Natural Gas Fuels Another Solid Quarter for Kinder Morgan Inc.

Source: Kinder Morgan.

Kinder Morgan Inc. announced solid third-quarter results after the closing bell today. The company reported cash available to pay dividends of $435 million. That's up from $424 million in the third quarter of last year, and it allowed the company to increase its quarterly dividend to $0.44 per share, which is a penny higher than last quarter and up 7% since last year's third quarter. Thanks in part to its strong showing this quarter, the company expects to exceed its 2014 budgeted dividend per share of $1.72 for the full year.

Drilling down into the results
A bulk of Kinder Morgan's revenue in the quarter came from its ownership interest in Kinder Morgan Energy Partners LP . In the third quarter, the MLP poured $551 million into Kinder Morgan's coffers, or about 75% of its revenue. The rest of its income came from its ownership interests in El Paso Pipeline Partners LP and its other assets. While the company is in the process of acquiring these affiliates, we need to drill a little deeper into these results to better understand Kinder Morgan's results, with Kinder Morgan Energy Partners in particular being what really fuels Kinder Morgan's results. Let's take a close look at its results, since it does most of the heavy lifting.

Here we see that all five of Kinder Morgan Energy Partners' segments delivered earnings growth over the prior quarter:

Source: Kinder Morgan Energy Partners LP press releases. Results in millions.

The highlight this quarter, as it has been all year, is the company's natural gas pipelines business. Not only are segment earnings higher than last quarter, but results are also up 9% over the third quarter of last year thanks in part to a 10% increase in natural gas volumes. Overall, the company's natural gas pipelines continue to be in strong demand because of production growth from U.S. shale plays, which is fueling demand for new pipeline capacity from Kinder Morgan. 

It's a similar story of solid results across the company's other segments. The carbon dioxide business delivered strong oil production along with solid carbon dioxide production. The products pipeline segment benefited from the strong growth in petroleum product volumes flowing through its pipelines, while the terminals business benefited from new projects coming online. Even the Canadian segment's results improved, though in this case that improvement had a lot to do with the exchange rate. Overall, the company's operating segments all delivered solid results, which helped fuel strong results and a growing dividend at Kinder Morgan.

Looking ahead
Despite the plunge in oil prices over the past few months, Kinder Morgan expects its businesses to deliver results that exceeded its original expectations. Even its carbon dioxide segment, which has some exposure to oil prices, is still expecting results that are only moderately below the company's expectations. The company expects to more than overcome that weakness on the strength of the natural gas pipelines business.

The last area worth noting is the overall project backlog for Kinder Morgan. That backlog grew by a net $900 million in the quarter to a total of $17.9 billion, as the company added nearly twice as many new projects to its backlog as it placed into service in the quarter. Considering that future projects are what will fuel the company's continued growth over the next few years, it's critical that it continues to maintain a strong backlog of projects that have a high certainty of being completed.

Investor takeaway
Overall, it was another solid quarter for Kinder Morgan. The company is on pace to exceed its own guidance for the full year and continues to increase its project backlog to fuel future growth. The company also remains on track to consolidate its vast empire as its merger with its MLPs still looks to close before the end of the year. This really is everything investors could realistically hope to see from the company this quarter.