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Williams Companies (WMB) Q4 Earnings: Will It Disappoint?

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The Williams Companies, Inc. (WMB - Free Report) is set to release fourth-quarter 2017 results after the closing bell on Feb 14.

In the preceding quarter, the Tulsa, OK-based company reported a negative earnings surprise of 21.05% owing to higher impairment charges and unfavorable changes in income tax provision.

Coming to the earnings surprise history, Williams Companies has a dismal record. The company missed estimates in three of the trailing four quarters, with an average miss of 24.47%.

 Let’s see how things are shaping up for this announcement.

Factors at Play

Williams Companies’ extensive natural gas exposure raises its sensitivity to the commodity’s price. Natural gas prices ended the quarter at $2.95 MMBtu compared with $3.72/MMBtu in the year-ago quarter, reflecting a decline of around 20.7%. The weakness in the natural gas prices is likely to have an adverse effect in the volumes and revenues of William Partners LP , the company’s largest income generating segment.

The analysts polled by Zacks expect revenues of $2,157 million for the quarter compared with $2,198 million in the prior-year quarter.

We believe that the company could benefit from increasing volumes and processing margins from the Transco pipeline expansion projects placed into service in 2017. However, the company’s overall results could be offset by the higher operating and maintenance costs for making the project functional. 

While the company is expected to benefit from its Northeast G&P operating region on the back of high throughput volumes and acquisition of stakes in two Marcellus Shale gathering systems from Western Gas Partners, LP (WES - Free Report) , it is likely to suffer from decreased earnings from its West operating area. 

The company posted weaker year-over-year earnings from the segment in the third quarter and the trend is likely to continue in the fourth quarter owing to weaker drilling activities in Barnett shale and Eagle Ford shale among others.  Further, the company is also likely to be affected by lower throughput volumes due to its divestments of Geismar Plant and Canadian assets.

We are also concerned of Williams Companies’ high profile gas project, the Constitution Pipeline, which is suffering from constant regulatory setbacks. The pipeline has been denied water permit by both FERC and New York DEC on environmental grounds, crushing the hopes of the company to make it online by 2019, thereby diluting the near-term earnings outlook.

Finally, we also remain concerned of the high leverage metrics of the company (more than 71%) which further restricts the financial flexibility of the firm and limits growth.

Earnings Whispers

Our proven model does not conclusively show that Williams Companies is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

That is not the case here as you will see below.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 0.00%. This is because the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 20 cents.

Zacks Rank: Williams Companies currently carries a Zacks Rank #4 (Sell). Note that we caution against a Zacks Ranks #4 or 5 (Strong Sell) stock going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stock to Consider

While an earnings beat looks uncertain for Williams Companies, here is a firm from the same industry that you may want to consider as it has the right combination of elements to post an earnings beat this quarter.

Enbridge (ENB - Free Report) has an Earnings ESP of +3.88% and a Zacks Rank #3. The midstream operator is anticipated to release fourth-quarter earnings on Feb 16. You can see the complete list of today’s Zacks #1 Rank stocks here.

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