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Kinder Morgan Energy Misses on Q2 Earnings, Ups Distribution

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Kinder Morgan Energy Partners L.P. reported second-quarter 2014 earnings from continuing operations of 49 cents per limited partner unit (excluding certain items), widely missing the Zacks Consensus Estimate of 57 cents. The quarterly results remained unchanged from the year-earlier profit level.


Revenues increased 18.6% to $3,577.0 million from $3,017.0 million in the year-ago quarter. However the top line was marginally below the Zacks Consensus Estimate of $3,587.0 million.

Kinder Morgan is one of the largest publicly traded master limited partnerships (MLPs) and generally serves as a benchmark for the pipeline MLP group. A focus on fee-based and diversified businesses has enabled the partnership to dilute its business risks. Kinder Morgan Inc. (KMI - Free Report) , one of the largest mid-stream energy companies in the U.S., owns the partnership’s general partner interest.

The partnership's cash distribution per common unit was raised to $1.39 ($5.56 annualized), representing 5% year-over-year growth. The distribution is payable on Aug 14, 2014. The partnership has increased the quarterly distribution 52 times since the current management team took over in Feb 1997.

Kinder Morgan's payout hike was fueled by increased contribution from the May 2013 Copano acquisition, outstanding results at Tennessee Gas Pipeline (“TGP”), increased oil production at Scurry Area Canyon Reef Operators Committee (SACROC), and strong results from its Products Pipelines and Terminals businesses.

The partnership's distributable cash flow – a measure of its ability to make unitholders' payments – before considering certain items was $561 million versus $505 million in the year-ago quarter. Additionally, distributable cash flow per unit, excluding certain items, was $1.23, up 0.8% year over year.

Second Quarter Segmental Highlights
Products Pipelines: The business segment's earnings before DD&A and certain items climbed 17% year over year to $209 million. Higher volumes on the Kinder Morgan Crude and Condensate Pipeline, Pacific system, and transmix business contributed to the growth. Total refined products’ volume was up 6.5% from the prior-year quarter.

Natural Gas Pipelines: Earnings before DD&A and certain items from the segment increased 13% year over year to $642 million. The performance was aided by the dropdown of TGP and El Paso Natural Gas (EPNG) as well as higher contributions from the 2013 Copano transaction.

CO2: The segment's earnings before DD&A and certain items were $360 million, up 3% year over year on the back of increased yield at SACROC as well as higher CO2 sales and transport volumes. Increased output at the Katz field and Goldsmith Unit also aided growth.

Terminals: The business segment earned $227 million before DD&A and certain items in the second quarter, up 19% year over year. The segment benefited from incremental earnings from various expansions coming online including the Edmonton Terminal and Houston Ship Channel facilities. Strong petcoke volumes, including the impact of the BP plc (BP - Free Report) operated Whiting facility expansion, and improved steel volumes also contributed to this segment’s earnings improvement.

Kinder Morgan Canada: The segment reported earnings of $40 million before DD&A and certain items, down 20% year over year, reflecting unfavorable foreign exchange rates despite high demand for the Trans Mountain Pipeline, with higher mainline throughput into Washington and strong activity at Westridge Terminal.


As of Jun 30, 2014, Kinder Morgan had cash and cash equivalents of $263 million and long-term debt of $19,610 million. Debt-to-capitalization ratio was 53.8% (versus 52.7% in the last quarter).

Zacks Rank

Kinder Morgan currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the oil and gas sector include EXCO Resources Inc. with a Zacks Rank #1 (Strong Buy).


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