million bottles in the United States and Puerto Rico, scaring off investors and leading to a temporary drop in the price of its stock.
Tesla Model S
Tesla stock tanked a full 22.4% in a single month in 2018. Although the company's troubles were deeper than any one issue, a big part of the plunge was the recall of 123,000 Model S cars, which were discovered to contain a flawed power steering component.
In 2018, Hyundai stock plummeted more than 12%, the biggest drop in company shares since the 2008 recession. The selloff was tied to a costly recall of cars that might have contained faulty airbag components. The recall cost Hyundai $439 million.
General Mills flour
In January 2019, enough General Mills investors sold their shares that the company's stock price dropped by 2.5%. Despite the fact that there were no illnesses or incidents, the company recalled five-pound bags of flour over salmonella concerns.
Lululemon sells yoga pants, many of which were recalled by the company in 2013. The problem, according to the New York Post, was an unacceptable level of "opacity"—when women put them on, they stretched and became see-through. The recall was a major hit for the company, affecting 17% of pants it sold in its stores, and Lulu's stock fell nearly 5%.
The Karma drone was on the market for only 16 days before GoPro recalled every single one of the 2,500 it had sold. The company's stock plummeted 8% in the wake of the recall, which was triggered by the potential for a power loss malfunction.
Mylan's lifesaving EpiPen made a lot of money for the company and its partner, which is a subsidiary of Pfizer. Thanks to a defect in some EpiPen autoinjectors, however, Mylan had to recall them. The news sent the already struggling stock tumbling 5%.
Jaguar and Land Rover vehicles
Tata Motors stock lost nearly half its value in the year leading up to 2019. Some of that was due to a recall by its UK arm, Jaguar Land Rover, in which 44,000 cars were pulled from the market. The company found that 10 models were emitting more greenhouse gas than they were certified to emit.
In the year 2000, few names in the world of electronics were bigger than Intel. But that year, the chipmaker had to recall 1 million defective motherboards. The move did not sit well with investors—shares tumbled 9%.
Westland/Hallmark ground beef
In January, 2008, the Humane Society of the United States distributed an undercover video which raised concerns about animal abuse and meat safety at the Westland/Hallmark Meat Company. As a result of the ensuing scandal, the company recalled 143 million pounds of beef, 37 million pounds of which was used for federal school lunches. This is the largest meat recall in history, and Westland/Hallmark failed to recover—the company went bankrupt within a few weeks.