Kinder Morgan's (NYSE:KMI) first-quarter results came in about as expected. The pipeline giant hauled in $1.37 billion, or $0.60 per share, of distributable cash flow (DCF). That was up about 10% year over year (7% on a per-share basis) and slightly ahead of its budget of $1.35 billion, or $0.59 per share. The solid start to 2019 has the company on pace to hit its full-year budget for cash flow. It also allowed Kinder Morgan to fulfill its promise to boost the dividend by 25%.

Kinder Morgan results: The raw numbers

Chart showing Kinder Morgan earnings by segment in the first quarter of 2019 and 2018.

Data source: Kinder Morgan. Chart by author.

What happened with Kinder Morgan this quarter? 

Natural gas pipelines fueled growth this quarter.

  • The natural gas pipeline segment did all the heavy lifting during the first quarter. Earnings in the company's largest business surged 12% versus the year-ago period. That's due in large part to a 14% increase in volumes transported thanks to a combination of expansion projects placed into service and production growth by its customers.
  • Earnings in the carbon dioxide segment slumped 20% as a result of lower crude oil and natural gas liquids (NGLs) prices, as well as slightly lower oil production volumes.
  • Product pipeline earnings fell 1%. While the company experienced strong performances on several systems, reduced contributions from Kinder Morgan Crude and Condensate more than offset those positives due to lower rates compared to the prior-year period.
  • Earnings in the terminals segment, on the other hand, rose 1% on strength at the company's hubs in Houston and Edmonton. Profits would have been even higher if it weren't for increased tank lease costs in Edmonton stemming in part from the sale of the Trans Mountain Pipeline in Canada.
  • That sale caused earnings in the company's Canada segment to fall to zero during the quarter.
A pipeline in a grassy field heading towards the mountains.

Image source: Getty Images.

What management had to say 

Kinder Morgan's President, Kim Dang, commented on the quarter:

The first quarter of 2019 showed that we continue to benefit from strategically located, fee-based assets that generate predictable cash flows from a network that provides our customers with unmatched flexibility. Our commercial and operating performance continues to be very good, and we generated first quarter earnings per common share of $0.24, compared to $0.22 per common share in the first quarter of 2018, and DCF of $0.60 per common share, representing 7% growth over the first quarter of 2018. This resulted in more than $800 million of excess DCF above our declared dividend.

Fee-based contracts and commodity price hedges lock in the bulk of Kinder Morgan's cash flow in any given year. That enables the company to generate very predictable cash flows, which was the case during the first quarter.

Kinder Morgan primarily uses this money to invest in growth projects and reward investors. It did both during the first quarter, as it boosted its dividend 25% while spending most of the remaining cash on expanding its energy infrastructure asset base. On the growth front, CEO Steve Kean stated that "we continued to make progress on two projects critical to the development of resources in the Permian Basin: the Gulf Coast Express and Permian Highway Pipeline projects, as well as our Elba Liquefaction facility." Overall, the company completed $200 million of expansions during the quarter and added $600 million worth of new ones to the backlog, bringing it up to $6.1 billion. That sets Kinder Morgan up to continue growing cash flow at a healthy rate over the next few years.

Looking forward 

Kinder Morgan's solid start to the year has it on track to achieve its full-year cash flow forecast of about $5 billion, or $2.20 per share. However, the company does see its adjusted EBITDA coming in at $7.8 billion, which is slightly below budget. As a result, its debt-to-EBITDA ratio will be a little higher than anticipated at 4.6, though that's consistent with its long-term target of 4.5.

The company had initially anticipated announcing a decision on its Canadian subsidiary Kinder Morgan Canada. However, it's taking more time than expected to analyze all the potential alternatives. As a result, Kinder Morgan hopes to complete its review and announce the outcome in the coming weeks.