Williams (WMB) Misses Q4 Earnings Estimates, Tops On Revenues

The Williams Companies, Inc. (NYSE:WMB) reported fourth-quarter 2019 adjusted earnings per share (EPS) of 24 cents, missing the Zacks Consensus Estimate by a penny owing to weaker West segment performance.

However, the bottom line was above the year-earlier quarter's adjusted earnings of 19 cents on strong contribution from the energy infrastructure provider’s Atlantic-Gulf and Northeast G&P units. On a further encouraging note, Williams’ gathered volumes were up 10% year over year to a record 13.3 billion cubic feet per day (Bcf/d), while reserved transportation capacity improved 8% from the corresponding period of 2018 to 21.8 Bcf/d – another all-time high.

Meanwhile, for the quarter ended Dec 31, the company’s revenues of $2.1 billion beat the Zacks Consensus Estimate by 2% but decreased from $2.2 billion a year ago.

Key Takeaways

Distributable cash flows came in at $828 million, up 10.7% from the year-ago number of $748 million. Adjusted EBITDA was $1.3 billion in the quarter under review compared with $1.2 billion in the corresponding period of 2018. Cash flow from operations totaled $991 million compared with $962 million in the prior-year period. Higher revenues from Transco expansion projects drove cash flow in the quarter.

Segmental Analysis

Atlantic-Gulf: Comprising Williams’ Transco Pipeline and properties in the Gulf Coast region, the segment generated adjusted EBITDA of $570 million, up 7.8% from $529 million in the year-ago quarter. This improved performance was driven by service revenue gains from the expansion projects around Transco (the country's largest gas transmission system and Williams’ core initiative) being placed into service over the past few years. Apart from additional volumes from these new takeaway infrastructures – Gulf Connector, Gateway expansion, and Rivervale South to Market – on the back of healthy drilling activity, benefit of positive resolution of Transco’s general rate case also favored segment profitability.

West: This segment includes the Northwest pipeline and operations in various regions, such as Colorado, Mid-Continent and Haynesville Shale among others. It delivered adjusted EBITDA of $336 million, which is 6.1% lower than $358 million recorded in the year-earlier quarter. Lower revenues in Barnett Shale and the Mid-Continent region, together with asset sales, impacted the results.

Northeast G&P: Engaged in natural gas gathering and processing along with the NGL fractionation business in Marcellus and Utica shale regions, the segment generated adjusted EBITDA of $377 million, up 24% from the prior-year quarter’s $304 million. Expanded volumes from the Susquehanna Supply Hub and higher service revenues from Ohio Valley and the Utica Shale regions, along with the acquisition of Utica East Ohio Midstream drove the results.

Costs, Capex & Balance Sheet

In the reported quarter, total costs and expenses decreased 34% to $1.9 billion from $2.8 billion a year ago owing to lower product expenses and impairments.

Williams’ total capital expenditure was $408 million in the fourth quarter, down substantially from $868 million a year ago. As of Dec 31, 2019, the company had cash and cash equivalents of $289 million and a long-term debt of $20.1 billion with a debt-to-capitalization ratio of 55.2%.

2020 Guidance Reiterated

The company reaffirmed its full-year adjusted EBITDA guidance in the band of $4.95-$5.25 billion with distributable cash flow within $3.05-$3.45 billion. Adjusted EPS view for the year is expected in the range of 95 cents to $1.20. Further, Williams expects to grow its dividend at an annual rate of 5% and aims toward a dividend coverage ratio of 1.7x at the midpoint of its 2020 guidance. Importantly, the company looks to cover its dividend hike and capital spending in 2020 with internally generated cash flows.

Zacks Rank & Stock Picks

Williams holds a Zacks Rank #3 (Hold).

Some better-ranked players in the energy space are Chevron (NYSE:CVX) , Marathon Oil (NYSE:MRO) and Hess Corporation (NYSE:HES) that sport a Zacks Rank #2 (Buy).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Over 30 days, Chevron has seen the Zacks Consensus Estimate for 2020 improve 4.1%.

Marathon Oil has a solid earnings surprise history having surpassed estimates in three of the last four quarters, the average being 190.8%.

The 2020 Zacks Consensus Estimate for Hess represents 93.7% earnings per share growth over 2019.

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