Kellogg Pulls Peanut Butter Crackers: How Recalls Affect Stocks

It may be all about crisis management, one study says.

By + More

Kellogg told snackers today that they should back away from its Austin- and Keebler-branded toasted peanut butter sandwich crackers because of salmonella concerns.

Investors didn't seem to care, as the stock (symbol K) is down less than 1 percent today. (Kellogg's shares were actually pretty appetizing for most of 2008, until the stock dropped from $57 to $40 in October and November along with most stocks.)

So do recalls of specific products belonging to giant corporations ever affect their stocks? In the case of Mattel's massive recall of toys made in Chinese factories, the company's stock barely budged. But when Bridgestone/Firestone had to replace millions of tires early this decade, its stock took a nosedive. It took several years for the stock to return to pre-recall levels. Ford shares also suffered, and scandal fallout plagued the company for years.

A 1995 study on the impact of such a catastrophe on a stock found that the shareholder value for those that recovered was 5 percent more than their original stock price. Stocks of the companies that didn't recover were virtually unchanged during the first few months, but they suffered a cumulative impact of 15 percent up to a year afterward. Essentially, the study concluded that it was all about having a quick, well-managed crisis response.