Kinder Morgan (KMI -0.11%) might not be the most exciting company around. However, the energy-infrastructure company offers stability. That was the case again in the fourth quarter as it delivered relatively steady results, enabling it to finish the year right on target with its original budget after subtracting the one-time earnings boost it got from winter storms in February.
Here's a closer look at the quarter and what's ahead for the energy company.
Image source: Getty Images.
Another quarter of steady results
|
Metric |
Q4 2021 |
Q4 2020 |
Year-Over-Year Change |
|---|---|---|---|
|
Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) |
$1.804 billion |
$1.837 billion |
-1.8% |
|
Distributable cash flow (DCF) |
$1.093 billion |
$1.250 billion |
-12.6% |
|
DCF per share |
$0.48 |
$0.55 |
-12.7% |
Data source: Kinder Morgan.
Kinder Morgan's adjusted EBITDA dipped slightly during the quarter, while DCF slumped nearly 13%. The main issue was higher expenses. General and administrative and corporate charges jumped more than 25%, weighing on adjusted EBITDA, while sustaining capital expenses surged nearly 70%, cutting into DCF.
Those higher expenses masked the overall stability of its four business segments where earnings rose 1% year over year:
Data source: Kinder Morgan. Chart by author.
Natural-gas pipeline earnings increased 2%, compared to last-year's fourth quarter. The main drivers were higher contributions from a full year of service of the Permian Highway Pipeline, the acquisition of Stagecoach Gas Services, and increased volumes and favorable pricing on some of its gas-gathering systems. These factors helped offset lower contributions from several other pipeline systems.
Earnings from product pipelines jumped 9% year over year, driven by higher refined-products volumes. An improving economy and fewer pandemic-related restrictions fueled a 48% improvement in jet-fuel volumes and 7% higher gas volumes. These growth drivers more than offset declines in crude oil and diesel volumes.
Earnings from terminals declined by 5%, mainly due to weaker charter rates for its tanker ships. That issue more than offset higher coal export volumes and improved refined-products exports.
Finally, Kinder Morgan's carbon-dioxide segment reported a 5% decrease in earnings. Lower carbon-dioxide sales, crude volumes, and crude prices weighed on the segment, more than offsetting higher carbon dioxide and natural-gas liquids pricing.
A look at what's ahead for Kinder Morgan
Kinder Morgan's solid showing in the fourth quarter pushed its full-year adjusted EBITDA to nearly $8 billion, up 14% from 2020, while DCF surged 19% to almost $5.5 billion. However, that outsized growth is due mainly to the big boost from winter storms in Texas last February, which isn't likely to reoccur.
Because of that, Kinder Morgan sees its earnings and cash flow declining in 2022. It expects to generate $7.2 billion of adjusted EBITDA and $4.7 billion of DCF. It's worth noting that this forecast implies 5% adjusted EBITDA growth and 9% higher DCF after adjusting for last-year's winter-storm boost.
Kinder Morgan's forecast has it on track to generate enough cash flow to cover its 6%-yielding dividend -- which it intends to increase by 3% this year -- and its entire $1.3 billion expansion program, with about $870 million to spare. The company said it could use up to $750 million of that money on attractive opportunities, including repurchasing its shares. Its success in deploying that capital could further boost DCF per share this year.
It's looking for new opportunities to put capital to work in its legacy energy-infrastructure businesses and emerging ones in the low-carbon energy transition. Kinder Morgan has started allocating more investment to the growing low-carbon sector over the past year. It purchased renewable natural-gas producer Kintrex Energy last year and is developing several logistics hubs for alternative fuels. The company expects to finish its initial slate of projects over the coming year, providing new sources of earnings growth.
A solid end to a strong year
Kinder Morgan continues to be a pillar of stability. That's enabling it to generate lots of steady cash flow to pay an attractive dividend while investing in expanding its platform. Like the rest of the energy sector, it's in the early stages of pivoting toward lower-carbon energy sources, which could provide years of growth opportunities for the company. That should enable Kinder Morgan to continue delivering predictable results and dividend income to investors for years to come.
