Kinder Morgan Energy Partners L.P. (KMP) reported adjusted first quarter 2011 earnings of 45 cents per limited partner unit, at par with the adjusted year-earlier quarter’s result. However, the result failed to meet the Zacks Consensus Estimate of 47 cents.
Revenue in the quarter decreased to $1,992.8 million from $2,129.6 million in the year-ago quarter. The top line also fell shy of the Zacks Consensus Estimate of $2,197 million.
Kinder Morgan increased its quarterly cash distribution per common unit to $1.14 ($4.56 annualized), representing a 7% year-over-year growth. The partnership has increased the distribution 40 times since its current management took over in February 1997.
Kinder Morgan’s distributable cash flow before certain items was $382.2 million versus $353.7 million in the comparable quarter last year. Additionally, distributable cash flow per unit before certain items stood at $1.21, up 2.5% year over year.
Segmental Highlights
Products Pipelines: The business segment experienced a 10% year-over-year increase in its earnings before DD&A and certain items to reach $180.3 million, driven by solid contributions from the Pacific and Cochin pipeline operations. Total refined products volume generated were 158.1 million barrels, up 4% from the prior-year period.
Natural Gas Pipelines: Earnings before DD&A and certain items from the business increased 2% year over year to $222.6 million. The segment performance was aided by the KinderHawk joint venture in the Haynesville Shale along with robust activities in Midcontinent Express Pipeline, Casper-Douglas processing assets and the Texas intrastate pipeline system. This was partially mitigated by lower volumes and poor performance at Kinder Morgan Interstate Gas Transmission and Rockies Express.
Overall, transport volumes moved up 10% from the year-ago quarter, mainly attributable to the start-up of the Fayetteville Express Pipeline system.
CO2: The segment’s earnings before DD&A and certain items were $258.3 million, up 4% year over year attributable to higher oil and natural gas liquid prices on unhedged volumes.
Terminals: The business segment earned $170.3 million before DD&A and certain items in the first quarter, up 13% year over year.
Kinder Morgan Canada: The segment reported first-quarter earnings of $47.9 million before DD&A and certain items compared with $45.0 million in the year-ago quarter. The income growth resulted from greater deliveries into Washington state on the Trans Mountain pipeline system.
Financials
As of March 31, 2011, Kinder Morgan had cash and cash equivalents of $178 million and long-term debt (including current maturities) of $11,749 million. Debt-to-capitalization ratio stood at 62.3%.
Outlook
Kinder Morgan expects to declare cash distributions of $4.60 per unit for 2011, up 4.5% over $4.40 per unit distributed last year.
Our Recommendation
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.
We appreciate the partnership’s attempt to expand its resource base. In this regard, Kinder Morgan’s 14-year Eagle Ford Shale gas services agreement with Chesapeake Energy (CHK) and the long-term agreement with Anadarko Petroleum Corporation (APC) hold a lot of promise.
However, Kinder Morgan remains vulnerable to volatile crude oil and natural gas prices, imbalance between supply and demand for its products and rising interest rates. As such, we expect the partnership to perform in line with the broader industry and rate it Neutral on a long-term basis. Kinder Morgan currently holds a Zacks #3 Rank (short-term ‘Hold’ rating).
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