Chipotle Falls Most Since 2012, Signals Trouble for Fast-Casual

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1:02Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Chipotle Mexican Grill. I was just there yesterday. Love it. It's kind of my once a week thing. Was it crowded? Yeah. Yeah. It's always crowded when the schools get out because all the kids come in there and then that's a big fans. Yeah. Anyway, it was good, but apparently not so good in the quarter. They had some disappointing results.

1:39Their guidance was a little cautious here. And the stock is down 15.7 percent today, down about 40 percent year to date. Michael Halen joins a senior restaurant and food service analyst for Bloomberg Intelligence. Mike, is this a Chipotle thing? Is this a fast service, quick service restaurant thing? What is going on there? Now, listen, there is, you know, some other companies are talking about a little bit of a pullback here in October. I think a big part of it is really around the D.C. metropolitan area and has to do with the government shutdown. But this is, you know, Chipotle is trying to blame the macro.

2:18But, you know, this is largely self-inflicted in our view. I mean, if you look at the other earnings that have been released, Shake Shack this morning had a great print. Restaurant Brands, which owns Burger King, Tim Hortons, Popeyes had a very good print. Domino's Chili's are crushing it right now. So, you know, for them to come out and blame low income consumers, which they have a very low exposure to, as well as Gen Z, which, you know, there's some anecdotal stuff out there about how Gen Z employment isn't great. But, you know, the survey data that we see is showing that Gen Z is spending, spending more than other age cohorts and expect to spend more next year.

3:01So it's really, I think, largely self-inflicted. I love the pushback against the narrative that Chipotle is peddling here. Having said that, you're seeing shares of Sweetgreen and Kava Group decline in tandem and sympathy with Chipotle. What does this mean, whether it's a macro backdrop story that Chipotle is, you know, putting the blame on or a Chipotle specific problem? What does this mean for how it prices its food? Up until now, it's been moving forward with price increases. Yeah, so this is this is one of the things that kind of really got me going on this call yesterday and then calls in the past as well.

3:44So, you know, last year, I would say about 15 months ago, a little more 16 months ago, there was it went viral that their portion sizes were getting smaller. Right. And they made an investment to increase the portion sizes, which they've done. Right. So there was a problem last year. Then on the fall earlier this year, there's they were talking about how much value they have. And we think we're still a great value out. Value is not our issue. Then they came back on this call and they spoke out of both sides of their mouth. They said, we're priced 20 to 30 percent below our peers. And at the same time, they said their survey data was showing that some people thought their food was way too expensive.

4:26So which one is it? If you don't even know what your problem is, how are you supposed to fix it? Interesting. So what are some of the competitors doing in terms of price increases to, I don't know, cover the cost of tariffs or just general rising costs of beef? Or what are some of the competitors doing in the industry, Mike? I think the biggest problem here is that they don't have any everyday value on their menu. And I understand their reluctance to go there. But, I mean, customers want to see it. And I think Shake Shack today, which has been one of our favorite names this year, talked about how they have this new$1,$3,$5 offer, right?

5:06So$1 drinks,$3 fries,$5 shakes, right? Like, it's not like a crazy discount. And it's items that are typically pretty good margin, right? But they talked about how they switched the focus to that and value. And it boosted traffic 400 basis points this week over the week prior. Wow. So customers right now do want value, and Chipotle doesn't really have it on its menu. All right. God's, you know, lips, your ears or whatever that thing is. And we have the anecdotal evidence that you just provided. Well, my anecdotal evidence is when they started giving you more stuff in my taco, I didn't need three.

5:45I only ordered two now because they overflow it. So they're like, no, that's okay. We don't want that. Michael Halen, senior restaurant analyst, Bloomberg Intelligence, pulling no punches on the folks at Chipotle. I love it. I love it. He had the alternate take. Exactly. And he often has that take and he often is contentious on earnings conference calls. I've heard that myself back in the day. I used to listen in on some of those. Stay with us. More from Bloomberg Intelligence coming up after this. This is Tom Keene inviting you to join us for the Bloomberg Surveillance Podcast. It's about making you smarter every business day.

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6:54And on the West Coast, listen as soon as you wake up. That's the Bloomberg Surveillance Podcast with Tom Keen, Paul Sweeney, and me, Alexis Christophorus. Subscribe today wherever you get your podcasts. Bloomberg Surveillance, essential listening each and every business day. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Comcast reported some earnings here. Stocks down 3%, down 26 % year to date. Tough, tough sledding for these cable companies here.

7:35Let's go to Geetha Ranganathan. She covers all the media stuff for Bloomberg Intelligence. Geetha, what's the takeaway from the Comcast earnings here? Another tough quarter. Yes, Paul, another tough quarter for Comcast. and we suspect it's going to be that way for a while for these cable companies. They've been having a lot of competition in their broadband business. Remember, broadband, Comcast is the largest broadband provider in the United States, has over 30 million subscribers, but they've been losing customers at an increasing pace. Even though this quarter, actually, subscriber losses came in slightly better than what we had feared, Comcast is doing everything that they can do to get subscribers to stay on their platforms, just given the very, very intense competition from the telcos.

8:22That's working, but, you know, it's come at a cost. So, you know, we're seeing quite a bit of pressure on the ARPU side, as well as we saw a decline in their EBITDA of almost 4%. And they warned that we're going to continue to see EBITDA declines for many more quarters to come. So this idea of using price lock guarantees and bundled plans to slow down, to stem the bleeding of folks who are cutting the cord. Now that it started this, it has to kind of stay with it. Right. You can't you can't stop that promotional activity. You cannot, Scarlett, you're right. And, you know, these price locks are five year price locks.

8:59They're giving away mobile lines for free. I mean, that's definitely having some impact. So we did see, you know, the subscriber numbers come out much better. In fact, the number of wireless customers that they added was a record, the highest ever that they've had. But obviously, it is going to continue to put a lot of pressure on the top line as well as on the bottom line. And there's no way they can stop it. They have to keep going with it, which means that the EBITDA pressure is going to be sustained. So that's a reminder to me, Paul, that I have to call up Verizon and some of the other providers to argue down whatever package I have right now.

9:35Absolutely. Like first order of business. It works. Agitha, the fundamentals of one thing, but probably the big, big thing overhanging this story right now that Comcast is, what are they going to do as it relates to the M &A front and Warner Brothers discovery here? Where's the narrative there right now? They need to do something, Paul. And I mean, you just said the stock is down 26 % year to date. It's down over 30 % for the past year. And they have some great media assets. They have NBCUniversal, but it's just not enough. They're getting punished both sides. So they own cable broadband assets, which makes up about 80, 85 percent of EBITDA.

10:14Again, cable is under tremendous pressure because of this telecom competition. You know, those multiples are at around five to six X. Media, which is, you know, the NBC assets, brings in about 15 percent of their EBITDA. They have some great assets. But again, they have this funny thing going on with the conglomerate discounts. They're not able to catch a break either on the media side or on the cable side. They need to do something transformative. I think Warner Brothers is definitely the solution. The question is, can they afford to get into a bidding war with Paramount? And I'm not sure if they can afford it.

10:45All right. Keith is my favorite Wall Street cable analyst out there. My number two is Craig Moffitt at Moffitt Nathanson. He's out with a note today saying, and he's covered the stock forever. And one of the big bear cases for Comcast is that they are a serial acquirer. Every five years, they feel the need to go out and buy something big. And the problem is, as Geetha well knows, being a buyer of media assets is generally not a good allocation of capital. It's not good here. So Geetha, there's a concern here that maybe it's just not going to be worth it. If they go out and do another big deal, they're going to lever up their balance sheet.

11:18They're going to have years and years of integration risk. And that could be a big long-term drag on the stock. How do you counter that? Yeah, that's always kind of been the – that's always spooked investors, Paul. I mean, you know very well what they did a few years ago. They overpaid for Sky a 15x multiple when they should have probably paid like six or seven. So they do have this kind of propensity to go out, pay the big dollars. Warner Brothers, I think, though, is a little bit of a different story for them. They can extract tremendous synergies, I think, from the asset. There's a really good fit in terms of IP.

11:51We know that they already license, you know, Harry Potter and a lot of those other, you know, Warner Brothers IP into their parks. So there is a good fit. you know, there's a lot that can be done on the streaming side. Again, you look at Peacock, very heavy on sports, HBO, very heavy on scripted originals. I think it's really a nice complementary portfolio. I think this time it could be a little bit different. But again, who knows? Yeah, some big questions. And of course, they need to figure out their strategy on this. You mentioned Peacock. What is the latest with Peacock? Because subscriber growth, when we cared about it, and you know, that was a while ago, because now we care about profitability, rose 14 percent.

12:26That missed analyst estimates, even after raising prices, that missed analyst estimates. And it's not making money, is it? It's not. It's not, Scarlett. And it's not going to for, you know, for the foreseeable future. So they are definitely a subscale service. They have just about, you know, 42, 43 million subscribers. Again, you're comparing that to Netflix, which has about 310, 315 million. So just a huge catch up game that Peacock has to play. They do have some really good programming, though, you know, especially when you look at sports, they just recently acquired the rights to NBA. So we do have that now, you know, they have the NFL.

13:01So there is quite a bit of good sports property. I just don't know what they can do to necessarily up those subscriber numbers, which is why they absolutely need something transformative from a from a from an M &A perspective. Geeta, before we let you go, what about the theme park business? Universal, obviously a huge attraction in California and in Orlando. The revenue rose 19%. Is that in good shape? And what might that tell us about what Disney tells us? It's in very good shape, which is why we have more and more confidence in the theme park business. Comcast saw this coming. They knew that this was the next big thing, this whole thing with the experience economy, and they're riding that wave in a big way.

13:43We saw them open Epic Universe earlier this year. They've opened some other new attractions in Texas and in Las Vegas. So there, and there's a big park that's coming near London in about four or five years. So they're making big investments. It's paying off. And, you know, just like Comcast, we're pretty bullish on the Disney business as well. Yeah, theme park business. Who would have thunk it? Geetha Ranganathan, thank you so much for joining us. Geetha is the media analyst at Bloomberg Intelligence. Stay with us. More from Bloomberg Intelligence coming up after this. Hello, I'm Michelle Hussain.

14:16And for more than 20 years, I was at the BBC. But all the time I was delivering the headlines, I wanted to go further than the news of the day. To spend more time with the people shaping our world. And that's what I'm doing here on this podcast. Speaking to people from Nigel Farage, Russia needs to be taught a lesson. To tech journalist, Kara Swisher. And the tech industry is running wild. You know, they've gotten what they wanted and they've seen a huge run up in their stock prices. This will be a place where every weekend you can count on one essential conversation to help make sense of the world.

14:57So please join me, listen and subscribe to The Michelle Hussain Show from Bloomberg Weekend, wherever you get your podcasts. You certainly ask interesting questions.

15:12You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. The frenzied M &A taking place in the pharmaceutical sector. Let's dig into that right now, because Novo Nordisk, who is kind of the OG when it comes to weight loss drugs, is now making an aggressive unsolicited bid for MetSera, which had already agreed to a deal with Pfizer. Let's bring in Robert Langwith, Bloomberg News healthcare reporter on the latest here.

15:48And I mean, this is kind of the highest level of corporate drama, given that Novo Nordisk is moving very aggressively. Just step back for a moment here. Who is scrambling more right now? Who is more, I don't wanna say desperate, but kind of desperate here to do something? Yeah, right now, Eli Lilly is dominant. In the weight loss area, it just reported great sales with weight loss and diabetes drugs. And NOVA was the first mover originally, but it's been falling behind. It is a new CEO. Some of their drugs have had less than stellar trial results. So it's really trying to get back into the area.

16:20And Pfizer, too. Pfizer's been trying to – it doesn't have anything in weight loss. It's been trying to break in. Had some trials of pills that didn't work out so well. And so now this was their deal to try to get back in with a new thing that was injectable but had less nausea and vomiting. But now, you know, Novo's coming in over the top suddenly with this super aggressive, hyper aggressive deal, you know, and that Pfizer is calling reckless and illusory. And, you know, it's going to be very dramatic the next few days to see what happens. This is cool. I mean, this is like barbarians at the gate kind of thing, people fighting over it.

16:53So tell us about MetSera. I mean, what have they got that these people are going crazy for? Yeah, so they have a new, you know, the existing drugs, they target things like GLP-1, which you've heard of, and also ZepBound. This drug also targets another related hormone called GYP, G-I-P. And Metzera is something targeting something called amulins, kind of another related hormone. And it's had some early trial results were good. And the hope is that this one, it's also injectable, will have less of kind of the nausea and vomiting. It's a very kind of common side effect of the existing drugs. And so that's gotten people excited.

17:25It's only early stage results. But, you know, Pfizer really doesn't have anything in the B.C. Do they really want something? And so this was something that, by all accounts, they were very excited about. And now they're going to be under great pressure to, you know, either try to come in over the top with something or maybe, like, work their angles in the Trump administration to try to see if, like, the Novo deal could be blocked. But it's going to be super dramatic. Right, because regulators would need to approve whatever happens. But before we even get there, MetSara has to decide which offer it's going to accept.

17:56Did it already accept Pfizer's bid, which I believe maxes out at$70 a share? Yeah, so Pfizer, you know, they announced the Pfizer deal, I think this was last month. And, you know, now there's, Nova's coming over the top of this bid. And, you know, Metzera's already said, like, hey, this new one is superior. And apparently Pfizer has four days, you know, to come up with a better offer. Now, you know, we'll have to see what's going to happen. Could it be legal action? Pfizer could pursue legal action. On what grounds? Well, they're already saying this is reckless and illusory. there's some very complicated conditions in the Nova offering that some of MetSera's shareholders will get the money before the antitrust approval happens, as I understand it.

18:35So it's a very kind of complicated structure that, you know, Pfizer is claiming that it's been engineered this way to try to avoid antitrust scrutiny and, you know, saying this isn't right. But, you know, MetSera, meanwhile, is saying, hey, we've got a superior deal. What are you going to do for us, Pfizer. So Pfizer is a U.S. company, right? Novo Nordisk is a Danish company. Does that play into it at all? I mean, well, you know, that's, you know, some of the people I was talking to said, you know, Pfizer is one of the company, you know, with the big companies, one of a handful of big companies have made kind of pricing deals with the Trump administration already to avoid tariffs, right?

19:11So it seems, you know, seems to have good relations there. So, you know, could, you know, Could it work its contacts in the Trump administration to get them to give indications that this deal is going to have a hard time going through an antitrust grounds if Novo does it? Because Novo is already the number two weight loss company right now. Novo is being led by a new CEO. He's a lifer from the company, but he's trying to make some big changes, put his own stamp on the company. And he's moving very aggressively. What has he been doing lately? What is his mandate? What is his philosophy here? Yeah, I don't know a lot about him.

19:46He's really new, but clearly what I can say is that this is a sign that they're not confident in what they have internally. They have to come in this hyper-aggressive deal. This is a sign that they kind of, it's kind of an acknowledgement they're falling behind Eli Lilly and they need to come up with new and better drugs and have to get that externally. Drug companies do that when they don't have the internal goods. So Lilly, just to wrap it up here, Lilly had some pretty darn good numbers, right? Yeah, so they have two drugs. Two Zep is tied. It's the same drug. The diabetes version is called Munjaro, and the obesity is one that is called Zep-bound.

20:21Together, this quarter, they had over$10 billion in sales. It's crazy. This is going to be, like, together, this is going to be the best-selling drug in the world next year. Just wait until they get into a pill for that. Both ones are up over 100%. Wow. And that's with, you know, with increasing pricing discounts, it still is up over 100%. So they are becoming just totally dominant. They keep talking about this being a$100 billion a year industry, right? Yeah, there's like huge potential numbers out there. You know, we'll see whether they achieve that. Oh, and Lily's also ahead and coming out with a weight loss pill.

20:50That's going to be a game changer. You know what's going to be another one? A pill that grows hair in men. All right. They figured that out. Lily, get to work on that one. Robert Langwith, the Bloomberg News healthcare reporter on the drama that we're seeing in the healthcare space, the pharmaceutical space, as well as Eli Lilly's earnings. This is the Bloomberg Intelligence Podcast available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 10 a.m. to noon Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.

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