Kinder Morgan (NYSE:KMI) delivered somewhat mixed second-quarter results. While its core natural gas pipeline business generated strong growth, it ran up against headwinds in each of its other segments during the second quarter. Those factors caused its overall results to come in slightly below expectations. However, the company remains on track to achieve its full-year cash flow forecast.

Kinder Morgan results: The raw numbers


Q2 2019

Q2 2018


Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA)

$1.852 billion

$1.894 billion


Distributable cash flow (DCF)

$1.128 billion

$1.117 billion


DCF per share




Data source: Kinder Morgan.

While DCF increased, it came in just under the company's budget of $1.15 billion, or $0.51 per share. Meanwhile, EBITDA slipped due to weakness in all but the natural gas segment:

Kinder Morgan's earnings by segment in the first quarter of 2018 and 2019.

Data source: Kinder Morgan. Chart by author.

What happened with Kinder Morgan this quarter?

Healthy growth at the company's natural gas pipelines business couldn't offset weakness elsewhere.

  • The natural gas pipeline segment continued to shine in the second quarter as earnings rose 7% compared to the year-ago period. Natural gas transportation volumes surged 10% year over year, thanks to a combination of volume growth on its legacy assets, as well as newly finished expansion projects.
  • Carbon dioxide segment earnings slumped 17% due to lower oil and natural gas liquids (NGLs) prices, as well as a 2% decline in oil production. The company partially offset those issues with a 12% increase in carbon dioxide production and a 3% rise in NGL output.
  • Earnings in the products pipeline segment fell 4% due to lower rates on the KMCC system and higher operating costs from SFPP. Those issues more than offset a 2% increase in crude and condensate volumes.
  • Terminals segment earnings declined 6% because of several issues. Contributions from bulk terminals were down due to lower volumes on several key commodities. Meanwhile, tanker volumes declined due to historically high water levels on the Mississippi River. On top of that, storage costs in Edmonton rose as a result of selling the Trans Mountain Pipeline in Canada.
  • The sale of that pipeline resulted in the company eliminating its Canada segment.
Several pipelines extending into the distance at dusk.

Image source: Getty Images.

What management had to say

Kinder Morgan's president, Kim Dang, commented on the quarter by saying:

Led by the natural gas pipelines segment, our commercial, financial, and operating performance in the second quarter was very strong. We generated second-quarter earnings per common share of $0.23, compared to an $0.08 loss per common share in the second quarter of 2018. At $0.50 per common share, DCF per share was flat to the second quarter of 2018, with $559 million of excess DCF above our declared dividend.

Overall, Kinder Morgan generated solid second-quarter results, which were roughly in line with the year-ago period and only slightly below its budget. The company produced significant free cash flow during the quarter. That enabled the pipeline giant to cover its dividend -- which it boosted 25% last quarter -- with more than half a billion dollars to spare. Because of that, the company was able to maintain its "discipline by continuing to fund growth capital through operating cash flows without accessing capital markets," according to CEO Steve Kean.

One of the unexpectedly weak spots, according to Dang, was "contributions from the terminals segment's bulk business [which] were down compared to the second quarter of 2018, on lower volumes across several key commodities, including petroleum coke, steel, and coal." Another noteworthy issue on the quarter was that Kinder Morgan's Elba Liquefaction project is behind schedule. The company had expected to start up the first liquefied natural gas (LNG) train in May. However, it's in the advanced stages of the commissioning and start-up process.

Looking forward

Kinder Morgan initially expected to generate $7.8 billion in EBITDA this year. However, the Elba delay, when combined with lower NGL prices, weakness in the terminals business, and other issues, has it on track to finish slightly below budget. On a more positive note, the company does expect DCF to be on budget at $5 billion, or $2.20 per share, thanks to lower interest rates.

The company also said that it would likely invest slightly less than the $3.1 billion it budgeted for capital projects. That's entirely due to lower spending in its carbon dioxide segment. However, the company also noted that it added $400 million of new projects to its backlog, bringing its year-to-date total to $1 billion. That's a bit below the pace of its expectation that it will secure $2.5 billion to $3 billion of new projects each year.

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