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Kinder Morgan Inc. (KMI - Analyst Report), one of the largest midstream energy companies in North America, reported lower-than-expected third-quarter 2013 earnings owing to significant increase in operating expenses. The third-quarter 2013 earnings from continuing operations stood at 27 cents a share, failing to meet the Zacks Consensus Estimate of 32 cents.   

However, the quarterly earnings increased 28.6% from the year-earlier profit level of 21 cents per share. Improved performances from Kinder Morgan Energy Partners LP (KMP - Analyst Report) and El Paso Pipeline Partners LP (EPB - Snapshot Report) aided the results. KMI owns the general partner (GP) interest and incentive distribution rights (IDRs) of KMP and El Paso Pipeline Partners.

Total revenue for the quarter increased 27.3% year over year to $3,654.0 million. The reported figure also surpassed the Zacks Consensus Estimate of $3,650.0 million by 0.1%.

Dividend and Share Repurchases

KMI raised its quarterly dividend by 14% to 41 cents a share ($1.64 per share annualized) from 36 cents ($1.44 per share annualized) in the third quarter of 2012. Moreover, the new dividend increased by 2.5% from second-quarter 2013 dividend of 40 cents a share ($1.60 per share annualized). The hiked dividend will be paid on Nov 15, 2013, to shareholders of record on Oct 31, 2013.

KMI expects its full-year 2013 dividend to be $1.60 per share, representing a hike of 14.3% from the dividend declared in 2012.

The company expects its growth for the year 2013 will be driven by KMP and El Paso Pipeline Partners.  

Moreover, the board of director has authorized an additional $250.0 million shares and warrant buyback plan.

Operational Highlights

Total expenses in the quarter were $2613.0 million, representing a 29.5% increase from $2,018.0 million in the third quarter of 2012.

Operating expenses for the quarter came in at $1,958.0 million, representing a significant increase of 45.6% as compared to $1,345.0 million posted in the year-ago period.

Operating income came in at $1,041.0 million versus $852.0 million in the year-ago quarter. Operating margin was 28.5% compared with approximately 29.7% in the year-ago quarter.


Cash available for dividend payments was $424.0 million in the third quarter of 2013, an increase of 17.1% from $362.0 million in the comparable quarter last year. As of Sep 30, 2013, KMI reported $137.0 million of cash and cash equivalents, while long-term debt was $7,724.0 million.

Zacks Rating

KMI holds a Zacks Rank #1 (Strong Buy), implying that it is expected to significantly outperform the broader U.S. equity market over the next one to three months.

Apart from KMI one can look at other energy stock like Stone Energy Corp. (SGY - Analyst Report) that offers value. The firm also sports a Zacks Rank #1 (Strong Buy).

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