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What to Watch When Kinder Morgan Inc Reports First-Quarter Results

Matthew DiLallo, The Motley Fool

After declining for the past two years, Kinder Morgan (NYSE: KMI) expects cash flow to start growing again in 2018. Investors will get their first glimpse of whether that's the case when the pipeline giant reports first-quarter results Wednesday evening. That return to growth is one of a few things investors should keep an eye on this quarter.

Look for cash flow to come in above expectations

Kinder Morgan's guidance calls for it to pull in $4.57 billion, or $2.05 per share, of distributable cash flow (DCF) this year, which would be about 3% higher than 2017. The company anticipates collecting 26% of that DCF in the first quarter, or about $1.89 billion ($0.53 per share). However, given what has transpired since the company provided this guidance, it seems increasingly likely that it will exceed those expectations.

Pipelines with a blue sky in the background.

Image source: Getty Images.

Two factors support that view. First, Kinder Morgan noted in a recent investor presentation that it had already spent $500 million to repurchase 27 million shares since December, which should reduce its outstanding share count by more than 1%. In addition to that, the company based its budget on oil averaging $56.50 per barrel this year. Crude, however, spent much of the first quarter in the low $60s, which should add some incremental cash flow. The higher cash flow from oil against a lower share count suggests the company could deliver first-quarter results that exceed guidance, potentially putting it on pace to beat full-year expectations. 

See if the company has any updates on Trans Mountain

While Kinder Morgan expects to return to growth mode the year, its future became a little cloudier after the company's Canadian subsidiary Kinder Morgan Canada Limited (TSX: KML) recently threatened to cancel its planned expansion of the Trans Mountain Pipeline if it doesn't have sufficient clarity by the end of May. Such a move would be a huge disappointment, as it's a needle-moving project for Kinder Morgan, representing about half of its backlog and anticipated incremental earnings through 2021.

However, while some in Canada don't want to see Kinder Morgan build this pipeline, Prime Minister Justin Trudeau has since called it "a vital strategic interest to Canada." His government is exploring ways to push the project forward, including potentially investing directly in the pipeline. That increases the likelihood Kinder Morgan will eventually build the project, which is why it will be interesting to see if the company has any further updates when it reports earnings this week.

Watch for new projects

Because Trans Mountain is still questionable at the moment, investors will want to see if Kinder Morgan has anything else coming down the pipeline to help cushion the blow if it does ultimately pull the plug on that vital project. There's reason to be optimistic, as several rivals have already announced a slate of new expansion projects this year. ONEOK (NYSE: OKE) has been among the most active. The company started the year by announcing that it secured enough long-term contracts to move forward with a $1.4 billion pipeline to move natural gas liquids (NGLs) out of the Rockies. ONEOK followed that up a month later by unveiling plans to invest $2.3 billion into additional NGL and natural gas infrastructure through 2020. Those expansions increase the odds that ONEOK will achieve its dividend growth forecast of 9% to 11% annually through 2021.

While Kinder Morgan and several partners officially gave the Gulf Coast Express Pipeline project the green light in December, the company needs to continue securing additional expansions to boost investor confidence in its growth outlook. That's why investors should look for any updates the company provides this quarter on projects it recently secured or those currently under development.  

Slowly turning the corner

Kinder Morgan's stock has been under pressure over the past year due to concerns about the future of Trans Mountain. While investors might not get clarity on that project this quarter, they should by the end of next month. In the meanwhile, the company's quarterly report should show that its financial results are turning around after two down years. As that turnaround becomes more evident, Kinder Morgan's shares could finally begin their long-awaited recovery.

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Matthew DiLallo owns shares of Kinder Morgan. The Motley Fool owns shares of and recommends Kinder Morgan and ONEOK. The Motley Fool has a disclosure policy.