Kinder Morgan Inc.
) reported third quarter 2012 earnings of 19 cents a share from
continuing operations, failing to meet the Zacks Consensus
Estimate of 30 cents a share. However, the quarterly earnings
edged past the year-earlier profit level of 18 cents, on the back
of its acquisition of El Paso Corp in May.
Total revenue in the quarter increased 35.2% year over year to
$2,870.0 million. The reported figure failed to reach our
expectation of $2,915.0 million.
Kinder Morgan boosted its quarterly dividend to 36 cents a share
($1.44 per share annualized), up 20% from a payout of 30 cents
($1.20 per share annualized) in the third quarter of 2011.
Management set a dividend target of $1.40 a share for the current
year, which is up from the earlier budget of $1.35 per share.
Kinder Morgan expects its dividend per share to increase at an
average annual rate of around 12.5% through 2015 from the 2011
dividend of $1.16 per share, following the recently closed
acquisition agreement with El Paso.
The company's growth curve will be driven by its ownership of the
general partners of both
Kinder Morgan Energy Partners, L.P.
El Paso Pipeline Partners, L.P.
). Cash distributions per unit for both Kinder Morgan and El Paso
general partners surged 9% and 18%, respectively, on an
Total expenses stood at $2,018.0 million, representing a 15.9%
increase from $1,741.0 million registered in the third quarter of
Operating income came in at $852.0 million in the quarter,
representing a substantial 123.6% rise over the same quarter a
year ago. Operating margin was 29.7% in the third quarter
compared with 18.0% in the year-ago quarter.
Cash available for dividend payments was $362.0 million in the
third quarter of 2012, an increase of 93% from $188.0 million in
the comparable period last year. The company now expects to
generate cash of more than $1,325 million for 2012 for dividend
payments, ahead of the company's published annual budget, mainly
due to the El Paso Corporation acquisition.
We believe Kinder Morgan will be able to seize attractive
investment opportunities in the near term, particularly in the
Eagle Ford and Haynesville shale plays. The completion of the El
Paso acquisition has enabled Kinder Morgan to leverage the
extensive natural gas pipeline network and has given it access to
major markets. Gradual dropdown of El Paso's asset to its
partnerships will further add value.
Again, higher exploration and production volumes along with
continuous advancement on the Transmountain oil pipeline growth,
terminal volume growth and upcoming new projects further enhance
However, Kinder Morgan's El Paso acquisition, while enabling it
to shift toward natural gas, has also raised concern amid a
sluggish natural gas price environment. Again, the company
incurred debt to fund the cash portion of the El Paso
acquisition, thus keeping leverage metrics high. Though Kinder
Morgan is expected to de-lever over time, we believe it may
perhaps take several years to reach investment-grade credit
For the longer term, we maintain our Neutral recommendation.
EL PASO PIPELIN (EPB): Free Stock Analysis
KINDER MORGAN (KMI): Free Stock Analysis
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