Williams Partners L.P. (WPZ) registered fourth-quarter 2010 earnings of 76 cents per limited-partner unit, beating the Zacks Consensus Estimate of 72 cents on higher natural gas liquid (NGL) margins in its midstream business.
However, quarterly earnings were below the year-earlier earnings of 99 cents. Full-year 2010 earnings also dropped 7.6% year over year to $2.66 per unit but was well ahead of the Zacks Consensus Estimate of $2.56.
Total revenue increased 14% year over year to $1,498 million, but missed the Zacks Consensus Estimate of $1,505 million. Full-year 2010 revenue came in at $5,715 million, up 24% on an annualized basis and ahead of the Zacks Consensus Estimate of $5,545 million.
Notably, Williams Partners’ distributable cash flow (DCF) in the quarter was $335 million, compared with $68 million in the year-ago period. Importantly, the partnership’s 2010 DCF increased substantially to $1,164 million from $191 million in 2009. The improvement in DCF was largely on the back of first-quarter 2010 asset contribution transactions that led to a growth in the partnership.
The partnership increased its quarterly cash distribution 11% year over year to 70.25 cents per unit. Williams Partners also expects to increase distributions to its limited-partner unitholders by approximately 6% to 10% annually.
On a comparative note, yesterday, the partnership’s peer group, Enterprise Products Partners LP (EPD) reported lower-than-expected fourth quarter 2010 earnings. However, Enterprise increased its quarterly distribution 5.4% year over year to 59 cents per common unit, or $2.36 per unit on an annualized basis.
Segment Performance
Consolidated adjusted segment profit was $426 million in the quarter, up 9.5% from the year-ago level of $389 million.
Gas Pipeline: The segment reported profits of $159 million in the fourth quarter and $637 million in the full year, compared with year-earlier levels of $160 million and $635 million, respectively. Higher transportation revenues from the Transco expansion projects were offset by lower other service revenues and higher operating costs.
Midstream Gas & Liquids: The segment’s profits declined almost 2% year over year to $259 million in the reported quarter. However, on a full-year basis, the segment’s profit grew 37% year over year to $937 million in 2010, owing to higher per-unit NGL margins.
Outlook
We believe William Partners is well positioned for future growth owing to its geographically diverse assets, a sizable project backlog as well as its sound distribution history. Moreover, its midstream business continues to progress on a number of ongoing organic expansion projects and tracks several growth opportunities within its onshore and Gulf of Mexico businesses.
On average, William Partners expects its total capex to be around $1.7 billion and $1.3 billion for 2011 and 2012, respectively.
Williams Partners’ recently concluded consolidation program will allow it to simplify its structure, pay down debt and drive growth. Moreover, the partnership’s broad exposure to the high-return Marcellus Shale play is expected to be accretive in the long run.
However, we believe these favorable attributes are already reflected in the partnership’s valuation. Hence, we maintain our long-term Neutral recommendation for Williams Partners, which is supported by a Zacks #3 Rank (short-term Hold rating).
ENTERPRISE PROD (EPD): Free Stock Analysis Report
WILLIAMS PTNRS (WPZ): Free Stock Analysis Report
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