A Closer Look at Kinder Morgan Inc's First Quarter

Source: Kinder Morgan.

The Kinder Morgan (NYSE: KMI  ) family of companies reported strong first-quarter results after the market closed on Wednesday. Really strong results by Kinder Morgan Energy Partners (NYSE: KMP  ) along with solid results by El Paso Pipeline Partners (NYSE: EPB  ) helped push Kinder Morgan's cash available to pay dividends up by 12% over last year's first quarter. Let's take a closer look at what drove these strong results.

A closer look at Kinder Morgan Energy Partners
Most of the heavy lifting in the quarter was done by Kinder Morgan Energy Partners. The MLP reported first-quarter net income before certain items of $788 million, which was up from the $655 million the company reported in the first quarter of 2013. That translated into bottom-line earnings growth as Kinder Morgan Partners reported distributable cash flow of $693 million, which is up 26% from the $550 million the company reported in the first quarter of last year. This equated to distributable cash flow per unit of $1.55, which is up from $1.46 per unit. This strong distributable cash flow enabled Kinder Morgan Energy Partners to raise its first-quarter distribution by 6% to $1.36 per unit.

As the following chart notes, this growth was mainly driven by the strength in the natural gas pipeline segment as well as the terminals segment.

Source: Kinder Morgan Energy Partners press release. Note: Segment earnings in millions. 

Natural gas pipeline earnings were up 46% and fueled by acquisitions as well as strong organic growth. Over the past year, Kinder Morgan Energy Partners acquired Copano as well as the remaining 50% of El Paso Natural gas and 50% of El Paso midstream, both of which were drop-down transactions with Kinder Morgan. In addition to acquisition-fueled growth, the natural gas pipeline segment saw strong performance by the Tennessee Gas Pipeline, an increase in its natural gas exports to Mexico and strong Texas intrastate deliveries.

The other big driver on the quarter was the terminals segment. About 70% of the growth in segment earnings was attributable to organic growth, with the other 30% of growth coming from the recent acquisition of American Petroleum Tankers. The organic growth came from various expansions that came online in the quarter, including the Edmonton Terminal, BP Whiting, BOSTCO, International Marine Terminal, and Galena Park. These expansions, when combined with strong performance throughout the segment, led to a 22% jump in segment earnings.


Source: Ray Bodden on Flickr.

A closer look at El Paso Pipeline Partners
While Kinder Morgan Energy Partners does most of the heavy lifting each quarter, investors can't overlook the solid contributions of El Paso Pipeline Partners. The partnership reported earnings of $319 million, which was slightly above last year's first quarter. This enabled El Paso Pipeline Partners to increase its distribution by 5% over the first quarter of last year, though it is stable from last quarter.

Looking ahead, El Paso Pipeline Partners should continue to produce stable results. The plan is to complete three drop-down transactions with Kinder Morgan this year, which will help to offset earnings declines elsewhere. Meanwhile, El Paso has about $1.5 billion in expansion projects under contract that should begin delivering earnings growth beginning in 2016. Because of this, El Paso should continue to contribute solid results for Kinder Morgan.

Investor takeaway
The Kinder Morgan family of companies is off to a strong start in 2014. The company remains on track to meet or exceed its published guidance, which should yield continued growth in dividends and distributions. 

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Matt DiLallo

Matthew is a Senior Energy and Materials Specialist with The Motley Fool. He graduated from the Liberty University with a degree in Biblical Studies and a Masters of Business Administration. You can follow him on Twitter for the latest news and analysis of the energy and materials industries:

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8/28/2015 11:16 AM
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