Kinder Morgan, Inc. (KMI) Earnings

Management highlights

- Overall Financial Performance * Q2 2026 adjusted EBITDA increased 12% YoY, and adjusted EPS increased 32% YoY, exceeding both prior year results and internal budget expectations. * Net income attributable to KMI reached $867 million, with GAAP EPS of 39 cents (up 22% YoY), and year-to-date 2026 adjusted EBITDA grew 15% YoY while adjusted EPS grew 35% YoY. * All four business segments contributed positively to YoY growth, marking a record-setting quarter for the firm. * A 2% quarterly dividend increase was declared, to 29.75 cents per share ($1.19 annualized). - Backlog and Capital Project Execution * Sanctioned project backlog decreased from $10.1 billion to $9.6 billion in Q2, as $650 million of projects entered service, partially offset by $200 million of new additions. The board has contingently approved almost $400 million of additional projects in advanced contract negotiations that will be added to backlog once contracts are signed, offsetting Q2's decline. * The company holds a $10 billion+ pipeline of unsanctioned development opportunities, with management expecting significant additional project FIDs by the end of 2026 that will more than offset the $1 billion of projects expected to enter service in H2 2026. * Three large natural gas expansion projects are progressing on schedule and on budget: Mississippi Crossing and South System Expansion 4 received their final FERC environmental impact statement in June, with final certificates expected by the end of July 2026; the Trident project is approximately 60% complete. * A $500 million expansion to add 1 BCF per day of treating capacity in the Haynesville basin is on track and on budget, with volumes already reaching 2 BCF per day in Q2. - Balance Sheet Strength * Net debt to adjusted EBITDA ended the quarter at 3.6x, down from 3.8x at the start of 2026, well below the midpoint of the company's 4.0x target range. Management expects to maintain 3.6x leverage through year-end even with higher planned growth capital spending and the completed Monument acquisition. * The company generated $3.45 billion in operating cash flow year-to-date, covering $1.315 billion in dividend payments and $1.92 billion in total capital expenditure (including growth, sustaining, and joint venture contributions, plus the $500 million Monument acquisition). * Management confirms the company can fund all planned new growth projects almost entirely with internally generated cash flow while continuing to grow the dividend and maintain leverage in the lower end of the target range. - Market Fundamentals * Management expects very strong long-term natural gas demand growth, driven by increasing LNG export volumes and growing natural gas use for electric power generation (including power for AI data centers). Wood Mackenzie projects U.S. natural gas demand will grow by 46 BCF per day to over 160 BCF per day by 2035, creating extensive need for new midstream infrastructure.

Guidance

- Full-year 2026 guidance was upgraded from original budget: management now expects adjusted EBITDA to be at least 5% above the original 2026 budget (representing more than $430 million in incremental EBITDA), and adjusted EPS to be at least 12% above the original budget. * The upward guidance adjustment reflects stronger than expected outperformance in the first half of 2026. Guidance is intentionally conservative for the second half, partially due to uncertainty around commodity price volatility that drove some Q2 outperformance, and the non-recurring nature of certain first-quarter outperformance linked to winter storm market volatility. Management notes there is upside potential if current strong operating momentum continues. * Leverage is now expected to end 2026 at 3.6x, down from the original budgeted 3.8x, despite higher growth capital spending and the completed Monument acquisition, driven by better than expected EBITDA performance.

Segment performance

1. Natural Gas: Transport volumes rose 7% year-over-year (YoY), driven by increased LNG feed gas deliveries, intrastate demand, power demand on the El Paso pipeline, and higher exports to Mexico. Natural gas gathering volumes grew 26% YoY, led by a 54% increase on the Kinderhawk system in the Haynesville basin. The segment saw higher margins on the Texas intrastate network, increased contributions from gathering and processing, park and loan services, new growth projects, and higher capacity utilization across multiple assets, contributing positively to overall results. No standalone absolute revenue or contribution percentage was provided for individual segments in the transcript. 2. Product Pipelines: Refined product volumes declined 5% YoY, while crude and condensate volumes fell 16% YoY. 11% of the crude decline is explained by the permanent removal of the Double H system from crude service to convert it to NGL service in Q3 2025; excluding Double H volumes, crude volumes were down only 5% YoY. The segment benefited from improved commodity pricing and higher butane blending volumes and rates, partially offsetting the volume declines. The Western Gateway joint venture project with Phillips 66 is progressing, though partnership negotiations have taken longer than expected due to structural complexity. 3. Terminals: Liquids lease capacity utilization remains high at 93%, with available tank utilization at key hubs (Houston Ship Channel, Carteret) reaching 99%, and market conditions support strong pricing rates. While temporary Jones Act waivers have created some market uncertainty, the company's tanker fleet is nearly fully contracted: assuming likely option exercises, the fleet is 100% leased through 2026, 97% through 2027, and 80% through 2028, with an average firm contract length of almost three years, and much of the fleet chartered at elevated current market rates. The segment saw increased volumes, rates, and favorable pricing, partially offset by the lapping of favorable one-time items from 2025. 4. CO2: Net oil production volumes increased 10% YoY, led by a 15% production increase at the SACROC field. NGL volumes rose 9% YoY, CO2 volumes grew 5% YoY, and RNG volumes increased 8% YoY, driven by improved operational uptime and hydrocarbon recovery. The segment saw stronger contributions from higher commodity prices alongside the volume gains.

Risks & headwinds

- Long-term project permitting timelines and supply chain constraints for critical equipment (such as compression for new pipeline projects) are creating pressure on project schedules. Management has integrated these risks into project planning and economics, and maintains proactive relationships with suppliers to mitigate delays, though risks of extended timelines remain. * Project development depends on finalizing long-term contracts with creditworthy customers, and contract negotiations can take longer than initially expected, creating uncertainty around the timing of FIDs and backlog growth. * Commodity price volatility is outside of management's control and can impact quarterly outperformance, creating uncertainty around full-year results relative to updated guidance. * Development of large pipeline projects occurs in a highly competitive market, with multiple firms pursuing projects to serve high-growth demand regions such as the Southeast U.S. and Northeast takeaway corridors, creating execution risk for winning customer commitments. * Temporary Jones Act waivers have created some market uncertainty for the company's tanker fleet in the terminals segment, though this risk is mitigated by the high level of contracted utilization across the fleet.

Analyst Q&A

• Q: An analyst asked whether Kinder Morgan's historical 3 billion per year growth capex target is still appropriate given the large volume of high-demand power and pipeline opportunities. The analyst asked if there is enough potential backlog to support higher capex (up to 6 billion per year) while staying within leverage guardrails. /

  A: Management confirmed the 3 billion annual target is based on the current backlog, and the company expects to significantly add to the backlog in coming quarters. At the current 3.6x leverage, the company has approximately 850 million in additional capacity for every 0.1x increase in leverage, so moving leverage up to the 4.0x target midpoint would provide 3.4 billion in additional balance sheet capacity. Management confirmed there is plenty of demand-driven opportunity (primarily from power sector projects) to absorb this additional capacity, and the company can easily support higher capex while remaining within stated leverage targets.

• Q: An analyst asked for an update on the PermianLink project, including its competitive advantages and expected timing for FID and in-service delivery. /

  A: PermianLink's key competitive advantage is its access to existing natural gas storage and its alignment with the newly approved 765 KV transmission line that is driving new power and data center development across the corridor. The project has drawn significant customer interest during its open season. FID will only be taken after binding long-term contracts are secured; the current target in-service date is 2030, with accelerated timelines possible if contracts are finalized sooner.

• Q: An analyst asked for the timeline to FID for the Western Gateway product pipeline joint venture with Phillips 66, given the recent minor delay in negotiations, and how likely FID is in the next 2-3 months. /

  A: Management confirmed that partnership documentation has advanced significantly despite the complexity of the arrangement. The company expects to complete documentation within the next 1-2 months, and plans to take FID shortly after if progress continues as expected, putting FID on track within the 2-3 month window the analyst asked about.

• Q: An analyst asked if the total 10 billion opportunity set (shadow backlog) can grow further, or if it will hold steady around 10 billion as projects are converted to sanctioned backlog. /

  A: Management confirmed the 10 billion opportunity set has already continued to grow even as 2 billion in projects have been sanctioned over the past year. There is clear room for the total size of the opportunity set to move meaningfully higher, and management expects to sanction at least 1 billion in new projects in H2 2026, with potential for even more additional projects.