How COVID-19 Hammered Kinder Morgan Earnings
Kinder Morgan Inc. (NYSE: KMI) reported second-quarter 2020 results after markets closed Wednesday. The pipeline and terminal giant posted adjusted earnings per share (EPS) of $0.17 per share on revenues of $2.56 billion. In the same period a year ago KMI posted EPS of $0.22 on revenues of $3.21 billion. Consensus estimates called for EPS of $0.17 and revenues of $2.89 billion for the quarter.
Kinder Morgan also said it will pay its previously announced $0.2625 quarterly share dividend out of distributable cash flow (DCF) of $1.00 billion (down 11% year over year from $1.13 billion). On a GAAP basis, the company’s per-share loss totaled $0.28 compared with earnings per share of $0.23 in the second quarter of 2019.
The company took a $1 billion non-cash impairment charge on goodwill associated with its non-regulated gas pipeline business. The impairment charge led to a net loss for the quarter of $637 million compared to a net profit of $518 million in the year-ago quarter.
The company has lowered its guidance for full-year DCF from an initial forecast of $5.1 billion by more than 10%.
The company has more than $3.9 billion in borrowing capacity remaining under its $4 billion credit facility and some $526 million available in cash and equivalents. Kinder Morgan expects internally generated cash flow to fund 2020 dividend payments and discretionary spending. Planned spending on expansion projects has been reduced from a previously budgeted $2.4 billion to around $1.74 billion.
President Kim Dang noted, “Sharp declines in crude oil and natural gas production along with reduced demand for refined products due to the economic shutdown in the wake of the pandemic clearly affected our business and will continue to do so in the near term.”
Kinder Morgan’s longer-term problems remain though. Pipeline projects, like the company’s Permian Highway natural gas project from Waha to the Gulf Coast, are receiving more scrutiny and legal action than ever, even in usually friendly Texas. A spill of some 36,000 gallons of drilling mud while a contractor was trying to bore beneath the Blanco River has generated a lawsuit accusing the company of violating the Safe Drinking Water Act.
The Dakota Access Pipeline, owned by Energy Transfer, has been ordered to stop transporting oil while an environmental study is completed and the proposed Atlantic Coast pipeline has been canceled by its partners Duke Energy and Dominion.
On top of that, rating agency Moody’s in June hit the entire midstream segment with a first-ever negative outlook, commenting that sharp declines in oil and gas production compromise the sector’s overall credit quality.
Kinder Morgan shares traded down about 2.2% in Wednesday’s after-hours session at $14.55 a share in a 52-week range of $9.42 to $22.58. The stock’s 12-month price target is $17.85 and the $1.05 annual dividend represents a yield of 6.96%