Kinder Morgan Inc (NYSE:KMI) is expected to report its first-quarter results on Wednesday. What investors should keep in mind is that the energy infrastructure giant's results are largely locked in thanks to the fact that 94% of its revenue is secured via fee-based contracts or commodity price hedges. Suffice it to say, its results shouldn't hold too many surprises. That said, there are three things investors would like to hear the company say when it reports results this week.
First, let's review
Before we get to that, let's quickly review last quarter, where Kinder Morgan turned in perfectly adequate results. While its revenue and earnings were a bit lighter than analysts were expecting, the company produced gobs of cash flow, easily covering its dividend. That cash flow was fueled by the strong results of the company's Natural Gas Pipelines, Products Pipelines, and Terminals segments, as we see on the chart below.
The other thing we notice on that chart is that last quarter, the company dealt with some weakness at the company's Carbon Dioxide and Canada segments, which were affected by weak oil prices and a weak currency, respectively.
Looking ahead, we can expect to see much of the same during the first quarter. Weak oil prices and a strong U.S. dollar are again expected to impact the Carbon Dioxide and Canada segments this quarter. Meanwhile, the company is expecting its Natural Gas Pipeline segment to be solid again, with Product Pipelines and Terminals providing the bulk of the growth in 2015.
No. 1: "We're boosting the divided"
Given the expectations of another solid quarter, there's an expectation that Kinder Morgan will boost its dividend again in the first quarter. The company has already said it intends to pay $2 per share in dividends in 2015, which means its payout needs to head higher, as the first payment of the year was just $0.45 per share. That suggests the company will need to pay out $1.55 before the year is over, leaving the odds pretty good that it will boost the next dividend by a penny or two when it is announced along with first-quarter results.
No. 2: "We grew our backlog"
Kinder Morgan's backlog took a step backwards last quarter. After completing $730 million in projects in the quarter, the company wasn't able to fully replenish its backlog -- it fell to $17.6 billion. That's because even after adding $1.24 million in new projects, the company was forced to pull out $785 million in projects that were in the backlog because of the impact of weak oil prices on its Carbon Dioxide business. Investors would much rather see the backlog increase, as opposed to the $275 million net reduction we saw last quarter.
There are a few things investors should watch, here. It's possible the continued weakness in oil prices will result in up to $1 billion of additional projects being removed from the backlog, as Kinder Morgan is reevaluating the timing of the development of the St. John carbon dioxide field in Arizona as well as the associated construction of the Lobos pipeline and the expansion of the southern portion of the Cortez Pipeline. That said, the company may choose to keep those projects in the pipeline for now in anticipation of higher future oil prices.
Moreover, we'd like to hear the company say that it added a number of new projects, and we want to see these additions far outweigh any subtractions from projects coming online or coming out of the backlog.
No. 3: "We see positive signs ahead"
The last thing we want Kinder Morgan to say is that it sees positive signs in the energy market. For example, last quarter, COO Steve Kean noted on the conference call that the company was seeing signs in its Product Pipelines segment that demand for gasoline was picking up, which suggests demand for oil would rise as well.
Ideally, we'd like to see the company talk about more green shoots on the demand side for energy, as well as its customers demanding new energy infrastructure be built. Because Kinder Morgan handles and stores such much natural gas, oil, and petroleum products, it really has its finger on the pulse of the industry and can give investors a heads-up that things are looking up.
Kinder Morgan's quarterly results are typically pretty stable, as 94% of its revenue is locked in. That being said, there are a few things investors should listen for when it reports, as we still want to see tangible growth in both the dividend and backlog. Further, given the vast volume of energy commodities it handles, we want to see if the company can tell us it is seeing signs of the energy market turning up.
Matt DiLallo has the following options: short January 2016 $32.5 puts on Kinder Morgan and long January 2016 $32.5 calls on Kinder Morgan. The Motley Fool recommends Kinder Morgan. The Motley Fool owns shares of Kinder Morgan. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.