Williams Companies
(
WMB
) announced stellar first quarter 2012 results, backed by strong
performances from fee based business units along with substantial
margin growth.
For the first quarter, Williams' earnings per share, excluding
special items, came in at 39 cents, breezing past the Zacks
Consensus Estimate of 36 cents. Comparing year over year, earnings
improved 39.3% from 28 cents.
The company generated revenues of $2,019 million, ahead of our
expectation of $1,847 million. Quarterly sales also climbed 7.9%
from prior-year level of $1,871 million.
Total adjusted segment profit was $598 million in the quarter,
up 15% year over year.
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
); Midstream Canada & Olefins; and Other.
Williams Partners:
This segment reported adjusted operating profit of $489 million in
the quarter, up from the year-ago level of $437 million, reflecting
a well-performing gas pipeline business (attributed to strong
contributions from the expansion projects) along with higher
fee-based revenues and natural gas liquids (
NGL
) margins in the midstream business.
Midstream Canada & Olefins:
The segment registered quarterly adjusted operating profit of $103
million, higher than $74 million recorded in the first quarter of
2011. This year-over-year improvement can be attributed to higher
volumes as well as improved per-unit margins on Geismar
ethylene.
Other:
The segment's adjusted operating profit was $6 million, as against
$9 million in the prior-year quarter.
Capital Expenditure & Balance Sheet
During the quarter, Williams incurred a capital expenditure of
$329 million, of which almost 78% was invested in Williams
Partners. As of March 31, 2012, the partnership had cash and cash
equivalents of about $1,100 million.
Guidance
Williams guided earnings per share in the range of $1.20-$1.60
(versus $1.15-$1.55 earlier) for 2012, $1.35-$1.75 (unchanged from
the last guidance) for 2013 and $1.55 - $2.10 (against the previous
forecast of $1.55-$2.05) for 2014.
Williams expects to generate total adjusted operating profit of
$2,075 million to $2,700 million in 2012, $2,350 million to $3,000
million in 2013 and $2,625 million to $3,375 million in 2014.
Capital expenditure is projected to average $6,600 million for
2012, $3,075 million for 2013 and $2,375 million for 2014.
Dividend
Williams plans to make a dividend payout of $1.20 per share for
2012, up 55% from the 2011 levels. For 2013 and 2014, dividend is
expected to improve 20% each year.
Our Recommendation
We believe that Williams will be able to generate highly visible
cash flow and dividend growth over the next several years through
strong operational performances by its business units. We
also expect the recent strategic restructuring to further enhance
the company's value by improving the competitiveness of the
midstream and gas pipeline assets.
However, we remain worried about low natural gas prices, which
are likely to restrict near-term growth prospects at Williams. We
also apprehend that the upside potential of the company will remain
limited until it has fully reaped the benefits of the spin-off.
Hence, we maintain a long-term Neutral recommendation on the
stock that is supported by a Zacks #3 Rank (short-term Hold
rating).
WILLIAMS COS (
WMB
): Free Stock Analysis Report
WILLIAMS PTNRS (
WPZ
): Free Stock Analysis Report
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