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Transco Growth Projects to Aid Williams' (WMB) Q4 Earnings

Zacks Equity Research

The Williams Companies, Inc. WMB is set to release fourth-quarter 2019 results after the closing bell on Wednesday, Feb 19. The current Zacks Consensus Estimate for the to-be-reported quarter is a profit of 25 cents per share on revenues of $2.1 billion.

Let’s delve into the factors that might have influenced the company’s performance in the December quarter. But it’s worth taking a look at Williams’ previous quarter performance first.

Highlights of Q3 Earnings & Surprise History

In the last reported quarter, the energy infrastructure provider beat the consensus mark on strong contribution from its Atlantic-Gulf and Northeast G&P segments. Williams reported adjusted earnings per share of 26 cents that surpassed both the Zacks Consensus Estimate and the prior-year profit by 2 cents. However, for the quarter ended Sep 30, the company’s revenues of $2 billion lagged the Zacks Consensus Estimate of $2.09 billion and also decreased 13% from $2.30 billion a year ago owing to weaker West segment sales.

As far as earnings surprises are concerned, the Tulsa, OK-based company missed the Zacks Consensus Estimate in two of the last four reports, with the average negative surprise being 0.15%. This is depicted in the graph below:

Williams Companies, Inc. (The) Price and EPS Surprise

Williams Companies, Inc. (The) Price and EPS Surprise

Williams Companies, Inc. (The) price-eps-surprise | Williams Companies, Inc. (The) Quote

Factors to Consider

Williams’ ‘Atlantic-Gulf’ and ‘Northeast G&P’ segments — which collectively represents almost 75% of the company’s adjusted EBITDA — are likely to have performed well in fourth-quarter 2019. The Atlantic-Gulf unit showed year-over-year improvement of $131 million or 27.3% in adjusted EBITDA in the third quarter, while the company’s Northeast G&P business grew by $62 million or 22.1%. 

Thanks to the expansion projects around Transco (the country's largest gas transmission system and Williams’ core project) being placed into service in over the past few years and the additional volumes from these takeaway infrastructures on the back of record drilling activity, the company is likely to have experienced continued strength in Atlantic-Gulf revenues in the fourth quarter.

In particular, the completion of the Atlantic Sunrise project – the biggest expansion project in the history of Transco – is likely to have contributed to substantial incremental fee-based revenue and driven EBITDA growth.

On the other hand, the Northeast G&P unit is expected to reflect the impact of higher volumes triggered by rising natural gas production from Marcellus and Utica shales.

Why a Likely Positive Surprise?

Our proven model predicts an earnings beat for Williams this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Williams has an Earnings ESP of +6.78% and a Zacks Rank #3.

Other Stocks to Consider

Williams is not the only energy company looking up this earnings cycle. Here are some other firms from the space you may want to consider on the basis of our model, which shows that they have the right combination of elements to post earnings beat this season:

Sunoco LP SUN has an Earnings ESP of +3.35% and a Zacks Rank #1. The partnership is scheduled to release earnings on Feb 19.

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

Cimarex Energy Co. XEC has an Earnings ESP of +1.25% and is Zacks #3 Ranked. The firm is scheduled to release earnings on Feb 19.

QEP Resources, Inc. QEP has an Earnings ESP of +15.79% and is Zacks #3 Ranked. The company is scheduled to release earnings on Feb 26.

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