Kinder Morgan Energy Partners L.P.'
s (
KMP
) fourth quarter 2012 earnings from continuing operations of 75
cents per limited partner unit (excluding certain items) beat the
Zacks Consensus Estimate of 67 cents. The quarterly results were
also 36.4% higher than the year-ago quarter's earnings of 35
cents per share. The outperformance was mainly attributable to
higher volumes in its interstate pipeline network.
The full-year 2012 earnings of $2.31 per unit also exceeded our
expectation of $2.23, and improved from the year-ago earnings of
$1.72 a unit.
Revenue increased 30.5% to $2,510.0 million in the quarter from
$1,923.0 million in the year-ago quarter and beat the Zacks
Consensus Estimate of $2,427.0 million.
The partnership's cash distribution per common unit was raised to
$1.29 ($5.16 annualized), representing an 11.2% year-over-year
growth. The distribution is payable on February 14, 2013.
The partnership has now increased the quarterly distribution 46
times since the current management team took over in February
1997.
Kinder Morgan's payout hike was fueled by incremental
contribution from the dropdown of 100% of Tennessee Gas Pipeline
(TGP) and 50% of El Paso Natural Gas (EPNG), growth opportunities
in the coal export business as well as robust oil yield.
The partnership's distributable cash flow - a measure of its
ability to make unitholders' payments - before considering
certain items was $495 million versus $425 million in the
year-ago period. Additionally, distributable cash flow per unit,
excluding certain items, was $1.35, up 6.3% year over year.
Fourth Quarter Segmental Highlights
Products Pipelines:
The business segment's earnings before DD&A and certain items
climbed 9.3% year over year to $176 million. The higher revenues
from the Cochin Pipeline and Southeast Terminals led to increased
earnings. This was accompanied by long contributions from the
Kinder Morgan Crude and Condensate Pipeline. Total refined
products volume was down 1.2% from the prior-year period.
Natural Gas Pipelines:
Earnings before DD&A and certain items from the business shot
up 63.4% year over year to $474 million. The performance was
aided by the dropdown of TGP and EPNG as well as higher
contributions from the June 2012 acquisition of 50% of some
midstream properties. Further, Kinder Morgan Treating and the
Fayetteville Express Pipeline, along with the Texas intrastates
and Eagle Ford assets also contributed to the results.
Overall, transport volumes moved up 6% from the year-ago quarter,
mainly attributable to robust volumes on the Fayetteville Express
Pipeline system and strong transport volumes on the Texas
intrastate pipeline system. Again, higher throughput for natural
gas fired power generation on TGP also added to this.
CO2:
The segment's earnings before DD&A and certain items were
$337 million, up 19.9% year over year on the back of increased
yield at the SACROC as well as record natural gas liquids (NGL)
output.
Terminals:
The business segment earned $198 million before DD&A and
certain items in the fourth quarter, up 7.6% year over year. The
quarter benefited from its liquids terminals on the Houston Ship
Channel and in New York Harbor, increased demand for export coal
and increased steel tonnage at Fairless Hills.
Kinder Morgan Canada:
The segment reported earnings of $71 million before DD&A and
certain items, up 39.2% year over year, reflecting superior
performance of the Express-Platte Pipeline and favorable book
taxes.
Financials
As of December 31, 2012, Kinder Morgan had cash and cash
equivalents of $518 million and long-term debt of $14,714
million. Debt-to-capitalization ratio stood at 56.0% (versus
57.9% in the last quarter).
Our Take
Kinder Morgan is one of the largest publicly traded master
limited partnerships (MLP) and generally serves as a benchmark
for the pipeline MLP group. A focus on fee-based and diversified
businesses has enabled the partnership to dilute its business
risks.
The dropdown of assets, like stakes of TGP as well as EPNG from
its parent company
Kinder Morgan Inc.
(
KMI
), contributed favorably to the quarter's results. This move was
a part of Kinder Morgan Inc.'s acquisition of El Paso Corp. that
entails the divestiture of three U.S. natural gas pipelines.
Kinder Morgan currently expects to invest approximately $11
billion in expansion and joint venture related operations. For
2013, the partnership intends to spend nearly $3 billion in
expansion and acquisitions and is reaping benefits from the
recent boom in oil and gas exploration in the North American
shale formations as most of these basins have very few or no
transportation infrastructure.
However, Kinder Morgan remains vulnerable to volatile crude oil
and natural gas prices, an imbalance between supply and demand
for its products and rising interest rates. Such factors can hurt
the partnership's volumes and margins. Again, its distribution
growth prospects are closely linked to the successful completion
of organic growth projects, which in turn might be adversely
affected by operational hindrance, cost inflation and overruns
and delays in completion.
Kinder Morgan currently retains a Zacks Rank #3 (short-term Hold
rating). Longer term, we maintain a Neutral recommendation on the
stock.
KINDER MORGAN (KMI): Free Stock Analysis
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