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Kinder Morgan Expects Lower 2019 EBITDA, and Debt Rose in Q1

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Apr. 18 2019, Published 7:06 a.m. ET

Kinder Morgan’s debt

In this part, we’ll discuss two negative aspects of Kinder Morgan’s (KMI) Q1 results. The first is the rise in its net debt. Kinder Morgan’s adjusted net debt rose by ~$668 million during the first quarter. During Q1, Kinder Morgan spent ~$750 million on growth projects, ~$450 million in dividends, ~$340 million of taxes on the Trans Mountain sale, and used ~$500 million of working capital cash. The working capital cash primarily included higher interest, bonus, payroll, and property tax payments.

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The above expenses totaled ~$2.0 billion, which is $668 million more than the $1.37 billion that the company generated in distributable cash flow for the quarter. The additional expenses were funded by debt, resulting in a $668 million rise in the adjusted net debt during the quarter. Adjusted net debt is net debt adjusted for cash distributed to Kinder Morgan Canada (KML.TO) restricted voting shareholders. The rise in the net debt resulted in a marginal rise in Kinder Morgan’s net debt to adjusted EBITDA ratio to 4.6x from 4.5x at the end of 2018.

Lower-than-budgeted EBITDA

The second thing that investors may not like in Kinder Morgan’s latest earnings announcement is its expectations of 2019 EBITDA coming in slightly below the $7.8 billion budget. The impact is not expected to be material. Slightly lower NGL (natural gas liquids) prices could be one of the factors contributing to the marginally lower EBITDA expectations for the year.

Due to the expected lower-than-budgeted EBITDA, Kinder Morgan expects to end 2019 with a net-debt-to-adjusted-EBITDA ratio of 4.6x compared to previous estimates of 4.5x. A slight increase in debt combined with expectations of marginally lower EBITDA may concern investors. While the impact isn’t huge at the moment, investors will keep a close eye on how these metrics unfold over the coming quarters.

ONEOK (OKE) is scheduled to report Q1 results on April 30, while Enterprise Products Partners (EPD) is set to report earnings on May 1.

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