Williams Partners L.P. (WPZ) reported its second-quarter 2010 earnings of 66 cents per limited-partner unit, compared with the Zacks Consensus Estimate of 77 cents and year-earlier earnings of 48 cents. Net income was $170 million in the quarter, up substantially from $26 million in the second quarter 2009.
The positive comparison with the year-earlier quarter was driven by higher natural gas liquid (NGL) margins in the midstream business, substantially offset by higher interest expense associated with asset contribution transactions with Williams Companies (WMB), which closed in the first quarter 2010.
Total revenue as reported by the company increased more than 26% year over year to $1.4 billion, but missed the Zacks Consensus Estimate of $1.6 billion.
Distributable Cash Flow
In the reported quarter, Williams Partners’ distributable cash flow (DCF) attributable to partnership operations was $316 million, compared with $31 million in the year-ago period. The substantial increase in DCF was largely on the back of first-quarter 2010 asset contribution transactions that led to a growth in the partnership.
Importantly, the partnership has increased its cash distribution to 67.25 cents per unit, representing a comfortable coverage ratio of 1.43x. Management has provided a distribution coverage ratio up to 2012, which shows an increasing trend.
Segment Performance
Consolidated segment operating profit was $346 million in the quarter, up from the year-ago level of $285 million, primarily driven by higher natural gas liquid (NGL) margins from its midstream business.
Gas Pipeline: The segment covers the partnership’s interstate natural gas pipelines and pipeline joint venture investments, as well as the partnership’s ownership interest in Williams Pipeline Partners L.P. (WMZ).
The segment reported profits of $148 million, down nearly 5% from the year-earlier quarter, due to decreases in other service revenues, partially offset by an increase in transportation revenues from expansion projects.
Midstream Gas & Liquids: The segment includes the partnership’s natural gas gathering, treating and processing business and comprises several wholly-owned and partially-owned subsidiaries.
The segment’s profits surged approximately 52% year over year to $198 million in the reported quarter. The improved result mainly reflects higher per-unit NGL margins compared with the recession-driven, low NGL margins in second-quarter 2009. Higher average NGL prices, partially offset by higher natural gas prices, drove the increase in 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, leverage to positive NGL fundamentals, as well as healthy distribution coverage. Moreover, its midstream business continues to progress on a number of ongoing organic expansion projects and tracks several growth opportunities in its onshore and Gulf of Mexico businesses. For this, William Partners expects to fund $1.5 billion, $1.0 billion and $980 million for 2010, 2011 and 2012, respectively, on average. However, all these positives are already priced in, leaving little room for further upside.
WILLIAMS COS (WMB): Free Stock Analysis Report
WILLIAMS PIPELN (WMZ): Free Stock Analysis Report
WILLIAMS PTNRS (WPZ): Free Stock Analysis Report
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