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Kinder Morgan (KMI) Posts In-Line Q1 Earnings, Hikes Dividend

Zacks Equity Research
ONE Gas (OGS) reports strong Q1 results, courtesy of new rates, colder-than-normal weather and customer growth.

Kinder Morgan Inc KMI posted first-quarter 2019 adjusted earnings of 25 cents per share, in line with the Zacks Consensus Estimate and up almost 14% from the year-ago quarter’s 22 cents.

Total revenues increased nominally year over year to $3,429 million. However, the top line lagged the Zacks Consensus Estimate of $3,644 million.

Higher transported natural gas volumes along with liquids business strength primarily supported first-quarter 2019 results. This was negated partially by Kinder Morgan Crude & Condensate pipeline’s lower contributions.

Although the company announced strong first-quarter earnings along with dividend hikes, investors were disappointed with the midstream energy firm’s projection for below-budget 2019 EBITDA.  

Dividend Increase

Kinder Morgan received an approval from its board of directors to increase quarterly dividend. The dividend for the March quarter of 2019 came at 25 cents per share, representing a sequential hike of 25%. The increased dividend is likely to be paid on May 15, to stockholders of record as of Apr 30.

Segment Analysis

Natural Gas Pipelines: Earnings before depreciation, depletion and amortization expenses, including amortization of excess cost of equity investments (EBDA), before certain items, in the segment was up 12% year over year from $1,074 million to $1,201 million. Higher transported volumes of natural gas, backed by rising production in the Permian and DJ basins, primarily enhanced the segment’s performance.

Products Pipelines: The segment’s EBDA, before certain items, for the March quarter of 2019 was reported at $293 million, representing a decline of 1% from $297 million a year ago. This was due to Kinder Morgan Crude & Condensate pipeline’s lower contributions.

Terminals: Through this segment, Kinder Morgan generated quarterly EBDA of $299 million, up a nominal 1% from the year-ago period, thanks to strength in its liquids business.

CO2: The segment’s EBDA declined 20% to $189 million from $237 million a year ago.

Operational Highlights

Expenses related to operations and maintenance totaled $598 million, down 3.4% from $619 million a year ago.

Operating income amounted to $1,018 million, up 7.3% from the year-ago quarter’s figure.

Financials

The company’s first-quarter distributable cash flow increased to $1,371 million from $1,247 million a year ago. The company had a project backlog of $6.1 billion at the end of the quarter.

As of Mar 31, 2019, Kinder Morgan reported $221 million in cash and cash equivalents. The company’s long-term debt amounted to $32,368 million at quarter-end. Total debt-to-capitalization ratio at the end of the first quarter was 50.3%.

Outlook

Kinder Morgan expects 2019 dividend of $1.00 per common share. The company also projects 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 marginally below budget, owing to which the firm’s 2019 net debt-to-adjusted EBITDA ratio is expected at 4.6X. Nevertheless, the midstream energy firm assured investors that the net debt-to-adjusted EBITDA ratio will be almost in line with long-term goal of 4.5X.

For 2019, the company expects to spend $3.1 billion on growth developments.

Zacks Rank & Stocks to Consider

Kinder Morgan carries a Zacks Rank #3 (Hold). Meanwhile, a few better-ranked players in the energy space are Antero Resources Corporation AR, Royal Dutch Shell plc RDS.A and ProPetro Holding Corp. PUMP. While Antero Resources sports a Zacks Rank #1 (Strong Buy), Royal Dutch Shell and ProPetro Holding carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.    

Antero Resources is likely to see earnings growth of 20% over the next five years.

Royal Dutch Shell is expected to see earnings growth of 8% over the next five years, higher than the industry’s 7.6%.

ProPetro Holding is likely to see 19.5% earnings growth through 2019.

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