Williams Companies (WMB) reported better-than-expected fourth quarter and full-year 2010 results, reflecting strong contributions from the Williams Partners and Others business units.
Earnings per share, excluding special items, came in at 44 cents, handily beating the Zacks Consensus Estimate of 26 cents and the year-ago quarter earnings of 27 cents. Full-year 2010 earnings from continuous operations were $1.28 per share, surpassing our projection of $1.15. On a year-over-year basis, earnings shot up 36.2%.
The company generated revenue of $2.42 billion in the fourth quarter, failing to meet our expectation of $2.61 billion. However, compared with the prior-year quarter, revenue increased from $2.33 billion. Williams generated total revenue of $9.62 billion in 2010, in line with our projection and 16.5% above prior-year result.
The company registered a total adjusted segment profit of $556 million in the fourth quarter, up 5.9% from the prior year quarter. For full-year 2010, total adjusted segment profit came in at $2.05 billion compared with $1.83 billion in 2009.
Segment Analysis
E&P: In the E&P business, total production decreased 4.0% year over year to 1.19 billion cubic feet equivalent per day (Bcfe/d) in 2010, hurt by lower domestic volumes of 1.13 Bcfe/d (down 4.0% year over year).
In 2010, average daily net production from the Piceance, Powder River and other basins was down approximately 3%, 6% and 5%, respectively, from the prior-year level.
Williams’ domestic average realized natural gas price upped to $5.23 per thousand cubic feet equivalent (Mcfe) in 2010 from $4.85 Mcfe in 2009, somewhat counterbalancing depressed production volumes.
Segment operating profit (excluding non-cash impairment charges) was down 33.6% year over year at $321 million in 2010. Lower natural gas volumes, higher operating expenses along with increased operating taxes affected the segment’s operating income.
Williams Partners: This segment reported an operating profit of $1.54 billion in 2010, up from the year-ago level of $1.29 billion, primarily based on higher natural gas liquid (NGL) margins and improved equity volumes (following full-year production at Willow Creek and start-up of Echo Springs).
Other: For 2010, the segment’s operating profit was $191 million, against $66 million in the prior year. This year-over-year improvement can be attributed to higher production margins from NGL and olefins.
Reserve
As of December 31, 2010, Williams’ total proved natural gas and oil reserves were approximately 4.5 trillion cubic feet equivalent (Tcfe), including international reserves of approximately 0.2 Tcfe. Natural gas accounted for about 94% of the total proved reserves.
Capital Expenditure & Balance Sheet
In 2010, Williams incurred almost $2.7 billion in expenses for its domestic exploration and production business, of which $988 million were targeted toward development drilling and $1.7 billion for growth acquisitions.
As of December 31, 2010, the partnership had debt of $9.11 billion, representing a debt-to-capitalization ratio of 55.6%. Williams has a current cash balance of about $795 million.
Williams Spin-off
In a separate development, Williams approved the separation of its exploration and production business (through an initial public offering of 20% of its common stock) to form an independent publicly traded company. The spin-off is slated for third-quarter 2011.
Following the segregation, the parent company, Williams, will operate as a midstream infrastructure and natural gas pipeline firm in North American, while the newly formed exploration and production company will focus on South America.
Dividend Hike
Williams announced plans to distribute a quarterly dividend of 20 cents (an annualized payout of 80 cents), up 60% from 12.5 cents (or 50 cents annually) in the first quarter of 2011. The company intends to raise its quarterly dividend payment by 10 % to 15% by mid-2012.
Guidance
Management guided earnings per share of $1.05 to $1.20 for full-year 2011 and $1.20 to $2.30 for 2012. Williams expects to generate total adjusted operating profit of $1.95 billion to $2.78 billion in 2011 and $2.13 billion to $3.40 billion in 2012.
Capital expenditure is expected to be around $3.12 billion to $4.12 billion for 2011 and between $2.88 billion and $4.01 billion for 2012.
Williams Companies, the interstate gas pipeline and midstream assets of which are held through its 84% ownership interest in Williams Partners L.P. (WPZ), currently retains a Zacks #3 Rank (short-term Hold recommendation).
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