Chipotle’s EPS Beat Distorted by Stake in Beverage Supplier

Burrito chain would have missed consensus forecasts without unrealized mark-to-market investment gain.

July 27, 2022

With shares jumping 14%, investors appear to have given Chipotle (CMG) a pass for its top line miss. A closer look reveals the burrito chain didn’t beat consensus forecasts on the bottom line either, despite headlines suggesting otherwise.

Chipotle is an investor in Tractor Beverages Inc., which is also a Chipotle supplier. During the quarter an unrelated investor made an investment in Tractor at a higher valuation. This transaction increased the value of Chipotle’s stock and warrants in Tractor Beverages, adding $10.4 million to Chipotle’s income statement.

Without the paper gain, Chipotle would’ve reported $7.6 million less in net income. Instead of reporting EPS of $9.25— a significant beat— Chipotle would have reported EPS of $9.04, the consensus forecast.

It’s likely Chipotle’s pricing power— not the extra $0.21 per share required by equity method accounting— that propelled shares higher. But with margins under scrutiny in an inflationary environment, investors should know exactly what margins are made of.

Related: EAT, DRI, BLMN, BDL, YUM

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