Kinder Morgan Energy Beats on Earnings & Revs

Kinder Morgan Energy Partners L.P. (KMP) reported first quarter 2014 earnings from continuing operations of 73 cents per limited partner unit (excluding certain items), beating the Zacks Consensus Estimate of 71 cents. The quarterly results were 10.6% higher than the year-ago earnings of 66 cents per unit.

Revenues increased 37.2% to $3,652.0 million in the quarter from $2,661.0 million in the year-ago quarter and beat the Zacks Consensus Estimate of $3,541.0 million.

The top and bottom-line outperformances were mainly attributable to higher volumes in its interstate pipeline network.

The partnership's cash distribution per common unit was raised to $1.38 ($5.52 annualized), representing 6% year-over-year growth. The distribution is payable on May 15, 2014. The partnership has increased the quarterly distribution 51 times since the current management team took over in Feb 1997.

Kinder Morgan's payout hike was fueled by increased contribution from the Copano acquisition, dropdown of the entire Tennessee Gas Pipeline (“TGP”) and 50% of El Paso Natural Gas (“EPNG”), from its parent company Kinder Morgan Inc. (KMI), growth opportunities in the coal export business as well as robust oil yield.

The partnership's distributable cash flow – a measure of its ability to make unitholders' payments – before considering certain items was $693 million versus $550 million in the year-ago quarter. Additionally, distributable cash flow per unit, excluding certain items, was $1.55, up 6.2% year over year.

First Quarter Segmental Highlights

Products Pipelines: The business segment's earnings before DD&A and certain items climbed 2% year over year to $204 million. The higher volumes on the Kinder Morgan Crude and Condensate Pipeline along with higher volumes and revenues from its Southeast Terminals also aided the growth. This was accompanied by higher transmix volumes and margins with improved contributions from the Parkway Pipeline, whch was commissioned in Sep 2013. Total refined products volume was up 5.3% from the prior-year quarter.

Natural Gas Pipelines: Earnings before DD&A and certain items from the segment shot up 45.5% year over year to $723 million. The performance was aided by the dropdown of TGP and EPNG as well as higher contributions from the May 2013 Copano transaction.

Overall, transport volumes moved up 5% from the year-ago quarter, mainly attributable to robust volumes in the Eagle Ford and strong transport volumes on the Texas intrastate pipeline system due to increased deliveries to Mexico. Again, a new supply project at TGP and colder weather in the Northeast also added to this.

CO2: The segment's earnings before DD&A and certain items were $366 million, up 7.6% year over year on the back of increased yield at the SACROC as well as higher CO2 sales and transport volumes. Increased output at the Katz field and Goldsmith Unit along with higher oil and natural gas liquids (NGL) prices also aided earnings growth.

Terminals: The business segment earned $228 million before DD&A and certain items in the first quarter, up 21.9% year over year. The segment benefited from the incremental earnings from various expansions coming online including the Edmonton Terminal, BP Whiting, BOSTCO, International Marine Terminal and additional liquids tankage at Galena Park. Moreover, robust performance by its liquids terminals in the Gulf, improved petcoke results and its recent acquisition of APT contributed to the growth.

Kinder Morgan Canada: The segment reported earnings of $48 million before DD&A and certain items, down 7.7% 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.

Financials

As of Mar 31, 2014, Kinder Morgan had cash and cash equivalents of $347 million and long-term debt of $19,610 million. Debt-to-capitalization ratio was 52.7% (versus 57.9% in the last quarter).

Rank

Kinder Morgan currently has a Zacks Rank #3 (short-term Hold rating). However, the Zacks Ranked #1 Range Resources Corporation (RRC) and Helmerich & Payne, Inc. (HP) are expected to outperform the market over the next few months.

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