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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.

Source: Earnings Update: Kinder Morgan Energy Partners