Williams Companies (WMB) issued lower earnings forecast for the second quarter as well as provided profit guidance for the next three years.
Williams – which will release its second quarter results on August 1, after the close of trading – expects its earnings per share to be approximately 21 cents, significantly lower than 39 cents earned in the previous quarter and 29 cents generated in the prior-year period.
The deteriorating market condition of natural gas liquids (NGL) in the months of May and June at the Williams Partners L.P. (WPZ) is the prime reason for the expected drop in earnings. Other factors impacting the quarter’s results are steeper maintenance expenses at various units, reduced Canadian sales volume and higher acquisition related costs.
For 2012, Williams guided earnings per share in the range of $1.05–$1.25 (indicating a mid-point of $1.25) versus the earlier guidance of $1.20–$1.60. The same for 2013 is projected at $1.20–$1.55 (midpoint is $1.38), against the earlier forecast of $1.35–$1.75. The influence of NGL prices will likely pull down the earnings level in the next two years.
The company expects earnings in the range of $$1.70–$2.20 (with a mid-point of $1.95) for 2014 as against the previously guided range of $1.55–$2.10. The forecasted figure is nearly 59% higher than 2011’s earnings of $1.23 per share. A favorable mix of natural gas and ethylene spread is expected to boost William’s performance in 2014.
The Zacks Consensus earnings estimate for the second quarter is 21 cents per share, while that for 2012 and 2013 are $1.22 and $1.38, respectively.
Tulsa, Oklahoma-based Williams expects to generate total adjusted operating profit of $1,900 million to $2,225 million in 2012, $2,125 million to $2,675 million in 2013 and $2,825 million to $3,475 million in 2014.
The company has a capital expenditure budget between $6,460 million and $6,860 million for 2012, $3,325 million and $3,925 million for 2013 and $2,250 million and $2,950 million for 2014.
Williams plans to make a dividend payout of $1.20 per share in 2012, up 55% from the 2011 levels. For 2013 and 2014, dividend is expected to improve 20% each year to $1.44 and $1.75 per share, respectively, aided by benefits from the fee-based business and the commencement of new projects.
Williams also entered into an agreement with Williams Partners, whereby the former will transfer its 83.3% interest as well as operating rights of the olefins-production facility in Geismar, Louisiana to the latter.
The facility, located in south of Baton Rouge, operates as a light-end natural gas liquid cracker with an annual production capacity of 1.35 billion pounds of ethylene. The unit produces 37,000 barrels of ethane and 3,000 barrels of propane daily.
Williams Partners will issue limited-partner units to Williams to finance the transaction. Williams controls 68% of Williams Partners, which includes the general-partner interest.
We maintain a long-term Neutral recommendation on Williams that is supported by a Zacks #3 Rank (short-term Hold rating).
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