Energy infrastructure provider Kinder Morgan Inc. (NYSE:KMI) reported second-quarter 2017 earnings of 14 cents per share from continuing operations in-line with the Zacks Consensus Estimate but decreased 6.7% from 15 cents reported a year ago.
Total revenue for the quarter jumped 7.1% year over year to $3,368 million. Moreover, the top line surpassed the Zacks Consensus Estimate of $3,122 million.
Higher contribution from Elba Express pipeline along with improved CO2 volumes supported the second quarter results. Increased contribution from the liquid terminals and successful initial public offering of its Canadian business, 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 first dividend increase during the first quarter of 2018. Moreover, Kinder Morgan plans to increase its dividend to $1.00 per share in 2019 and $1.25 per share in 2020, with an annual growth rate of 25%.
In view of the company’s higher dividend projections the stock price moved up over 4% in the pre-market to touch $20.50 per share from $19.67 per share at the close of the market.
Dividend
Kinder Morgan maintained its quarterly dividend at 12.5 cents per share (50 cents per share annualized). The dividend is payable on Aug 15 to shareholders on record as of Jul31.
Segment Analysis
Natural Gas Pipelines: Operating income from this segment was $907 million, down 6.2% from $967 million in the year-ago comparable quarter. The downside was due to divestment of 50% interest in its SNG during the third quarter of 2016along with lower volumes that impacted 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 in2016 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 Texas Intrastate pipelines are favorable factors as well.
CO2: The segment reported earnings of $221 million, which increased 8% from $204 million in second-quarter 2016. Higher volumes owing to considerable demand from third parties supported the improvement. However, the upside was partially limited by lower commodity prices.
Terminals: This business unit reported profit of $304 million, which improved 1%from $302 million in the April–June quarter of 2016, mainly due to significant contributions from the liquid terminals.
Products Pipelines: This segment recorded earnings of $324 million, up 11% year over year. Higher refined products volumes were responsible for the improvement and were partially offset by higher expenses.
Kinder Morgan Canada: The segment reported earnings of $43 million, which decreased 7% from $46 million in second-quarter 2016. Lower income was attributable to higher expenses and a 21% decrease in volumes to Washington state, owing to a shift in deliveries from Washington to British Columbia destinations.
Operational Highlights
Total expenses in the quarter were $2,446 million, up 11% from $2,204 million spent in the second quarter of 2016.
Operating income of $922 million went down nearly 2% from $940 million in the year-ago quarter.
Second-quarter net income of $337 million increased from $333 million in the comparable quarter in 2016.
Kinder Morgan, Inc. Price, Consensus and EPS Surprise
Kinder Morgan, Inc. Price, Consensus and EPS Surprise | Kinder Morgan, Inc. Quote
Financials
The company reported second-quarter distributable cash flow of $1,022 million compared with $1,050 million in the prior-year quarter. The company had a project backlog of $12.2 billion at the end of the quarter as against $11.7 billion at the end of prior year quarter.
As of Jun 30, Kinder Morgan had cash and cash equivalents of $452 million. The company’s long-term debt amounted to $33,900 million at the end of the quarter. Total debt-to-capitalization ratio at the end of second-quarter 2017 was 48.4%.
Q2 Price Performance
During the April - June quarter of this year, Kinder Morgan’s shares have lost 11.9% compared with the Zacks categorized Oil & Gas – Production and Pipeline industry’s decline of 4.2%.
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 will likely finance the investment through cash flow that are generated internally.
Zacks Rank and Stocks to Consider
Kinder Morgan currently has a Zacks Rank #4 (Sell). Some better-ranked stocks in the same space are Enbridge Energy, LP (NYSE:EEP) , Braskem S.A. (NYSE:BAK) and TransCanada Corp (TO:TRP) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Enbridge Energy delivered a positive earnings surprise of 128.57% in the preceding quarter. The company beat estimates in three of the trailing four quarters with an average positive earnings surprise of 38.22%.
Braskem delivered a positive earnings surprise of 107.79% in the quarter ending September 2016.
TransCanada delivered a negative earnings surprise of 7.58% in the preceding quarter. It surpassed estimates in two of the trailing four quarters with an average positive earnings surprise of 1.06%.
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