Earnings Update: Kinder Morgan Energy Partners

Jul.17.14 | About: Kinder Morgan (KMP)

Summary

Kinder Morgan Energy Partners posts its Q2 2014 results.

Distribution per unit was increased to $1.39 ($5.56 annualized), up 5% Y/Y.

These results reaffirm my bullish stance on the Kinder Morgan complex; fair value of KMP is north of $90 per unit.

As I noted in a prior article, Q2 is typically a weaker quarter for DCF compared to Q1.

Kinder Morgan Energy Partners (NYSE:KMP) recently reported its Q2 2014 results. On a per unit basis, DCF came in at $1.23, up a penny from $1.22 last year. However, compared to last quarter's $1.55, DCF was down 21%. Kinder Morgan Energy Partners typically sees much weaker DCF in Q2 compared to Q1, as I noted recently. This is due to multiple factors, including the timing of interest payments, cash taxes, and other expenses.

As a result, DCF should be looked at on at least a six-month basis to avoid these variations. For the past six months, the company generated $2.77 in DCF and will pay out distributions totaling $2.77, resulting in a coverage ratio of 1.00x.

The company saw strong performance from its natural gas pipelines, thanks to increased volumes coming from the Marcellus/Utica shale. The terminal segments also posted robust earnings growth of nearly 20% Y/Y, led by contributions from the acquisition of American Petroleum Tankers. Kinder Morgan Canada was the clear laggard, down 20%, from lower volumes due to the sale of the Express-Platte pipeline. However, the company noted that demand for the embattled Trans Mountain Pipeline remained strong, highlighting the need for the proposed expansion.

Disclosure: The author is long KMI. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.