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Why Is Kinder Morgan (KMI) Down 4.3% Since Last Earnings Report?

Zacks

A month has gone by since the last earnings report for Kinder Morgan (KMI). Shares have lost about 4.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Kinder Morgan due for a breakout? 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 catalysts.

Kinder Morgan Q3 Earnings Beat Estimates, Rises Y/Y

Energy infrastructure provider Kinder Morgan Inc reported third-quarter 2018 earnings of 21 cents per share from continuing operations, beating the Zacks Consensus Estimate of 20 cents and surging 40% from 15 cents in the year-ago quarter.

Total revenues increased 7.2% year over year to $3,517 million. However, the top line lagged the Zacks Consensus Estimate of $3,533 million.

Higher contribution from almost all large transmission intrastate and interstate systems along with the midstream gathering and processing assets drove third-quarter results. Higher contribution from the liquid terminals along with higher commodity prices propelled growth.

Dividend

Kinder Morgan raised quarterly dividend to 20 cents per share (80 cents annualized). The dividend is payable on Nov 15, 2018, to shareholders on record as of Oct 31, 2018.

Segment Analysis

Natural Gas Pipelines: Operating income in the segment was $1,009 million, up8.7% from $928 million in the year-ago quarter. Higher contribution from the Texas Interstate System and favorable outcome from El Paso Natural Gas (EPNG), Tennessee Gas Pipeline (TGP), Natural Gas Pipeline Company of America (NGPL) and Colorado Interstate Gas (CIG) drove figures. The growth came from various midstream gathering and processing assets, including Hiland and KinderHawk, due to higher drilling activity and production.

CO2: The segment reported earnings of $233 million, which increased 7.4% from $217 million in third-quarter 2017. Higher volumes mainly from SACROC and Tall Cotton assets supported the upside. Moreover, higher volumes as well as NGL and CO2 prices contributed to growth.

Terminals: This business unit delivered profit of $299 million, which improved 1% from $296 million in the July-September quarter of 2017, mainly due to growth in liquids operations.

Products Pipelines: This segment recorded earnings of $309 million, up 2.3% year over year. Higher throughput on Cochin and Double H Pipelines were responsible for the improvement.

Kinder Morgan Canada: The segment reported earnings of $32 million, which declined 36% from $50 million in third-quarter 2017. Lower income was caused by the sale of Trans Mountain on Aug 31, 2018.

Operational Highlights

Operating expenses in the quarter were $2,002 million, down 18.5% from $2,455 million in the third quarter of 2017.   

Operating income amounted $1,515 million, up 83.4% from the year-ago quarter’s figure. Operating margin was approximately 43.1% compared with 25.2% in the year-ago quarter.

Financials

The company reported third-quarter distributable cash flow of $1,093 million compared with $1,055 million in the prior-year quarter. The company had a project backlog of $6.5 billion at the end of the quarter.

As of Sep 30, 2018, Kinder Morgan reported $3,459 million in cash and cash equivalents. The company’s long-term debt amounted to $34,625 million at the quarter end. Total debt-to-capitalization ratio at the end of the third quarter was 49.5%.

Outlook

Kinder Morgan raised 2018 dividend by 60% to 80 cents from 50 cents in 2017. It expects EBITDA and distributable cash flow of about $7.5 billion and $4.57 billion, respectively.

For 2018, Kinder Morgan increased capital expenditure projection to $2.5 billion, up $300 millionfor growth projects. The company plans to finance the investment through internally generated cash flow.

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How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

VGM Scores

Currently, Kinder Morgan has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

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

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, 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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