I’m generally a skeptic when it comes to companies’ quarterly conference calls. Most are utterly predictable affairs, with top management singing its own praises and painting the future in the rosiest hues. Once in a while, though, an earnings call reveals something important—as Kinder Morgan’s (KMI) did Wednesday afternoon.
If you had simply read the pipeline giant’s earnings releases (there were actually several, because Kinder Morgan has three operating entities as well as a passive investment arm), you would have concluded that everything had pretty much gone as expected in 4Q13.
And you would have been right.
Kinder Morgan Energy Partners ( KMP), the group’s flagship master limited partnership posted a 6.7% increase in distributable cash flow per unit—in line with Wall Street estimates. KMP boosted its quarterly distribution by 5% over the corresponding period a year ago—again, no surprise.
What was interesting, however, was CEO Rich Kinder’s irritated tone during the conference call. Kinder isn’t happy with the lagging share prices of KMP and other publicly traded pieces of his empire.
At one point, the billionaire even snapped: “My message to those that see the story less positively: You sell, I buy and we’ll see who comes out best in the long run.” That was a reference to his aggressive buying, in recent months, of the group’s securities for his personal account.
The analyst rap against Kinder Morgan can be summed up in one sentence. The general partner (Rich Kinder and his fellow shareholders of Kinder Morgan Inc.) takes very generous incentive fees from KMP. These Incentive Distribution Rights raise the cost of capital for KMP and slow the partnership’s growth rate.
By fuming publicly as he did, I think Rich Kinder signaled that he knows something has to be done about the IDRs.
We may hear an announcement soon, outlining changes. It could come at the annual Kinder Morgan analyst day (January 28-29), or perhaps later in the year. But I don’t think Rich Kinder, one of the energy industry’s fiercest competitors, will wait indefinitely.
Assuming the IDR issue is settled satisfactorily, share prices for KMP and its clone, Kinder Morgan Management (KMR), could climb 15% or more—above and beyond any appreciation due to earnings growth. KMP and KMR would then stand on an equal footing with other large MLPs that pursue a similar business model.
P.S. Earnings season has just begun, but it looks as if Wall Street may have gotten a little carried away with its expectations for some big companies. In after-hours trade today, shares of Intel (INTC) fell about 3%, even though the chipmaker reported higher Q4 sales and profits. Why the selloff? The numbers came in slightly below the analyst consensus.
I’m still a long-term bull on Intel. However, the stock has been pushing the year-ahead valuation envelope. Wait for a good, stiff pullback before adding to your position.