Zacks Rank Stocks
Zacks Rank Stocks
KMP Rises, Surpasses Zacks Earnings Estimate
A leading pipeline transporter, Kinder Morgan Energy Partners L.P. (KMP – Analyst Report), reported its second-quarter 2010 earnings of 88 cents per limited partner unit, substantially beating the Zacks Consensus Estimate of 40 cents as well as the year-earlier quarter of 33 cents. Limited Partners’ interest in net income rose to $268.7 million from $91.0 million in the year-ago quarter. The partnership’s rise in profit is mainly attributable to higher revenues as well as earnings in equity investments.
Revenue in the quarter also rose to $1,961.5 million from $1,645.3 million in the year-ago quarter.
Moreover, Kinder Morgan raised its quarterly cash distribution per common unit to $1.09 ($4.36 annualized), representing 4% year-over-year growth from second-quarter 2009 cash distribution per unit of $1.05 ($4.20 annualized).
Kinder Morgan’s distributable cash flow in the quarter before one-time items was $322.3 million, up 18% year over year. Distributable cash flow per unit before certain items was $1.06, up 7% year over year. The partnership maintained its prior estimate for 2010 cash distributions at $4.40 per unit, a 4.8% increase over the 2009 level.
Segmental Highlights
The partnership generated $810.6 million in total segment earnings before depreciation, depletion, amortization (DD&A) and certain items, up 14% from $710.6 million in year-ago period.
Products Pipelines business had a 15% year-over-year expansion in its earnings before DD&A and certain items that totaled $181.1 million in earnings, driven by its stable financial performance at the Pacific pipeline and terminal operations, accompanied by the growth in ethanol demand. The company also remains confident of meeting or surpassing its annual growth target of 10%.
In the second quarter, ethanol volumes in the products segment increased by 38% year over year to 7.6 million barrels.
Earnings before DD&A and certain items from Natural Gas Pipelines business also rose by 12% year over year to $185.1 million in the reported quarter, attributable to contributions from the Midcontinent Express (MEP) and Kinder Morgan Louisiana pipelines, the treating assets that Kinder Morgan purchased from Crosstex in October 2009, and the KinderHawk joint venture (JV). Including the impact of the recent Petrohawk transaction, this segment is expected to exceed its annual budget.
Overall segment transport volumes increased 17% compared with the year-ago quarter, mainly due to MEP coming online.
The CO2 business’ second-quarter earnings before DD&A and certain items were $241.5 million, up 19% year over year. The growth was increased by higher oil and natural gas liquid (NGL) prices on unhedged volumes, a 5% increase in NGL sales volumes and a slight increase in CO2 delivery volumes.
Kinder also expects its segment earnings before DD&A to fall slightly short of its previous annual target of 26% growth.
Terminals business produced second-quarter earnings of $159.0 million before DD&A and certain items, up 12% year over year. Bulk transload tonnage increased 27% year over year to 25.2 million tons, driven mainly by increased steel volumes. The earnings before DD&A are also expected to meet or be slightly below the annual target of 14% growth.
Kinder Morgan Canada reported second-quarter earnings of $43.9 million before DD&A and certain items compared with $43.0 million in the year-ago quarter. Segment growth reflects increased throughput on the Trans Mountain pipeline system driven by effective ship traffic at Port Metro Vancouver and the positive impact of the strengthening Canadian dollar.
Petrohawk Energy Acquisition
During the quarter, Kinder Morgan completed the purchase of a 50% interest in Petrohawk Energy Corporation’s (HK) natural gas gathering and treating business in the Haynesville Shale play in Louisiana for approximately $921 million. The operations of the JV will be managed by a newly formed company, KinderHawk Field Services LLC, owned equally by Petrohawk and Kinder Morgan.
Kinder Morgan also entered into a major contract with a producer in the Eagle Ford Shale in Texas with its joint venture partner Copano Energy, mainly to increase earnings.
Outlook
Kinder Morgan is one of the largest publicly traded master limited partnerships (MLPs) and generally serves as a benchmark for the pipeline MLP group. A focus on fee-based and diversified businesses has enabled the partnership to spread out its business risks and provided it with a secure and steadily growing earnings profile as reflected in the reported quarter. The 4.8% cash distribution growth in 2010 largely reflects its successful completion of organic growth projects.
However, a major revenue generator for the partnership is the carbon dioxide (CO2) business, which is more delicate to the economics of oil production than most of the partnership’s other fee-based energy infrastructure assets. Moreover, investment in pipelines includes a number of risks, including fires, explosions and environmental issues. Hence, we currently maintain our Zacks #3 Rank (Hold) for Kinder.
Zacks Rank Momentum Buys (LPHI, HURN) – Jan. 8, 2009
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