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Kinder Morgan (KMI) Up 8.1% 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 8.1% in that time frame, outperforming 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 catalysts.

Kinder Morgan Meets Q1 Earnings Estimates, Ups Dividend

Kinder Morganreported first-quarter 2020 adjusted earnings per share of 24 cents, in line with the Zacks Consensus Estimate. Increased average tariffs on its refined product pipeline boosted profits.

The bottom line, however, declined from the year-ago quarter’s 25 cents owing to reduced contributions from the Tennessee gas pipeline and decreased NGL prices and crude volumes.

Moreover, total revenues declined to $3,106 million from $3,429 million in the prior-year quarter and missed the Zacks Consensus Estimate of $3,427 million.

Dividend Hike

The company received approval from the board of directors to hike first-quarter dividend by 5% as compared to the December quarter of 2019. The raised dividend of 26.25 cents per share is likely to be paid on May 15, to common stockholders of record as of May 4.

Segment Analysis

Natural Gas Pipelines: Adjusted earnings before depreciation, depletion and amortization expenses, including amortization of excess cost of equity investments (EBDA), in the March quarter of 2020 were down 2% to $1,179 million from $1,201 million a year ago. Lower contributions from the Tennessee gas pipeline primarily hurt the segment. The underperformance was led by lost earnings from the U.S. part of the Cochin pipeline, which was divested in the December quarter of 2019.

The negatives were however partially countered by increased daily transportation and sales volumes of natural gas.

Products Pipelines: The segment’s adjusted EBDA in the first quarter was $273 million, reflecting a decline of 7% from $293 million a year ago. Lower transported volumes of gasoline, since the demand for refined products was soft in March owing to the coronavirus pandemic, primarily affected performance. However, higher average tariffs on the company’s refined product pipeline contributed to the segment to a certain extent.

Terminals: Through this segment, Kinder Morgan generated quarterly adjusted EBDA of $257 million, down 14% from the year-ago period due to divestment of interests in Kinder Morgan Canada Limited last December. Higher utilization of liquid terminals, despite the virus outbreak, contributed to the segment partially.

CO2: The segment’s EBDA declined 7% to $175 million from $189 million a year ago due to decline in NGL prices and crude volumes.

Operational Highlights

Expenses related to operations and maintenance totaled $620 million, up from $598 million a year ago. As such, total operating costs increased to $3,063 million in the first quarter from $2,411 million in the corresponding period of 2019.

Quarterly operating income amounted to $43 million, down from the year-ago quarter’s $1,018 million.

DCF & Backlog

The company’s first-quarter distributable cash flow declined to $1,261 million from $1,371 million a year ago.

It recorded project backlog of $3.3 billion as of the March quarter of 2020.

Balance Sheet

As of Mar 31, 2020, Kinder Morgan reported $360 million in cash and cash equivalents. The company’s long-term debt amounted to $29,955 million at quarter-end. Total debt-to-capitalization ratio at the end of the first quarter was 50%.

Guidance

Owing to the drop in global energy demand due to the pandemic, Kinder Morgan has lowered its 2020 expansion capital budget by 30%.

In response to the outbreak, the midstream energy player has also revised its 2020 DCF and adjusted EBITDA downward by 10% and 8%, respectively.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

At this time, Kinder Morgan has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, 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 F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. 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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