Kinder Morgan (KMI) Reports In-Line Q2 EPS; Offers FY16 Outlook

Kinder Morgan (NYSE: KMI) reported Q2 EPS of $0.15, in-line with the analyst estimate of $0.15. Revenue for the quarter came in at $3.14 billion versus the consensus estimate of $3.45 billion.

DCF was $0.47 per share, from $0.50 per share in the same period last year.

2016 Outlook

For 2016, KMI expects to declare dividends of $0.50 per share. For 2016, KMI's budgeted distributable cash flow was approximately $4.7 billion and budgeted Adjusted EBITDA was approximately $7.5 billion. Consistent with the updated guidance provided last quarter, the company continues to expect Adjusted EBITDA to be about 3 percent below budget and distributable cash flow to be about 4 percent below budget. To be consistent with last quarter, this guidance is presented without taking the SNG transaction into account. KMI does not provide budgeted net income attributable to common stockholders (the GAAP financial measure most directly comparable to distributable cash flow and Adjusted EBITDA) due to the inherent difficulty and impracticality of quantifying certain amounts required by GAAP such as ineffectiveness on commodity, interest rate and foreign currency hedges, unrealized gains and losses on derivatives marked to market, and contingent liabilities.

KMI expects to generate excess cash sufficient to fund its growth capital needs without needing to access capital markets and, after taking into account efforts to improve the balance sheet, expects to end the year with a net debt-to-Adjusted EBITDA ratio of approximately 5.3 times, below the budgeted ratio of 5.5 times. KMI’s growth capital forecast for 2016 is approximately $2.8 billion, a reduction of $500 million from its budget of approximately $3.3 billion.

The overwhelming majority of cash generated by KMI is fee-based and therefore is not directly exposed to commodity prices. The primary area where KMI has commodity price sensitivity is in its CO2 segment, and KMI hedges the majority of its next 12 months of oil production to minimize this sensitivity. Additionally, KMI continues to closely monitor counterparty exposure and obtain collateral when appropriate. However, the company has operations across a broad range of businesses and has a large customer base, with its average customer representing less than one-tenth of 1 percent of annual revenues. Additionally, approximately two-thirds of KMI’s business is conducted with customers who are end-users of the products KMI transports and stores, such as utilities, local distribution companies, refineries and large integrated firms.

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