Kinder Morgan Looks Ahead to Delay on Canada Pipeline, Benefits From New Tax Law

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Kinder Morgan Inc. (NYSE: KMI) reported fourth-quarter and full-year 2017 results after markets closed Wednesday. The midstream giant posted quarterly adjusted earnings per share (EPS) of $0.21 per share on revenues of $3.63 billion. In the same period a year ago, it posted EPS of $0.18 on $3.39 billion in revenues. Consensus estimates had called for $0.18 in EPS and revenues of $3.63 billion for the quarter.

For the full year, the company reported revenues of $13.71 billion, compared with $13.06 billion in 2016. EPS for the year totaled $0.66, matching the 2016 total. Analysts had estimated EPS of $0.65 and revenues of $13.71 billion.

The company took a fourth-quarter noncash charge of approximately $1.4 billion related to revaluing deferred-tax assets to comply with recent changes to the tax law. Kinder Morgan expects longer term benefits from the tax changes, including the ability for many of its business units to deduct 100% of capital spending through 2022. The reduction of the corporate tax rate from 35% to 21% also benefits the company. Kinder Morgan expects the tax law changes to postpone the date when the company becomes a federal taxpayer by about a year, “to beyond 2024.”

Regarding Kinder Morgan Canada Ltd. (TSX: KML) and the company’s Trans Mountain pipeline expansion project, the company reported:

[T]he scope and pace of the permits and approvals received to date does not allow for significant additional construction to begin at this time. [Kinder Morgan Canada] also stated that it must have a clear line of sight on the timely conclusion of the permitting and approvals processes before it will commit to full construction spending. … [The company] now projects an unmitigated delay to a December 2020 in-service date [from a prior in-service date of September 2020]. Trans Mountain continues to proceed in water work at Westridge Terminal. As of the end of the fourth quarter 2017, a cumulative C$930 million has been spent on the project.

Kinder Morgan reiterated its plan to raise its dividend per share from $0.125 to $0.20 per quarter beginning with the first quarter of 2018. The company also restated its plan to use its cash in excess of dividend payments fully to fund growth investments and further strengthen its balance sheet.

Distributable cash flow (DCF) for the quarter totaled $1.19 billion ($0.53 per share), up from $1.15 billion in the fourth quarter of 2016.

In its outlook statement, the company said it plans DCF for 2018 at $2.05 per share and to invest $2.2 billion in growth projects, not including the growth capital funded by its Canadian subsidiary. A previously announced $2.2 billion share buyback was reiterated.

The company’s current project backlog ended the year at $11.8 billion, essentially flat with the third-quarter total.

For the first quarter of this year, analysts are forecasting EPS of $0.19 on revenues of $3.55 billion. For the 2018 fiscal year, estimates call for EPS of $0.74 and revenues of $14.32 billion.

Shares closed up about 0.9% on Wednesday at $19.57 and traded up about 0.4% at $19.65 in Thursday’s premarket session. The 52-week range is $16.68 to $23.01, and the 12-month consensus price target before Wednesday’s announcement was $22.29

Kinder Morgan Canada closed at C$16.75 on Wednesday.