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Kinder Morgan (KMI) Up 0.8% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for Kinder Morgan (KMI). Shares have added about 0.8% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Kinder Morgan due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Kinder Morgan’s Q3 Earnings Meet, Revenues Lag Estimates

Kinder Morgan posted third-quarter 2019 adjusted earnings per share of 22 cents, in line with the Zacks Consensus Estimate. The bottom line also improved from the year-ago quarter’s 21 cents.

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Total revenues declined year over year to $3,214 million from $3,517 million and missed the Zacks Consensus Estimate of $3,554 million.

The strong quarterly earnings were backed by increased transported volumes of natural gas, diesel and jet fuels. This was partially negated by higher lease expenses at Kinder Morgan’s Edmonton South Terminal.

Segment Analysis

Natural Gas Pipelines: Adjusted earnings before depreciation, depletion and amortization expenses, including amortization of excess cost of equity investments (EBDA), in the segment for the September quarter of 2019 were up 8.5% year over year from $1,005 million to $1,090 million. Higher transported natural gas volumes, primarily through the El Paso Natural Gas pipeline system, attributed to the outperformance.

Products Pipelines: The segment’s adjusted EBDA for the third quarter was reported at $336 million, showing an improvement of 7.3% from $313 million a year ago. Higher transported volumes of diesel and jet fuels aided the segment.

Terminals: Through this segment, Kinder Morgan generated quarterly adjusted EBDA of $295 million, down 1.3% from the year-ago period due to a surge in lease expenses at the company’s Edmonton South Terminal.

CO2: The segment’s EBDA declined 36% to $149 million from $233 million a year ago, hurt by decline in commodity prices.

Operational Highlights

Expenses related to operations and maintenance totaled $668 million, up 3.4% from $646 million a year ago.

Operating income amounted to $951 million, down 37.2% from the year-ago quarter’s figure.

Financials

The company’s third-quarter distributable cash flow increased to $1,140 million from $1,093 million a year ago. The company recorded project backlog at $4.1 billion at third quarter’s end.

As of Sep 30, 2019, Kinder Morgan reported $241 million in cash and cash equivalents. The company’s long-term debt amounted to $30,849 million at quarter-end. Total debt-to-capitalization ratio at the end of the third quarter was 50.6%.

Outlook

Kinder Morgan reaffirms 2019 dividend at $1.00 per common share. Moreover, the company maintains adjusted EBITDA and DCF for 2019 at $7.8 billion and $5 billion, respectively.

However, Kinder Morgan added that its adjusted EBITDA for 2019 could be 3% below budget. This was owing to delays witnessed in placing liquefied natural gas export facility at Elba Island into service.

For 2019, the company has maintained its expectation to spend $3.1 billion on growth developments and joint ventures.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

Currently, Kinder Morgan has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Kinder Morgan has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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