Williams Companies (WMB) reported slightly better first quarter 2011 results, reflecting positive production figures partially offset by high operating costs.
Earnings per share, excluding special items, came in at 36 cents, beating the Zacks Consensus Estimate by a penny and at par with year-ago quarter’s results.
The company generated revenues of $2.58 billion, surpassing our expectation of $2.56 billion. However, compared with the prior-year quarter, revenues decreased a marginal 0.6% from $2.59 billion.
The company registered a total adjusted segment profit of $589 million in the quarter compared with $590 million in the prior-year quarter.
Segment Analysis
From first quarter 2011, Williams is reporting its results through four segments: Williams Partners, that includes the company’s 84% owned master limited partnership Williams Partners L.P. (WPZ); Exploration & Production (E&P); Other; and the newly, formed Midstream Canada & Olefins (showing the company’s Canadian midstream and domestic olefins business results).
Williams Partners: This segment reported adjusted operating profit of $437 million in the quarter, up from the year-ago level of $419 million, based on strong contributions from gas pipeline business coupled with higher fee-based revenues and higher per-unit NGL margins in the midstream business.
E&P: In the E&P business, total production increased 6.0% year over year to 1.21 billion cubic feet equivalent per day (Bcfe/d), aided by robust volume growth in the Piceance Basin (up 12.0% year over year) and domestic arena (up 6.0% year over year), partially offset by poor performance in Powder River Basin (down 5.0% year over year).
Williams’ domestic average realized natural gas price dropped to $5.34 per thousand cubic feet equivalent (Mcfe) in the first quarter from $5.77 Mcfe in the prior-year period.
Segment operating profit (excluding non-cash impairment charges) plunged 52.1% year over year to $69 million, hurt by higher operating expenses as well as increased gathering and processing charges.
Midstream Canada & Olefins: The segment registered quarterly adjusted operating profit of $74 million, up from $20 million in the first quarter of 2010. This year-over-year improvement can be attributed to higher per-unit margins on Geismar ethylene, Canadian propane and propylene, and products produced from Canadian butylene/butane mix product.
Other: The segment’s adjusted operating profit was $9 million, against $7 million in the prior-year quarter.
Capital Expenditure & Balance Sheet
During the quarter, Williams incurred a capital expenditure of almost $526 million, of which 60.6% was targeted toward the E&P business segment.
As of March 31, 2011, the partnership had cash and cash equivalents of about $923 million and debt of $9.10 billion, representing a debt-to-capitalization ratio of 54.7%.
Dividend Hike
Recently, Williams announced a 60% increased quarterly dividend of 20 cents (an annualized payout of 80 cents). The company intends to raise its quarterly dividend payment 10 % to 15% yet again by mid 2012.
Guidance
Management increased its 2011 and 2012 earnings guidance by 11%, to $1.25–$1.85 and $1.45–$2.45, respectively. Williams expects to generate total adjusted operating profit of $2.20 billion to $2.92 billion in 2011 and $2.37 billion to $3.57 billion in 2012.
Capital expenditure is expected to be around $3.27 billion to $3.97 billion for 2011 and between $3.20 billion and $4.40 billion for 2012.
Our Recommendation
We believe that Williams offers a strong business mix, attractive growth opportunities in its low-risk upstream model and relatively stable fee-based midstream services. However, the company remains exposed to oil and gas prices, which are inherently volatile and subject to complex market forces. Hence, we see the limited upside potential to the shares and maintain our long-term Neutral rating.
WILLIAMS COS (WMB): Free Stock Analysis Report
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