After the market closed yesterday, Kinder Morgan Energy Partners (NYSE:KMP) reported EPS of $0.48 on revenue of $3.23 billion for the third quarter. This is a gain of more than 50% in earnings but analysts had estimated EPS of $0.59 on revenue of $3.41 billion. A clear miss. What is interesting is that the dividend is heading north.
However, distributable cash flow, Kinder Morgan’s preferred measurementof its performance, increased by 23% to $281.9 million, or $1.09/commonunit (up 14%), over the same period a year ago. Cash distributionsincreased to $1.02/common unit, up 16% over the third quarter of 2007.Results included a $15.2 million loss on certain items includingwrite-offs related to Hurricanes Gustav and Ike and three fires atKinder Morgan terminals. Business losses totaled $21.5 million werenot included in these items.
The company’s CO2 business increased earnings by 47%, due mostly to a2% increase in crude oil production from the Permian Basin and higherrealized prices for crude oil and natural gas liquids. The terminalsbusiness was up 21% to $132.4 million, primarily attributable to highercoal volumes.
As you might expect, the refined products pipelines business was off,down 9% from a year ago. The company attributed the decrease to thesale of a pipeline system and to decreased demand. Kinder Morgandoesn’t expect to meet its 5% growth projection for this segment in2008. The natural gas pipelines segment was up 25%, with transportationvolumes up 27% from a year ago. Most of that increase is due to thewestern portion of the Rockies Express pipeline becoming fullyoperational in May of this year.
Kinder Morgan stuck by its previous guidance of at least $4.02/commonunit in cash distributions for 2008. Kinder Morgan Management(NYSE:KMR) is expected to earn the same amount. The company did notecontinuing cost escalation on major projects "due to construction andmaterial costs, additional regulatory requirements, and weather delays."
Kinder Morgan has increased its cash distribution to common unitholders on numerous occasions. The pattern is unlikely tochange because distributable cash flow is what drives the company’smanagement. The company’s unit price closed down more than $2yesterday. But if there are other well run companies out therecurrently paying an 8.2% yield they are pretty hard to find.
Paul Ausick
October 16, 2008
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