It has been about a month since the last earnings report for Williams Companies, Inc. (The) (WMB). Shares have lost about 0.7% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Williams Companies, Inc. (The) due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Williams Companies Posts Stronger Q3 Results
Williams Companies reported third-quarter 2018 adjusted earnings from continuing operations of 24 cents per share, outpacing the Zacks Consensus Estimate of 18 cents. The better-than-expected results can be attributed to an increase in service revenues on the back of higher volumes in the Northeast and Transco expansion projects. Further, the bottom line improved from the prior-year figure of 15 cents per share.
For the quarter ended Sep 30, 2018, Williams reported revenues of $2,303 million, beating the Zacks Consensus Estimate of $2,164 million. Further, revenues also increased from the year-ago figure of $1,891 million.
Distributable cash flows came in at $768 million, up 27.3% from the year-ago quarter. Adjusted EBITDA came in at $1,196 million in the quarter under review compared with $1,113 million in the third quarter of 2017.Cash flow from operations totaled $746 million compared with $705 million in the prior-year period. Higher revenues from Transco projects drove the cash flow in the quarter. Other expansionary projects, namely Atlantic Sunrise project and Gulf Connector, will keep up the cash flow momentum.
Williams completed the merger with its midstream arm Williams Partners on Aug 10, following which the company reports results under four segments.
Atlantic-Gulf: This segment, comprising Williams' Transco Pipeline and properties in the Gulf Coast region, generated adjusted EBITDA of $480 million compared with $431 million recorded in the year-ago quarter. Transco's "Big 5" expansion projects (Gulf Trace, Hillabee Phase 1, Dalton, New York Bay and Virginia Southside II), which became functional in 2017, along with a few others that came online this year drove the results of the company.
West: The segment, including Northwest pipeline and operations in various regions such as Colorado, Mid-Continent, Haynesville Shale, among others, delivered adjusted EBITDA of $424 million, nominally lower than $426 million recorded in the year-ago quarter.
Northeast G&P: This segment engages in natural gas gathering and processing, along with NGL fractionation business in Marcellus and Utica shale regions. The segment generated adjusted EBITDA of $281 million, up 14.2% from the corresponding quarter of last year. Higher volumes from Susquehanna and Ohio River systems led to improved results.
Others: The segment posted adjusted EBITDA of 11 million compared with $10 million reported in the third quarter of 2017.
Total costs and expenses increased 11.4% to $1,802 million in the reported quarter compared with $1,617 million in the prior-year quarter. The increased costs were primarily driven by higher product costs, general/administrative expenses and processing commodity charges.
Capital Expenditure & Balance Sheet
During the reported quarter, Williams' capital expenditure was $769 million. As of Sep 30, 2018, the company had cash and cash equivalents of $42 million. Its long-term debt was $21,409 million, representing a debt-to-capitalization ratio of 57.8%.
The company reiterated its guidance for 2018 and 2019. Williams expects its adjusted EBITDA for 2018 within $4,450-$4,650 million. It expects distributable cash flow in the range of $2,600-$2,900 million. The coverage ratio is expected between 1.52 and 1.70 in 2018.
For 2019, Williams anticipates its adjusted EBITDA in the band of $4,850-$5,150 million, with distributable cash flow within $2,900-$3.300 million. The coverage ratio is expected to be around 1.68.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
At this time, Williams Companies, Inc. (The) has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions has been net zero. Notably, Williams Companies, Inc. (The) has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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