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Kinder Morgan: Q3 Earnings Had Mixed Results

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Energy infrastructure company Kinder Morgan (KMI) reported its third-quarter earnings on October 16 after the markets closed. The company reported mixed results. Kinder Morgan’s adjusted EPS rose 5% year-over-year to $0.22. However, it missed analysts’ consensus estimates of $0.24 per share for the quarter. The company’s reported EPS fell 29% from Q3 2018, which included gains on the Trans Mountain pipeline sale.

Kinder Morgan’s adjusted EBITDA fell 1% year-over-year in the third quarter. Its DCF (distributable cash flow) rose by 4%. However, the company expects its adjusted EBITDA for 2019 to be 3% below its budget. Kinder Morgan declared a dividend of $0.25 per share for the third quarter.

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Earnings drivers

Greater contributions from Kinder Morgan’s natural gas and products pipelines drove its growth in DCF. The company’s natural gas pipeline segment’s adjusted earnings grew 8% year-over-year to $1.09 billion, driven by higher transportation volumes. The natural gas transportation volumes rose 13% year-over-year.

This was the seventh consecutive quarter in which the company’s natural gas transportation volumes rose by 10% or more from Q3 2018. The segment’s gas gathering volumes rose 12%, and NGL (natural gas liquids) transportation volumes rose 10% year-over-year.

Kinder Morgan’s products pipeline segment saw a 7% rise in its earnings, driven by higher volumes. Crude and condensate pipeline volumes rose 4% while refined products volumes rose 1% year-over-year. In comparison, Kinder Morgan’s CO2 segment’s earnings fell to $149 million from $233 million. Lower commodity prices, as well as lower crude and NGL sales volumes, drove the fall in these earnings.

Finally, the Kinder Morgan Canada segment, which contributed $32 million in earnings in Q3 2018, made no contributions to the company’s earnings in the current quarter due to the sale of the Trans Mountain pipeline.

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Lower-than-budgeted EBITDA

Kinder Morgan expects its 2019 adjusted EBITDA to be around 3% below what it budgeted for the year. In Q2 2019, the company expected its EBITDA to be 2% below the budget.

A delay in the Elba liquefaction project’s in-service date is expected to impact Kinder Morgan’s earnings for 2019. Additionally, lower commodity prices and volumes are impacting its CO2 segment’s performance. Plus, 501-G settlements impacted the company’s earnings for the year.

The company expects to spend lower-than-planned capital on growth projects for 2019. It expects to spend $2.8 billion on growth projects, compared to budgeted spending of $3.1 billion. This is primarily due to lower spending on its CO2 segment projects. Kinder Morgan expects to end 2019 with a net-debt-to-adjusted-EBITDA ratio of 4.6x.

Update on Kinder Morgan’s key projects

Kinder Morgan placed its Gulf Coast Express Pipeline project in service in September, ahead of its schedule. The company also placed the first ten units of Elba liquefaction project into service. Kinder Morgan expects to bring the remaining nine units into service in the first half of 2020. The company previously expected to finish the project in 2019.

Similarly, the company expects a delay in the Permian Highway Pipeline project. KMI president Kim Dang noted, “We also made excellent progress on our Permian Highway Pipeline project, with nearly 85 percent of the right-of-way secured along the route and construction activities underway on the western spread. Given the slower than anticipated pace of regulatory approvals, the project is now expected to be in service early in 2021.”

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