KMI — Q3 2026 Financial Report Analysis

Record third quarter, and a pipeline backlog that grew by half in three months

Kinder Morgan earned $764 million for its shareholders in Q3 2026 (the three months to September 30), up 22% from $628 million a year earlier, on revenue of $4,531 million (+9.3%). Earnings per share rose to $0.34 from $0.28. On the company's adjusted basis, which strips out what it calls "Certain Items" (unsettled hedge gains and losses, one-off legal charges, asset-sale gains and some tax items), EPS also rose 21%, to $0.35, and Adjusted EBITDA rose 9% to $2,180 million. The release calls both all-time third-quarter records.

The bigger news is what comes next. The backlog of approved expansion projects jumped to $14.4 billion from $9.6 billion at the end of June, after Kinder Morgan committed to two of the largest new US gas pipelines in decades: the Southeast Connector, which would carry gas from the Marcellus/Utica region in Appalachia to the Southeast, and the Permian Link, which will serve new power generation for an A-rated "hyperscaler" (one of the giant cloud and AI data-center operators).

Key metrics

Operating margin is operating income divided by revenue: the share of each sales dollar left after running the business, before interest and tax. BBtu/d is billions of British thermal units of gas per day, an energy-based measure of gas volume. This report is written from the earnings release (Exhibit 99.1 to the 8-K filed October 21, 2026); the full 10-Q, with its line-by-line explanation of each change, had not been filed yet.

Segment performance

Kinder Morgan judges each business by EBDA: earnings before depreciation and amortization, a stand-in for the cash each segment generates before corporate costs, interest and tax. The table uses the company's adjusted figures, which remove Certain Items.

Natural Gas Pipelines (about 65% of adjusted segment EBDA) grew on higher contributions from the El Paso Natural Gas pipeline in the Southwest, the KinderHawk gathering system in Louisiana's Haynesville basin, Tennessee Gas Pipeline and the Texas intrastate system. Transport volumes rose 3%, which the release attributes "primarily" to LNG deliveries on Tennessee Gas Pipeline (gas headed for liquefied-natural-gas export terminals on the Gulf Coast) and more demand on the Texas system. Gathering volumes, the gas collected from wells before it enters the big pipelines, rose 14%, mainly on KinderHawk. Volume growth slowed from Q2, when transport rose 7%.

Products Pipelines is the segment where the adjusted and reported numbers part ways most. Adjusted EBDA rose 9% "primarily due to favorable commodity pricing," but reported EBDA fell to $172 million from $288 million because of a $138 million charge for "legal, environmental, and other expense accruals." The release does not say what the accrual is for. Volumes kept sliding: refined products (gasoline, diesel, jet fuel) fell 3%, which management blames on higher fuel prices, and crude and condensate fell 11% on lower Bakken gathering and the conversion of the Double H pipeline to natural gas liquids.

Terminals rose 15% on expansion projects placed in service, higher commodity prices, stronger coal and petroleum coke handling (bulk tonnage up 17% to 13.5 million tons) and higher charter rates on its Jones Act tankers (US-flagged ships). One soft spot: liquids utilization, the share of storage tanks under contract, slipped to 92.6% from 94.6%.

CO2, which produces oil in West Texas, rose 35% on "higher commodity prices and higher crude and NGL volumes." Net oil output rose 8% to 27.07 thousand barrels a day, with SACROC, the largest field, up 11%. The realized oil price barely moved ($68.65 a barrel vs $67.74), so this quarter's gain came mostly from volume and from natural gas liquids prices (up 11% to $34.48 a barrel).

What the headline numbers hide

• The GAAP and adjusted figures are close, but only because two big items offset. A $138 million legal/environmental accrual in Products Pipelines was largely cancelled by a $71 million gain on selling three dry bulk terminals in Tampa and a $42 million tax benefit on those items. Net, Certain Items cut reported profit by $28 million, versus $20 million a year ago. That leaves reported and adjusted EPS growth both at 21%. The $138 million charge is the item to watch in the 10-Q: an unexplained accrual this size is roughly half a quarter of the segment's earnings.
• Operating income grew only 9%, the same pace as revenue, because of those items. Excluding the accrual and the terminal-sale gain, operating income would have been about $1,227 million, up roughly 15%.
• EPS growth came from the business, not from financial engineering. The share count was flat (2,227 million vs 2,224 million), so buybacks contributed nothing. Interest cost fell $26 million to $430 million, a modest help. Taxes did not help on an adjusted basis: adjusted income tax rose to $232 million from $189 million.
• Cash conversion is solid, but spending now outruns it. Cash from operations ($1,590M) was about twice net income, which is normal for a pipeline company with large depreciation charges. After $1,045 million of capital spending, free cash flow fell 12% to $545 million, and after dividends the quarter was $120 million short. Year to date, free cash flow after dividends is positive at $226 million.
• The cash pile is borrowed. Cash rose to $918 million from $63 million at year-end, after a $1.75 billion bond sale in August (5.55% notes due 2036 and 6.15% notes due 2056). Net debt still edged up to $32.2 billion, but trailing-12-month Adjusted EBITDA rose faster, to $9.19 billion, so leverage fell to 3.5 times. Net debt-to-EBITDA, roughly how many years of earnings it would take to repay debt, is the main leverage measure for pipeline companies; management calls 3.5 times "the low end of our targeted range."
• Distributable cash flow (DCF) is no longer reported. DCF is the cash a pipeline company has left to pay dividends after maintenance spending; Kinder Morgan dropped it from its release and now reports free cash flow instead, so a DCF-based dividend coverage ratio can't be computed from this filing. On earnings, the $0.2975 dividend is 85% of Adjusted EPS of $0.35.
• Guidance went up again. See the outlook below.

Did last time's read hold up?

Our Q2 2026 analysis flagged two things to watch. First, whether the oil-price boost to the CO2 and Products segments would survive if oil prices eased. It partly did: the realized oil price fell to $68.65 a barrel from $73.78 in Q2 and CO2 EBDA dropped to $184 million from $207 million quarter on quarter, but more output kept it 35% above last year, and Products still got a commodity-pricing lift. Second, the federal permits for South System Expansion 4 and Mississippi Crossing. This release says nothing on either, so that question remains open until the 10-Q.

Takeaway: The quarter itself was steady rather than spectacular: 9% EBITDA growth on 3% gas volume growth. What changed is the size of the commitment. Kinder Morgan added $5.4 billion of projects in one quarter, mostly two multi-billion-dollar gas pipelines due in 2030, which are tied to data centers and Southeast demand growth. That makes later-decade growth more visible, but it also means several more years of capital spending at or above operating cash flow after dividends.

Outlook

The 2026 budget called for Adjusted EBITDA of $8.6 billion, Adjusted EPS of $1.36, dividends of $1.19 per share and year-end leverage of 3.8 times. Management now expects to beat budget by more than 6% on Adjusted EBITDA and more than 13% on Adjusted EPS, up from "more than 5%" and "more than 12%" after Q2, and still expects to finish the year at 3.6 times leverage.

Nine-month Adjusted EBITDA was $6,918 million and Adjusted EPS $1.20. Hitting 6% above budget (about $9.1 billion) needs about $2.2 billion of Adjusted EBITDA in Q4, compared with roughly $2.27 billion in Q4 2025 (implied by the trailing-12-month figure). Hitting 13% above budget on EPS (about $1.54) needs about $0.34 in Q4. Both look achievable, and the "more than" wording leaves room for another beat.

Beyond 2026, the backlog numbers matter most. Kinder Morgan says the $13.7 billion of the backlog that excludes CO2 and gathering projects should earn first-full-year Project EBITDA of about 5.7 times its cost. Put another way, each dollar spent should bring roughly 17.5 cents a year of EBITDA once running. The two new mega-projects, the Southeast Connector ($3.1 billion KMI share, 2.6 Bcf/d, in service in phases from Q4 2030) and Permian Link ($1.6 billion KMI share, 2.8 Bcf/d, Q3 2030), are backed by long-term take-or-pay contracts, under which shippers pay for the capacity whether or not they use it. Smaller wins point the same way: two more phases of the Creekside Lateral in Central Texas, signed with data-center and industrial customers, and the Bear Creek storage expansion.

Our read: the demand story for Kinder Morgan's gas network (LNG exports, power plants, data centers) turned into $5.4 billion of signed projects in a single quarter. The risks are on the execution side. The new projects need federal permits and won't earn until 2030, the Products segment's volume decline continues, and there is an unexplained $138 million accrual. Three things to watch next quarter: what the 10-Q says that accrual is for, whether SSE4 and Mississippi Crossing get their FERC certificates, and the 2027 budget (usually published in December). The budget will show how much the larger backlog raises capital spending, and whether leverage stays near 3.5 times while that spending ramps up.