Kinder Morgan Inc. (NYSE:KMI)

The period under review demonstrates a consistent pattern of negative economic profit. While net operating profit after taxes (NOPAT) increased over the five years, it has not been sufficient to offset the cost of capital applied to the invested capital base.

NOPAT Trend

Net operating profit after taxes exhibited an upward trend, increasing from US$2,335 million in 2015 to US$4,396 million in 2019. This represents a substantial increase in operational profitability over the period.

Cost of Capital Trend

The cost of capital generally increased throughout the period, rising from 8.86% in 2015 to 10.26% in 2019. The increase suggests a growing risk profile or changes in market conditions impacting the company’s funding costs. A slight decrease was observed in 2017, but this was followed by further increases in subsequent years.

Invested Capital Trend

Invested capital fluctuated over the five-year period, beginning at US$72,098 million in 2015, decreasing to US$69,077 million in 2017, and then increasing to US$69,659 million in 2018 before declining to US$67,164 million in 2019. The overall trend indicates a modest decrease in the capital base over the period.

Economic Profit Trend

Economic profit remained negative throughout the period, ranging from -US$2,497 million in 2019 to -US$4,050 million in 2015. While the magnitude of the negative economic profit decreased from 2015 to 2019, the company consistently failed to generate returns exceeding its cost of capital. The least negative economic profit occurred in 2019, coinciding with the highest NOPAT and a relatively stable invested capital base.

In summary, despite improvements in NOPAT, the increasing cost of capital and the substantial capital base have resulted in continued negative economic profit. The narrowing of the economic loss in 2019 suggests a positive, albeit limited, trend, but further analysis is required to determine if this improvement is sustainable.

The financial data exhibits a notable progression across the five-year period from 2015 to 2019 in key profitability metrics.

Net Income Attributable to Kinder Morgan, Inc.

Net income shows a fluctuating pattern with significant variation. It increased substantially from 253 million USD in 2015 to 708 million USD in 2016, indicating a period of improved profitability. However, it then decreased sharply to 183 million USD in 2017 and slightly declined further to 160.9 million USD in 2018. In 2019, a pronounced rebound occurred, with net income surging to 2,190 million USD, representing the highest level within the period analyzed.

Net Operating Profit After Taxes (NOPAT)

NOPAT exhibits a consistent upward trajectory over the same time frame, indicating overall operational efficiency and profitability improvements. It rose steadily from 2,335 million USD in 2015 to 4,396 million USD in 2019. This steady increase contrasts the volatility seen in net income, suggesting that operational profitability strengthened continuously even during periods when net income faced short-term setbacks.

Overall, while net income experienced volatility with a significant dip in 2017 and 2018 before recovering sharply in 2019, NOPAT demonstrated consistent growth. The divergence between the volatility in net income and the stability in NOPAT could indicate the influence of non-operational factors, including one-time items, financing costs, or tax impacts affecting net income more directly. The improvement in NOPAT highlights enhanced core business performance throughout the period.

The analysis of the annual financial data reveals fluctuations in both income tax provision and cash operating taxes over the five-year period ending December 31, 2019.

Income Tax Provision

The income tax provision shows significant volatility during the period. Starting at USD 564 million in 2015, it increased notably to USD 917 million in 2016. A sharp rise was observed in 2017, with the provision peaking at USD 1,938 million. However, this high was not sustained, as the figure dropped substantially to USD 587 million in 2018, followed by a moderate increase to USD 926 million in 2019. The trend suggests that the income tax provision was influenced by fluctuating taxable income or changes in tax regulations during these years, with the 2017 value standing out as an outlier relative to other periods.

Cash Operating Taxes

Cash operating taxes remained relatively stable compared to the income tax provision. The values fluctuated within a narrow range from USD 472 million to USD 601 million throughout the five years. Notably, the cash operating taxes decreased from USD 601 million in 2015 to USD 472 million in 2016, then experienced minor increases and decreases over the subsequent years, ending at USD 590 million in 2019. This consistency indicates maintained cash tax obligations despite the volatility seen in the income tax provision, implying differences in timing or accounting recognition between these two tax-related metrics.

Overall, the data suggests that while cash taxes paid remained fairly steady, the reported income tax provisions varied considerably, reflecting potential changes in income, tax planning strategies, or tax regulation impacts during the period analyzed.

Total Reported Debt & Leases

Over the five-year period, there is a clear downward trend in the total reported debt and leases. Beginning at approximately 43.9 billion USD at the end of 2015, the debt level consistently decreased each year, reaching about 34.7 billion USD by the end of 2019. This reduction indicates a strategic effort to deleverage or reduce financial obligations over time.

Total Kinder Morgan, Inc.’s Stockholders’ Equity

The stockholders’ equity remained relatively stable throughout the period analyzed. Starting around 35.1 billion USD at the end of 2015, it experienced slight decreases over the next three years, bottoming out near 33.6 billion USD by the end of 2017. However, by the end of 2019, equity showed a minor recovery to approximately 33.7 billion USD. This stability suggests a balanced approach to equity management without significant dilution or accumulation.

Invested Capital

Invested capital demonstrated a modest decline from roughly 72.1 billion USD at the end of 2015 to about 67.2 billion USD by the end of 2019. The decrease was gradual, with minor fluctuations observed between the years, implying a steady but cautious approach to capital investment and asset base management.

The period between 2015 and 2019 demonstrates a consistent pattern of negative economic profit, alongside a generally stable invested capital base. This results in consistently negative economic spread ratios throughout the analyzed timeframe.

Economic Profit

Economic profit exhibits a fluctuating, yet generally improving trend. Starting at a loss of US$4,050 million in 2015, it decreased to a loss of US$3,779 million in 2016. A notable improvement occurred in 2017, with the loss narrowing to US$2,685 million. However, economic profit slightly worsened in 2018 to a loss of US$2,936 million before improving again in 2019, reaching a loss of US$2,497 million. Despite these fluctuations, the company consistently failed to generate economic profit over the five-year period.

Invested Capital

Invested capital remained relatively stable throughout the period. It began at US$72,098 million in 2015, decreased to US$69,639 million in 2016, and then experienced a slight decrease to US$69,077 million in 2017. A minor increase was observed in 2018, reaching US$69,659 million, followed by a decrease to US$67,164 million in 2019. The overall change in invested capital over the five years was limited, suggesting a consistent capital structure.

Economic Spread Ratio

The economic spread ratio consistently registered negative values, indicating that the company’s return on invested capital was less than its cost of capital. The ratio started at -5.62% in 2015 and improved to -5.43% in 2016. A more substantial improvement was seen in 2017, with the ratio reaching -3.89%. However, it deteriorated to -4.22% in 2018 before improving slightly to -3.72% in 2019. The trend suggests a gradual, albeit limited, improvement in the company’s ability to generate returns exceeding its cost of capital, but it remained negative throughout the period.

In summary, while economic profit showed some signs of improvement over the five-year period, the company consistently underperformed relative to its cost of capital, as evidenced by the negative economic spread ratio. Invested capital remained relatively constant, suggesting that changes in economic profit were primarily driven by operational performance rather than shifts in capital structure.

The period between 2015 and 2019 demonstrates a consistent pattern of negative economic profit for the entity. While the magnitude of the economic loss decreased over the five-year span, profitability from an economic value perspective remained elusive. Revenue figures experienced fluctuations during the same period, but did not correlate directly with improvements in economic profit.

Economic Profit

Economic profit exhibited a decline from a loss of US$4,050 million in 2015 to a loss of US$3,779 million in 2016. Subsequent years showed improvement, with losses decreasing to US$2,685 million in 2017, before increasing slightly to US$2,936 million in 2018. The final year of the period, 2019, saw a further reduction in the loss, reaching US$2,497 million. Despite these improvements, economic profit remained negative throughout the entire period.

Revenues

Revenues decreased from US$14,403 million in 2015 to US$13,058 million in 2016, representing a notable decline. A recovery was observed in 2017, with revenues increasing to US$13,705 million. Revenues continued to rise in 2018, reaching US$14,144 million, before decreasing again in 2019 to US$13,209 million. The revenue fluctuations do not appear to directly drive the observed trends in economic profit.

Economic Profit Margin

The economic profit margin consistently registered as a negative percentage throughout the period. The margin was most negative in 2015 and 2016, at -28.12% and -28.94% respectively. A gradual improvement in the margin was observed from 2017 onwards, moving from -19.59% to -20.76% in 2018, and finally to -18.91% in 2019. This indicates that while the entity continued to destroy economic value, the rate of destruction lessened over time. The margin’s movement suggests a potential decoupling between revenue generation and the cost of capital employed.

In summary, the entity consistently generated negative economic profit during the analyzed period, despite fluctuations in revenue. The economic profit margin improved, indicating a lessening rate of value destruction, but did not reach positive territory. Further investigation into the components of economic profit – specifically, the cost of capital and operating profit – would be necessary to understand the underlying drivers of these results.