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Kinder Morgan's Earnings Were Right on Target

By Matthew DiLallo - Jan 23, 2020 at 8:34AM

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The natural gas pipeline giant finished the fourth-quarter and full year as it expected despite the several headwinds.

Kinder Morgan (KMI -2.25%) finished 2019 on a solid note as its fourth-quarter results came in slightly above its forecast. The company's full-year numbers were roughly on target with its initial 2019 budget even though it sold assets, project delays were a problem, and energy prices bounced around quite a bit. 

Drilling down into that numbers


Q4 2019

Q4 2018

Year-Over-Year Change

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

$2.02 billion

$1.96 billion


Distributable cash flow (DCF)

$1.35 billion

$1.27 billion


DCF per share




Data source: Kinder Morgan.

Kinder Morgan's earnings and cash flow all rose by around a mid-single-digit rate from the year-ago period. Overall, the energy company's results came in a bit higher than the company anticipated last quarter. That "improvement from our third-quarter forecast," noted CEO Steve Kean, enabled the company's DCF to end "the year essentially on plan at less than one-half of one percent below plan." Overall, DCF rose 6% for the year to nearly $5 billion, or $2.19 per share.

Fueling Kinder Morgan's better-than-expected results was a strong showing in its natural gas pipelines and product pipeline segments:

Kinder Morgan's fourth quarter results by segment in 2019 and 2018.

Data source: Kinder Morgan. Chart by the author.

Earnings in Kinder Morgan's natural gas pipeline segment surged 11% year over year, driven in part by a 14% increase in transportation volumes. Not only did more gas flow through many of the company's legacy systems, but it also benefited from the recent start-up of the Gulf Coast Express pipeline and an expansion of its Sabine Pass system. Those strong volumes helped offset delays in bringing its Elba liquified natural gas (LNG) export project online.

Product pipeline earnings, meanwhile, rose 8% year over year. While volumes were flat for both crude oil and refined products, profitability improved thanks to stronger contributions from its Bakken crude system as well as some of its other refined products operations.

The strength of those two segments offset weaker results in terminals and carbon dioxide. Earnings in the terminals segment slipped 5% because of the December sale of Kinder Morgan Canada and weakness in its coal export business. Carbon dioxide earnings, meanwhile, declined 14% year over year, driven by weaker oil and natural gas liquids prices as well as lower oil volumes.

Pipelines at twilight.

Image source: Getty Images.

A look at what's ahead for Kinder Morgan

Kinder Morgan reaffirmed its 2020 outlook, which it released last month. That forecast would see the company's DCF rise to $5.1 billion, or $2.24 per share, a little more than 2% higher than last year's total. That meager increase is due to the impact of the sale of Kinder Morgan Canada and the U.S. portion of the Cochin Pipeline to Pembina Pipeline

Despite that sluggish growth, the company still expects to increase its dividend by 25%. Even with that big boost, the payout will only consume about 55% of its DCF. That will leave the company with most of the money it needs to finance its $2.4 billion expansion program. Meanwhile, even after borrowing an estimated $150 million to bridge the gap between cash flow and its outlays for the dividend and capital expenses, Kinder Morgan's leverage ratio should end the year at 4.3 times debt-to-EBITDA, well below its 4.5 target. The company estimates it will have about $1.2 billion of financial flexibility this year, which it could use to repurchase shares or finance additional expansion projects.

The company, however, has struggled to secure new projects. Its backlog declined by another $500 million during the fourth quarter as it brought additional expansions online to $3.6 billion. For the year, the company secured only $1.2 billion of new projects, well below its target of locking up $2 billion to $3 billion per year. That means the company could grow at a much slower rate than its peers in the coming years. 

A solid finish to 2019, but growth uncertainties remain

Kinder Morgan ended well in 2019 as its fourth-quarter results were a bit better than expected, enabling the company to come within a half a percentage of its full-year forecast. That's quite an accomplishment, given the swirling headwinds of commodity price volatility, project delays, and asset sales.

One concern, however, with the quarter was that Kinder Morgan didn't lock up any more expansion projects, causing it to fall well short of its target. It's unclear how fast the company will be able to grow in the coming years, which could begin weighing on the stock.

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