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3 ETFs in Focus as Kinder Morgan's Top Line Fails to Impress

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Shares of Kinder Morgan, Inc. (KMI - Free Report) , a leading energy transportation and storage company, declined 2.04% to $21.64 in after-hours trading following a decline in the company’s second-quarter revenues, which also missed the Zacks Consensus Estimate. The company maintain its dividend and reported in-line earnings per share for the quarter.

Q2 Earnings in Detail

Earnings per share came in at 15 cents, in line with both the Zacks Consensus Estimate and year-ago figure. Meanwhile, revenues slumped 9.2% from the year-ago quarter to $3.14 billion, and fell short of our estimate of $3.44 billion. A slump in revenues from the carbon-dioxide segment emerged as the major reason for the overall decline in the top line (read: Oil & Gas ETF Investing Guide).

Revenues from the carbon-dioxide segment plunged 15% year over year to $203 million in the second quarter. Also, revenues from the segment dropped 32% year over year to $389 million during the first half of this year. It is speculated that wider exposure to oil prices compared to other segments had a negative impact on the segment during the first half of this year.

A major segment, natural gas pipelines, witnessed impressive growth during the quarter and first half of the year, which in turn had a positive impact on its performance. The segment’s revenues rose 4% and 1% during the quarter and first half to $966 million and $928 million, respectively, from the year-ago quarter. 

Also, the company reported a year-over-year increase of 11.7% in net income to $372 million.

Separately, Kinder Morgan maintained a cash dividend of $0.125 per share for the quarter ($0.50 annualized) payable on August 15, to common shareholders of record as of the close of business on August 1. The company now expects to pay dividend per share of $0.50 in 2016. Also, the company forecast capital expenditure of about $2.8 billion in 2016 compared with its budget of around $3.3 billion (read: Is the Kinder Morgan Plunge an Opportunity to Buy Its ETFs?).

Steps Taken for Betterment of Balance Sheet  

The company cited that two important joint ventures, in which they entered into in the recent past, will play a major role in improving its balance sheet in near future. Recently, the company participated in a joint venture with Southern Company (SO - Free Report) with an intention to bolster their leadership position in energy infrastructure development. Per the deal, Southern Company acquired a 50% interest in the Southern Natural Gas (SNG) pipeline system. Kinder Morgan, the operator of the pipeline system will continue with its current responsibilities.

Separately, last month, the company announced that it has divested a 50% stake in the Utopia Pipeline Project to Riverstone Investment Group LLC. Riverstone would provide an upfront cash payment, consisting of the reimbursement to Kinder Morgan for its 50% share prior capital expenditures and a payment in excess of capital expenditure to recognize the value created in developing the project, according to the deal.

The company’s executive chairman Richard D. Kinder said: “We are pleased to have taken substantial steps towards achieving our stated goals of strengthening our balance sheet and positioning the company for long-term value creation.” He also added: “Our current project backlog is $13.5 billion, down from $14.1 billion at the end of the first quarter of 2016.” Moreover he said that “reduction resulted from the removal of half of our Utopia pipeline project capital, which will now be funded by Riverstone” played a major role in reducing the backlog (read: ETF Strategies for 2H).

3 ETFs to Watch

Despite revenue decline, Kinder Morgan witnessed some improvement in its major segments. The company has also taken some steps toward the betterment of its balance sheet position. Hence, the company will be on investors’ radar in the coming days following its second-quarter earnings release. Against this backdrop, we have highlighted three ETFs that have significant exposure to the company and will thus be in focus in the coming days.

Global X MLP & Energy Infrastructure ETF (MLPX - Free Report)

This product follows the Solactive MLP & Energy Infrastructure Index and holds 35 stocks in its basket. Of these, Kinder Morgan takes the top spot with 10.6% of total assets. In terms of industrial exposure, about 93% of the portfolio is allocated to oil and gas pipeline and distribution while energy exploration and production firms make up for 6% share. The fund has amassed $95.6 million in its asset base and charges 45 bps in annual fees. Volume is moderate at around 66,000 shares on average (see: all the MLP ETFs here).

Tortoise North American Pipeline Fund (TPYP - Free Report)

This ETF is designed to follow the performance of the Tortoise North American Pipeline Index. TPYP has AUM of $32.9 million and average daily volume of 8,000 shares. Expense ratio came in at 0.40%. The product holds 92 securities with Kinder Morgan occupying the top position in the basket at 9.2%. From a sector look, nearly 80% of the portfolio is allocated to oil and gas pipelines and distribution while natural gas utilities take the next position at around 15%.

Guggenheim S&P High Income Infrastructure ETF (GHII - Free Report)

This fund tracks the S&P High Income Infrastructure Index, holding 55 stocks in its basket. Of these, Kinder Morgan takes the second place with 6.3% share. Oil and gas pipeline and the distribution sector dominate the fund’s returns at 54% while electric utilities (17%) and alternative and renewable energy (11%) are the other sectors with double-digit allocation. The ETF is unpopular and illiquid having gained $2.6 million in total asset base. The fund trades in a paltry volume of 1,000 shares and charges 45 bps in fees per year.

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