Williams Companies, Inc. (The) (WMB) Down 50.9% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Williams Companies, Inc. (The) (WMB). Shares have lost about 50.9% 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 its most recent earnings report in order to get a better handle on the important drivers.

Williams Q4 Earnings Miss by a Penny

Williams Companies 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.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision flatlined during the past month.

VGM Scores

Currently, Williams Companies, Inc. (The) has a strong Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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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