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.2018 All rights reserved.