01—Abstract
Summary
Summary of the 10-K filed February 12, 2020. Cited figures are marked; the original filing is the authoritative source.
Kinder Morgan's FY2019 10-K shows a company in transition: GAAP net income available to common stockholders rose to $2,190 milliona ($0.96 per share) from $1,481 million, but this was flattered by a $1,296 million pre-tax gain on the December 2019 sale of KML (Trans Mountain's Canadian parent) and the U.S. portion of the Cochin Pipeline to Pembina, offset by $1,014 million of impairments, including a $650 million write-down of its Ruby Pipeline investment.
On an adjusted basis, Adjusted Earnings were $2,161 millionb ($0.95 per share), DCF was $4,993 million ($2.19 per share), and Adjusted EBITDA was $7,618 million, up roughly 1% year over year. Revenues declined about 7% to $13,209 million, largely because of divestitures and lower commodity-sales revenue. Balance sheet deleveraging continued.
Consolidated debt fell to about $33.4 billionc (principal), and the company reported a Net Debt-to-Adjusted EBITDA ratio of 4.3x. Cash fell sharply to $185 million after roughly $2.8 billion of debt repayments funded by divestiture proceeds, and sale proceeds from the Pembina stock (about $764 million after tax, received January 2020) are earmarked for further debt paydown.
Management guides to 2020 dividends of $1.25d per share (up 25%), DCF of about $5.1 billion ($2.24 per share), and Adjusted EBITDA of $7.6 billion, and says no equity issuance is needed in 2020. Key investor watch items include exposure to CO2 segment commodity prices (2019 realized oil price fell to $49.49/bbl from $57.83), a $600 million-plus environmental reserve range, the ongoing SFPP and EPNG FERC rate proceedings, the Gulf LNG arbitration, and the sizable growth backlog (GCX, PHP, Elba liquefaction, TGP East 300) that supports the 2020 outlook.
02—Key points
Key Highlights
- GAAP net income available to common stockholders of $2,190 million ($0.96/share), up from $1,481 million in 2018, but inflated by a $1,296 million pre-tax gain on the KML and U.S. Cochin sale.
- Adjusted Earnings of $2,161 million ($0.95/share) and DCF of $4,993 million ($2.19/share) provide a cleaner view of underlying performance; Adjusted EBITDA was $7,618 million, roughly flat to up 1% year over year.
- Total debt reduced to about $33.4 billion; Net Debt-to-Adjusted EBITDA of 4.3x, with about $2.8 billion of maturing debt repaid in 2019 using divestiture proceeds.
- Cash and cash equivalents fell to $185 million from $3,280 million; $925 million of Pembina stock was held at year-end and sold in January 2020 for about $907 million ($764 million after tax) to pay down debt.
- 2020 guidance: dividends of $1.25/share (25% increase), DCF of about $5.1 billion ($2.24/share), Adjusted EBITDA of $7.6 billion, and $2.4 billion of expansion investment, with no equity market access needed.
- Large growth backlog: Gulf Coast Express (placed in full service September 2019), Permian Highway (in service early 2021), Elba liquefaction (6 units remaining by mid-2020), and several TGP/EPNG/NGPL expansions.
- Material impairments in 2019 ($1,014 million total), including a $650 million Ruby Pipeline write-down and $290 million of gathering and processing asset impairments in Oklahoma and North Texas, reflecting weaker drilling activity and contract-expiration risk.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, Kinder Morgan, Inc. kept $0.17.
- Revenue$13.21B100.0%
- Cost of revenue−$3.26B24.7%
- Gross profit$9.95B75.3%
- Operating costs−$5.07B38.4%
- Operating income$4.87B36.9%
- Interest, other & tax−$2.68B20.3%
- Net income$2.19B16.6%
Where FY2019 revenue went
$13.21B- Operating costs: $5.07B, 38% of revenue
- Cost of revenue: $3.26B, 25% of revenue
- Interest, other & tax: $2.68B, 20% of revenue
- Net income: $2.19B, 17% of revenue
Kept 17% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 12, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $13.21B$14.14B | −6.6% |
| Cost of Revenue | $3.26B$4.42B | −26.2% |
| Gross Profit | $9.95B$9.72B | +2.3% |
| Operating Expenses | $8.34B$10.35B | −19.5% |
| Operating Income | $4.87B$3.79B | +28.4% |
| Net Income | $2.19B$1.61B | +36.1% |
| EPS (Basic) | $0.96$0.66 | +45.5% |
| EPS (Diluted) | $0.96— | — |
| Shares Outstanding (Basic) | 2.26B2.22B | +2.2% |
| Shares Outstanding (Diluted) | 2.26B— | — |
05—Questions
Frequently Asked Questions
Did Kinder Morgan's earnings improve in 2019, and what drove the change?
GAAP net income available to common stockholders rose to $2,190 million from $1,481 million, but most of the improvement reflects non-recurring items. The largest was a $1,296 million pre-tax gain on the KML and U.S. Cochin sale, partly offset by $1,014 million of impairments. On an adjusted basis (Adjusted Earnings), income was $2,161 million, up about 9% from $1,982 million, helped by higher Natural Gas Pipelines earnings and lower interest expense, partly offset by weaker CO2 results.
How much cash flow is the company generating for dividends, and is the 2020 dividend increase covered?
2019 DCF was $4,993 million ($2.19 per share) against declared dividends of $1.00 per share. Management expects 2020 DCF of about $5.1 billion ($2.24 per share) against planned dividends of $1.25 per share, implying a payout ratio of roughly 56% of DCF per share. Management also states that discretionary spending will be funded from internally generated cash flow with no need for equity issuance in 2020.
How exposed is the company to commodity prices?
The vast majority of revenue is fee-based under multi-year contracts, so direct exposure is limited. The main sensitivity is the CO2 segment, where 2019 realized oil prices fell to $49.49/bbl from $57.83. For 2020, each $1/bbl move in WTI affects DCF by about $5 million, and each $0.10/MMBtu move in natural gas affects DCF by about $1 million. Most oil and NGL production is hedged over the next 12 months.
What are the main balance sheet and legal risks investors should monitor?
Total debt is about $33.4 billion, with roughly 27% at variable rates, and LIBOR transition is a stated risk. Legal and environmental exposure includes an environmental reserve of $259 million (with a possible range up to $428 million), the Portland Harbor and Lower Passaic Superfund matters, Louisiana coastal zone suits, the SFPP and EPNG FERC rate proceedings (shippers seek about $50 million in annual rate reductions and about $400 million in refunds for SFPP), and the Gulf LNG arbitration with Eni and ALSS.
06—Continue