Kinder Morgan (KMI) Q4 Earnings Meet Mark, Revenues Lag

Kinder Morgan Inc (NYSE:KMI) posted fourth-quarter 2018 earnings of 25 cents per share from continuing operations, which were in line with the Zacks Consensus Estimate and up 19% from the year-ago quarter’s tally of 21 cents.

The company posted 2018 earnings of 89 cents, in line with the Zacks Consensus Estimate and up from the year-ago figure of 66 cents.

Total revenues increased 4% year over year to $3,781 million. However, the top line lagged the Zacks Consensus Estimate of $3,913 million.

In 2018, total revenues were $14,144 million, up from $13,705 million in 2017. However, revenues missed the Zacks Consensus Estimate of $14,331 million.

Higher contribution from almost all large transmission intrastate and interstate systems along with the midstream gathering as well as processing assets contributed to growth in the fourth quarter. However, this was offset by lower oil prices and reduced liquids operations.

Dividend

Kinder Morgan announced a quarterly dividend of 20 cents per share (80 cents annualized). The dividend is payable on Feb 15, 2018, to shareholders on record as of Jan 31, 2018.

Segment Analysis

Natural Gas Pipelines: Operating income in the segment was $1,110 million, up 8.1% from $1,027 million in the year-ago quarter. Higher contribution from the Texas Interstate System and favorable outcome from El Paso Natural Gas (EPNG), Natural Gas Pipeline Company of America (NGPL), Kinder Morgan Louisiana Pipeline (KMLP) and Colorado Interstate Gas (CIG) drove figures. The upside can be attributed to various midstream gathering and processing assets, including KinderHawk, as well as higher drilling activity and production.

CO2: The segment reported earnings of $216 million, which declined 5.3% from $228 million in fourth-quarter 2017. Lower volumes and oil prices led to the decline. This was partially offset by higher CO2 prices as well as volumes in SACROC and Tall Cotton.

Terminals: This unit delivered profit of $302 million, which fell 4.7% from $317 million in the October-December quarter of 2017 mainly due to reduced liquids operations.

Products Pipelines: This segment recorded earnings of $317 million, up 1% year over year. Higher throughput on Cochin, Utopia and Double H Pipelines led to the improvement.

Kinder Morgan Canada: The segment no longer makes contributions due to the sale of Trans Mountain on Aug 31, 2018. During the fourth quarter of 2017, the segment reported earnings of $50 million.

Operational Highlights

Operating expenses in the quarter were $2,723 million, down 3.6% from $2,824 million in the fourth quarter of 2017.

Operating income amounted $1,058 million, up 31% from the year-ago quarter’s figure. Operating margin was approximately 28% compared with 22.2% in the year-ago quarter.

Financials

The company reported fourth-quarter distributable cash flow of $1,273 million compared with $1,190 million in the prior-year quarter. The company had a project backlog of $5.7 billion at the end of the quarter.

As of Dec 31, 2018, Kinder Morgan reported $3,280 million in cash and cash equivalents. The company’s long-term debt amounted to $33,105 million at the quarter end. Total debt-to-capitalization ratio at the end of the fourth quarter was 48.9%.

Q4 Price Performance

During the quarter under review, Kinder Morgan’s shares fell 15.4% compared with the industry’s 12.7% decline.

Outlook

Kinder Morgan contemplates to raise 2019 dividend by 25% to $1 from 80 cents in 2018. It expects EBITDA and distributable cash flow of about $7.8 billion and $5 billion, respectively.

For 2019, the company expects to invest $3.1 billion for growth projects, up from $2.5 billionin 2018. The company plans to finance the investment through internally generated cash flow.

Zacks Rank & Stocks to Consider

Kinder Morgan currently carries a Zacks Rank #3 (Hold).

A few better-ranked players in the energy space are NextEra Energy (NYSE:NEE) Partners L.P. (NYSE:NEP) , Shell (LON:RDSa) Midstream Partners, L.P (NYSE:SHLX) and Unit Corporation (NYSE:UNT) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Based in Juno Beach, Florida, NextEra Energy Partners was formed by NextEra Energy, Inc in 2014 to acquire, manage and own contracted clean energy projects with stable long-term cash flows. The partnership delivered average positive earnings surprise of 99.1% in the last four quarters.

Headquartered in Houston, TX, Shell Midstream Partners owns, operates, develops and acquires pipelines as well as other midstream assets. The company is expected to witness year-over-year earnings growth of 18.7% in 2018.

Unit Corp is a diversified energy company. The company generated average positive surprise of 21.2% in the trailing four quarters.

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