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Kinder Morgan Inc. Delivers a Yawner of a Quarter, but That's a Good Thing

Matthew DiLallo, The Motley Fool

After having unveiled its plan to ramp up cash returns to investors last quarter, there didn't appear to be any catalysts left for Kinder Morgan (NYSE: KMI) this quarter. That view proved to be correct since the pipeline giant didn't report anything out of the ordinary when it released third-quarter results on Wednesday. That said, the numbers still showed that the company remains headed in the right direction, which is just what investors want to see.

Kinder Morgan Inc. results: The raw numbers

A chart showing Kinder Morgan's segment earnings in the third quarter of 2017 versus the same quarter in 2016.

Data source: Kinder Morgan Inc. Chart by author. Note: In millions of dollars.

What happened with Kinder Morgan this quarter? 

Everything remains on track:

  • Overall, Kinder Morgan reported $1.79 billion in segment earnings before depreciation and amortization (EBDA) during the quarter, which was down 1.6% versus last year's third quarter. Meanwhile, distributable cash flow (DCF) was $1.055 billion, down 2.4% from the year-ago quarter. That said, the company remains on target with its guidance, with DCF expected to be less than 1% below budget due to a slight impact from Hurricane Harvey.
  • The company's natural gas pipeline segment continues to do most of the heavy lifting, delivering $928 million in EBDA during the quarter. While that was down 3% year over year, this was due to the sale of a 50% interest in its Southern Natural Gas system, as well as some Hurricane Harvey-related declines in volume, which the company partially offset with some recent project completions.
  • Carbon dioxide segment earnings fell 5% to $217 million because of lower realized oil prices and a 1% decrease in volume.
  • Earnings in the terminals segment were up 1% to $296 million. The company offset several divestitures and some Hurricane Harvey disruptions with increased contributions from recently completed Jones Act tankers that entered service and other expansions across its network.
  • Product pipeline earnings rose 3% to $302 million on higher volume on its SFPP system and at its terminals in the Southeast.
  • Kinder Morgan Canada's (TSX: KML) earnings increased 4% to $50 million due primarily to the strengthening Canadian dollar.
Pipelines with a blue sky in the background.

Image source: Getty Images.

What management had to say 

CEO Steve Kean commented on the quarter:

We had a solid third quarter, especially in the face of multiple named storms, including a historic rainfall event associated with Hurricane Harvey. Hundreds of our employees and their families were affected by these storms, but they and the assets they operate proved resilient and strong. Our response was robust, and impacts on our customers and operations were minimized. We generated earnings per common share for the quarter of $0.15 and distributable cash flow (DCF) of $0.47 per common share, resulting in $774 million of excess DCF above our dividend.

As Kean notes, Kinder Morgan did a great job weathering several storms during the quarter. Hurricane Harvey did impact results, causing minor damage to some assets (which the company expects insurance to cover) while also dinging DCF by $20 million this year because of the lost volume. However, even with that impact, the company remains on pace to generate $1.99 per share in DCF this year, which is more than enough to cover its dividend and growth projects.

Looking forward 

Kinder Morgan ended the quarter with $12 billion of expansion projects in its backlog, down about $200 million from the end of last quarter with the recent expansions entering service. One of the things the company pointed out about that backlog is that the largest project, the Trans Mountain Pipeline expansion by Kinder Morgan Canada, is off to a slower start than planned as a result of some issues with obtaining all the necessary permits and approvals. Because of this, the company is assessing construction mitigation plans to maintain its current in-service schedule of the end of 2019. However, Kinder Morgan Canada did warn that the project could lag that time line by up to nine months if it faces further delays, which is something investors need to keep an eye on since it's such a crucial project.

That issue aside, the company remains on pace with its plan to begin ramping up shareholder distributions. It still expects to deliver a 60% increase in its quarterly dividend starting early next year, with further rises in 2019 and 2020. So while Kinder Morgan didn't announce anything exciting this quarter, that's just fine because what the company did report shows that it remains on track with its long-term plan to create shareholder value.

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Matthew DiLallo owns shares of Kinder Morgan and has the following options: short January 2018 $30 puts on Kinder Morgan, long January 2018 $30 calls on Kinder Morgan, and short December 2017 $19 puts on Kinder Morgan. The Motley Fool owns shares of and recommends Kinder Morgan. The Motley Fool has a disclosure policy.