Kinder Morgan (KMI) Q3 Earnings & Revenues Beat, Fall Y/Y

Energy infrastructure provider Kinder Morgan Inc (NYSE:KMI) reported third-quarter 2017 earnings of 15 cents per share from continuing operations, beating the Zacks Consensus Estimate of 14 cents but decreasing 6.3% from 16 cents reported a year ago.

Total revenue for the quarter declined 1.5% year over year to $3,281 million. However, the top line surpassed the Zacks Consensus Estimate of $3,242 million.

Higher contribution from Elba Express pipeline supported the company’s third-quarter results. Increased contribution from the liquid terminals together with the Elba, Utopia and SNG joint ventures also contributed to the growth. It was partially offset by higher expenses and the negative impact on tariff rates of Colorado Interstate Gas Company pipeline following the rate case settlement in 2016.

Investors should know that the company expects to declare an annual dividend of 80 cents per share in 2018, up 60% from the anticipated dividend in 2017. Management has predicted dividend increase during the first quarter of 2018.

Dividend

Kinder Morgan maintained its quarterly dividend of 12.5 cents a share (50 cents a share annualized). The dividend is payable on Nov 15, to shareholders on record as of Oct 31, 2017.

Segment Analysis

Natural Gas Pipelines: Operating income from this segment was $928 million, down 3.2% from $959 million in the year-ago comparable quarter. The downside was due to divestment of 50% interest in its SNG during the third quarter of 2016 along with lower volumes that affected most of its midstream gathering and processing assets. Further, an adverse impact on the tariff rates of Colorado Interstate Gas Company pipeline following the rate case settlement in 2016 and disruptions caused by tropical storm Harvey contributed to lower income.

The negatives were partially offset by improved contributions from Tennessee Gas Pipeline (TGP) owing to incremental short-term capacity sales and projects commissioned. Higher results from the Elba Express pipeline and better performances by the El Paso Natural Gas (EPNG) pipelines are favorable factors as well.

CO2: The segment reported earnings of $217 million, which decreased 5.2% from $229 million in third-quarter 2016. Lower commodity prices along with decreased volumes were responsible for the decline.

Terminals: This business unit delivered profit of $296 million, which improved 1% from $293 million in the July-September quarter of 2017, mainly due to growth in liquids operations.

Products Pipelines: This segment recorded earnings of $302 million, up 3.1% year over year. Higher throughput on SFPP and Kinder Morgan Southeast Terminals were responsible for the improvement.

Kinder Morgan Canada: The segment reported earnings of $50 million, which decreased 4.2% from $48 million in third-quarter 2016. Lower income was attributable to higher expenses and decrease in volumes to Washington, owing to a shift in deliveries from Washington to British Columbia destinations.

Operational Highlights

Operating expenses in the quarter were $2,451 million, down 0.1% from $2,448 million in the third quarter of 2016.

Operating income amounted $830 million, down 5.9% from the comparable quarter a year ago. Operating margin was approximately 25.3% compared with 26.5% in the year-ago quarter.

Financials

The company reported third-quarter distributable cash flow of $774 million compared with $1,081 million in the prior-year quarter. The company had a project backlog of $12 billion at the end of the quarter compared with $12.2 billion at the end of prior-year quarter.

As of Sep 30, 2017, Kinder Morgan reported $539 million in cash and cash equivalents. The company’s long-term debt amounted to $33,969 million at the quarter end. Total debt-to-capitalization ratio at the end of third-quarter 2017 was 48%.

Q3 Price Performance

During the quarter under review, Kinder Morgan’s shares have returned 0.1% compared with the industry’s increase of 1.9%.

Outlook

Kinder Morgan reaffirmed its dividend guidance. The company is likely to pay dividends of 50 cents per share in 2017. It continues to expect EBITDA and distributable cash flow of about $7.2 billion and $4.46 billion, respectively.

For 2017, Kinder Morgan anticipates the capital expenditure projection at about $3.2 billion for growth projects. The company plans to finance the investment through cash flow that are generated internally.

Zacks Rank & Stocks to Consider

Currently, Kinder Morgan carries a Zacks Rank #4 (Sell). A few better-ranked players in the energy sector include Jones Energy, Inc (NYSE:JONE) , Braskem SA (NYSE:BAK) and Alliance Resources Partners, LP (NASDAQ:ARLP) . All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Jones Energy, based in Austin, TX, is an independent oil and gas company. The company delivered average earnings surprise of 97.80% in the last four quarters.

The largest petrochemical operator in Latin America, Braskem, delivered average positive earnings surprise of 88.17% in the last four quarters.

Alliance Resources Partners is a diversified producer and marketer of coal to major U.S. utilities and industrial users. The firm delivered an average positive earnings surprise of 29.76% in the last four quarters.

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