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Costs, NGL Margins Hit Williams' 4Q

Zacks Equity Research

North American energy firm Williams Companies Inc. (WMB) reported weak fourth-quarter 2012 results, hamstrung by lower natural gas liquid (NGL) margins along with higher development cost related to earlier acquisition.

Earnings per share – excluding special items – came in at 25 cents, below the Zacks Consensus Estimate of 26 cents and also down from the year-ago period adjusted profit of 36 cents. Revenues of $1,900.0 million were down 9.6% from the fourth quarter of 2011 and were also short of our projection of $2,105.0 million.

Segmental Analysis

Williams Partners: This segment reported adjusted operating profit of $449.0 million in the quarter, down from the year-ago level of $542.0 million. Segment performance was hurt by deteriorating NGL prices, coupled with rising expenses.

Williams NGL & Petchem Services: The unit registered a quarterly adjusted operating profit of $27.0 million, smaller than the $35.0 million recorded in the fourth quarter of 2011. Decline in Canadian NGL and propylene product margins, partially offset by increased propylene sales volumes, lowered the quarter results.

Other: The segment incurred adjusted loss of $12.0 million, against the prior-year quarter profit of $1.0 million.

Capital Expenditure & Balance Sheet

During the quarter, Williams’ capital expenditure was $877.0 million, bringing the full-year spending to $2,529.0 million.

As of Dec 31, 2012, the company had long-term debt of $10,735.0 million, representing debt-to-capitalization ratio of 69.3%. Williams has a current cash balance of about $839.0 million.


For 2013, Williams guided toward earnings per share in the range of 75 cents–$1.15 (indicating a mid-point of 95 cents). The same for 2014 is projected to be between $1.20 and $1.70 (midpoint is $1.45). The influence of lower expected commodity margins will likely put pressure on the company’s earnings in the next two years.

Williams expects to generate total adjusted operating profit of $1,700–$2,250 million in 2013 and $2,475–$3,175 million in 2014.

Capital and investment expenses are projected to be in the range of $3,975–$4,575 million in 2013, while for 2014 it is expected to be between $2,400 million and $3,100 million.

Williams also reaffirmed its pledge to hike dividend payout by 20% annually through 2014.

Stocks to Consider

Williams currently carries a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Meanwhile, one can look at other energy production/pipeline entities like Atlas Energy L.P. (ATLS), Crestwood Midstream Partners L.P. (CMLP) and SemGroup Corp. (SEMG) as attractive investments. All these firms – sporting a Zacks Rank #1 (Strong Buy) – offer value and are worth accumulating at current levels.

Read the Full Research Report on WMB

Read the Full Research Report on ATLS

Read the Full Research Report on SEMG

Read the Full Research Report on CMLP

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