Kinder Morgan Misses Earnings, Tops Rev - Analyst Blog

Kinder Morgan Inc. KMI reported first quarter 2014 earnings of 28 cents a share from continuing operations, failing to meet the Zacks Consensus Estimate of 33 cents. However, the quarterly earnings remained unchanged from the year-earlier profit level.

Total revenue for the quarter increased 32.3% year over year to $4,047.0 million. The reported figure surpassed our expectation of $3,820.0 million.

Dividend

Kinder Morgan boosted its quarterly dividend to 42 cents a share ($1.68 per share annualized), up 11% from 38 cents ($1.52 per share annualized) paid in the first quarter of 2013.

For 2014, management expects a hike of 8% in declared cash distributions per unit from 2013.

The company's growth curve will be driven by its ownership of the general partners of Kinder Morgan Energy Partners, L.P. KMP and El Paso Pipeline Partners, L.P. EPB. The natural gas assets acquired by Kinder Morgan through the El Paso Corporation will augment dividend growth.

Operational Highlights

Total expenses in the quarter were $2,900.0 million, representing a 41.9% increase from $2,043.0 million spent in the first quarter of 2013.

Operating income came in at $1,147.0 million, representing 12.8% growth from the comparable quarter a year ago. Operating margin was 28.3% compared with 33.2% in the year-ago quarter.

Financials

Cash available for dividend payments was $573.0 million in the first quarter of 2014, an increase of 12% from $513.0 million in the comparable quarter last year. As of Mar 31, 2014 Kinder Morgan reported $116 million of cash and cash equivalents, while long-term debt was $8,968 million.

Our Take

Kinder Morgan is one of the largest publicly traded master limited partnerships (MLPs) and generally serves as a benchmark for the pipeline MLP group. A focus on fee-based and diversified businesses has enabled the partnership to dilute its business risks. Kinder Morgan Inc., one of the largest mid-stream energy companies in the U.S., owns the partnership's general partner interest.

Going forward, we believe the company will offer ample scope for growth with approximately $16.4 billion in expansion and joint venture investments. The company also anticipates significant demand for natural gas transportation capacity to increase transportation commitments with customers. Since Dec 1, 2013, it has entered into approximately 2.8 billion cubic feet per day of new firm transportation commitments with customers for terms averaging about 15 years. In Jan 2014, due in part to record cold weather in many parts of the country, Kinder Morgan's natural gas pipelines transported on average about 33 billion cubic feet per day on average, representing approximately one-third of the U.S. market demand.

However, Kinder Morgan's performance in 2014 is expected to be muted to some extent owing to the likely dropdown of certain assets to Kinder Morgan Energy Partners and El Paso Pipeline Partners. Kinder Morgan plans to drop down its 50% interest in Ruby Pipeline, its 50% interest in Gulf LNG and its 47.5% interest in Young Gas Storage to El Paso Pipeline Partners.

Kinder Morgan currently holds a Zacks #3 Rank (short-term Hold rating). Better-ranked energy player include Crescent Point Energy Corp. (CPG) which currently sport a Zacks Rank #1 (Strong Buy) and offer value.