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Williams Misses Overall

WMB WPZ

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Tulsa, Oklahoma-based Williams Companies, Inc. (WMB - Analyst Report) reported weak third quarter 2012 results, owing to lower natural gas liquid (NGL) margins along with higher development cost related to earlier acquisition.

For the third quarter, Williams’ earnings per share, excluding special items, came in at 25 cents, lagging the Zacks Consensus Estimate of 27 cents. Comparing year over year, earnings plunged 16.7% from 30 cents per share.

The company generated revenues of $1,752 million missing the Zacks Consensus Estimate of $2,081 million. Quarterly sales also declined 11.2% from the prior-year level of $1,972 million.

Segment Analysis

Williams reports its results in three segments (following the spin-off of Exploration & Production unit): Williams Partners that includes the company’s 72% owned master limited partnership Williams Partners L.P. (WPZ - Snapshot Report); Midstream Canada & Olefins; and Other.

Williams Partners: This segment reported adjusted operating profit of $384 million in the quarter, down from the year-ago level of $477 million. Segment performance was mainly hurt by deteriorating NGL prices coupled with rising expenses.

Midstream Canada & Olefins: The segment registered quarterly adjusted operating profit of $76 million, greater than $73 million recorded in the third quarter of 2011. Enhanced Geismar ethylene margins, partially offset by lower Canadian NGL margins, enhanced the quarter results.

Other: The segment’s adjusted operating profit was $1 million, in line with the prior-year quarter.

Capital Expenditure & Balance Sheet

During the quarter, Williams’ capital expenditure was $730 million. As of September 30, 2012, the partnership had cash and cash equivalents of about $996 million.

Guidance

For fiscal 2012, Williams guided earnings per share in the range of $1.05–$1.25 (indicating a mid-point of $1.15). The same for 2013 is projected in the range of $1.05–$1.45 (midpoint is $1.25) and for 2014 within the $1.45–$1.95 (midpoint is $1.70) range. The influence of lower gas prices and disposition of Gulf Olefins assets will likely pull down the earnings level in the next two years.

Williams expects to generate total adjusted operating profit of $1,900 million to $2,150 million in 2012, $2,000 million to $2,500 million in 2013 and $2,650 million to $3,250 million in 2014.

Capital expenditure is projected to be in the range of $6,325 million to $6,700 million in 2012, $3,485 million to $4,085 million in 2013 and $2,175 million to $2,875 million in 2014.

Dividend

Williams plans to make a dividend payout of $1.20 per share for 2012, up about 55% from the 2011 levels. For 2013 and 2014, dividend is expected to improve 20% each year to $1.44 and $1.75 per share, respectively, aided by benefits from the fee-based business and the commencement of new projects.

Acquisition

Williams Partners entered into an agreement with Williams Companies to purchase its 83% stake in Geismar olefins production facility and refinery-grade propylene splitter for $2.264 billion. It will also acquire Williams’ pipelines in the Gulf region for $100 million.

Our Recommendation

We believe that the upside potential of Williams will remain limited in the coming days and hence maintain a long-term Neutral recommendation on the stock. Williams Companies currently holds a Zacks #3 Rank (short-term Hold rating).
 

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